Real Estate Council of Alberta Fundamentals Practice Exam

Which principle discusses the factors of production that generate net income attributed to the land?

1. Principal of Progression

2. Principal of Surplus Productivity

3. Principal of Competition

4. Principal of Supply and Demand

The correct answer is: Principal of Surplus Productivity

The principle that discusses the factors of production generating net income attributed to the land is the Principle of Surplus Productivity. This principle highlights how land contributes to the production process and can generate income beyond just its basic usage. Essentially, it addresses the idea that land, when combined with labor and capital, can produce a surplus—meaning the income generated from the land surpasses the cost associated with its use. This concept is vital in real estate as it informs investors and stakeholders of the intrinsic value of land, considering its capacity to yield profit when paired with other productive factors. Understanding surplus productivity helps real estate professionals assess the economic potential of a property, as it emphasizes the profitability that can arise from effective land use. Other principles listed, such as the Principle of Progression, focus on the relationships between properties and how the value of a property might increase due to the surrounding properties' worth. Meanwhile, the Principle of Competition speaks to how market dynamics influence pricing and availability, and the Principle of Supply and Demand pertains to how the balance of property supply and buyer demand affects market prices but does not directly address the income-generating aspect of land.