Answer to Question #138815 in Macroeconomics for nurul nazirah

Question

A recent flood in the kelantan has destroyed much of the farmland that lies in fertile regions near the rivers.Describe the effect of the flood on the marginal productivity of land ,labor and capital

Answer 1

I) In the initial stage, there would be losses, as there would be large scale destruction of farmland, laborer may be rendered homeless, there will be decrease in labour while capital is destroyed. Hence, marginal productivity will diminish.

But in the long run, as there would be natural tilling of land, there would be an increase in productivity of land though in the case of labour and capital the adverse effects cannot be reversed.

II) An Increase in the price of land would occur because land would become a scarce resource. This will decrease the wage rate of labour. Since the land cannot be used for its intended purpose, there is little productivity associated with it and labourers cannot produce much. III) Also the additional cost of rehabilitation, relocation of people and removal of property from flood affected areas can divert the capital required for maintaining production.

The marginal productivity of labour will decrease, marginal productivity of capital will decrease, marginal productivity of land will increase.