Answer to Question #31520 in Microeconomics for cindy

Question

Describe the process by which the market for capital and the market for land reach equilibrium. As part of your description, elaborate on the role of the stock of the resource versus the flow of services from the resource.

Answer 1

Equilibriums in the market for land and capital are governed by the value of marginal product for these factors relative to their
supply. One difference between these markets and the market for labor is that
in land and capital markets there is both a rental value (flow) and purchase
price (stock). The difference between the rental value and purchase price is
reconciled by noting that in efficient markets, the purchase price should
reflect the value of the stream of services provided by the land or capital (or
the sum of rental values appropriately discounted).