7 A recent flood in Queensland has destroyed much of the far

7. A recent flood in Queensland has destroyed much of the farmland used to cultivate bananas and tomatoes that lies in fertile regions near the rivers. Describe the effect of the flood on the marginal productivity of land, labour and capital. How would the flood affect the price of inputs? Provide some examples.

Solution

Answer:

Farmland in itself is an input in cultivation . Flood will have a double edged impact on productivity . In the initial stage, there would be losses, as there would be large scale destruction of farmland, Labour may be rendered homeless while capital destroyed. Hence Marginal Productivity would diminish. Input prices would increase as there would be a dearth of inputs. But we must as well remember that, floods raise productive capacity of the land once and when the flood subsides. Thus in the long run, as there would be natural tilling of land via exogenic forces, there would be an increase in productivity of land. But the losses incurred to Labour and capital can\'t be revived in same manner. A flood can be a huge catastrophe. livestock may be hampered, population may be wiped out and huge chunks of land may be carried away by the river itself. Millions would be rendered homeless. All these serve as inputs in production. So once hampered, the input prices are sure to soar sky high.