Early in the 19th century Johann Heinrich von Thünen (1783-1850) developed a model of land use that showed how market processes could determine how land in different locations would be used. Von Thünen was a skilled farmer who was knowledgable in economics.

It is simplest to explain von Thünen's model in terms of agricultural land use but it is not limited to that land use.

Suppose the land surrounding a city market can be used for:

• truck farms for growing tomatoes
• orchards for growing apples
• wheat farms

The costs for transporting the crops from these uses differ. Let b_x be the cost for transporting the product of one acre of land use x a distance of one mile. Furthermore, suppose

b_tomatoes > b_apples > b_wheat

Let us now plot a graph in which the horizontal axis is the distance from the city and the vertical axis is the land rent that a user can pay. Consider first the land rent tomato growers can pay at various distances from the city. Farmers at greater distances can pay only a lower rent because of the higher transportation costs for hauling their product to the city. The relationship is shown below.

When the tomato farmers are in competition with the apple growers for the land the result is:

When wheat farmers compete with tomato farmers and apple growers the result is:

Putting all of this together:

A modern version of von Thünen's ideas is William Alonso's Bid-Rent Function Theory.