Von Thunen

Some Assumptions made by farmers on what they are going to farm:

• A farmer is worried about two costs: 1. …and 2. … (of course the farmer is worried about other things such has yield and climate and disease)

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• Farms that are located closer to their market tend to select crops with higher transportation costs per hectare of output, whereas more distant farms are more likely to select crops that can be transported less expensively.

• A key element of competition and cost is - proximity to the market.

Why does proximity matter:

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Below is a simple scenario on how land will look like depending on what is grown and assuming the Market is at the geographic center. This is the theory developed by Von Thunen.

The Scenario below shows how a river can change the pattern.

Von Thünen Model

Von Thünen’s model shows how distance from a city or market affects the choice of agricultural activity in (a) a uniform landscape and (b) one with a river.

How Geography can change the agricultural pattern

Von Thunen and Rent

• Economic Rent = p – c. This is the simplest look at rent, the object is to break even or lower p or c (depending if you are the producer or consumer).

p = price per unit of outputc = cost per unit of output

• Location Rent = Q(p-c) – Qfk. This is rent derived from location.

Q = Quantity produced per unit of landf = freight rate per unit of outputk = distance to market

Von Thunen’s model was also incorporated into the concept of how rent can be determined for land.

Bid Rent is a geographical economic theory that refers to how the price and demand on real estate changes as the distance towards the CBD increases.

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This theory is based upon the reasoning that the more accessible an area, the more profitable it is going to be. When the cost gets too high certain land uses drop out.

Look over these next few illustrations and see if you can understand them!

Real World Modifications:

• Land is not uniform – mountains, rivers etc.

• Climate is not uniform

• Soil and Vegetation is not uniform

• Countries level of development – eg. Infrastructure

• Fuel Costs

• Government Policies – eg. - Crow Rates (straight line) – Government subsidy to try and reduce transportation costs - discounts, build better and faster transportation networks etc.

• Overall government subsidies to control output and cost. To help farmers in hard economic times – eg. Tobacco farmers in Ontario.

The End!