Question: Consider two economies, A and B.Both have the same amount of labor, L, and land T, but country A has twice as much capital (K)

Consider two economies, A and B.Both have the same amount of labor, L, and land T, but country A has twice as much capital (K) as country B.

Consider a 2-sector general equilibrium model with agriculture and non-agriculture as the two sectors.You can assume that land is a specific factor in agriculture and capital is a specific factor in non-agriculture.Labor is used in both agriculture and non-agriculture. You can also assume that the two countries have the same production functions for agriculture and non-agriculture.

(a) Write down the production functions for agriculture and non-agriculture.

(b) Assume that the price of the non-agricultural good is one, the price of the agricultural good is p, and MP_L^A is the marginal product of labor in agriculture, and MP_L^B is the marginal product of labor in non-agriculture.Write down the equation for equilibrium in the labor market.

(c) Assume that the prices of the agricultural good (p) and the non-agricultural good (1) are fixed.What does this imply about the relative demand for the agricultural good?

(d) Again, assuming that the prices are fixed, which country has the higher share of the labor force in agriculture? Which country has the higher wage in non-agriculture?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Lynn Price recently completed her MBA and accepted a job with an electronics manufacturing company. Although she likes her job, she also is looking forward to retiring one day. To ensure that her...

Consider two economies, Tonyland and Pacoland; two goods, tomatoes and cotton; and two factors, land and capital. Both goods are produced using constant returns to scale technology. Tomatoes are more...

Which of the following is NOT an assumption of the Hechscher-Ohlin model? Markets are competitive. Technology is the same across countries. The supply of factors of production grows over time....

economic arguments for that position? 9. In this chapter, we saw that financial market integration is necessary for countries to smooth consumption through borrowing and lending. Consider two...

Help me please Recurrent major depressions in the world economy at the pace of 20 and 50 years have been the subject of studies sinceJean Charles Lonard de Sismondi(1773-1842) provided the first...

please help me figure out the question. 2) Consider an extension of the basic HO model that permits free capital movements as well as free trade in goods. Assume that a small open economy produces...

2. Consider permanent migration into a country of destination. (a) To evaluate the welfare impact of permanent immigration, three different approaches had been suggested. What are these approaches?...

Kindly help me solve these Problem 2 (30 pts) Explain your answers! A firm has a production technology involving two inputs, capital (K) and labor (L). /(K; L) - K1/3LV/3. The price of capital is r;...

Consider two countries (England and India) that can produce two goods (cloth and trains) using two factors (labor and capital). The technology to produce each good is the same in either country and...

Q1) Consider two economies (indexed byi=1, 2) described by Yi(t)=Ki(t) andKi(t)=siYi(t), where >1. Suppose that the two economies have the same initial value ofK, but thats1>s2. Show thatY1/Y2is...

7. Suppose a smail open country can produce two goods, apples and chairs. Labor (I) is used for both goods. while land (T) is the specic factor used in apple production and capital (K) is the specic...

Selected financial statement data for Best Buy Co., Inc., The Kroger Co., Nordstrom, Inc., Staples, Inc., and Walgreen Co. is presented in the following table: ($ millions) Best Buy Kroger Nordstrom...

Why do you think many quantitative analysts don't like to participate in the implementation process? What could be done to change this attitude?

Tort Law addresses wrongs between private parties and lawsits based on tort law are filed in civil court not criminal court

Consider two long slender rods of the same diameter but different materials. One end of each rod is attached to a base surface maintained at 100C, while the surfaces of the rods are exposed to...

A 10-kg slender rod of length L is attached to collars which can slide freely along the guides shown. Knowing that the rod is in equilibrium and that =25, determine (a) The angle that the rod forms...

Shown are a mast and a portion of the rigging of a schooner. Members CD and EF lie in the same plane, and CD is of length 7.5 m and forms an angle of 45°with a vertical line drawn through C....

It is known that the connecting rod AB exerts on the crank BC a 2.5-kN force directed down and to the left along the centerline of AB. Determine the moment of that force about C. 144 mm 56 im m 42 mm

Steam enters an insulated pipe at 200 kPa and 200°C and leaves at 150 kPa and 150°C. The inlet-to-outlet diameter ratio for the pipe is D1/D2 =1.80. Determine the inlet and exit velocities of...

Which type of authentication involves verifying the identity using a digital certificate? Password - based Biometric Certificate - based Token - based

1. To generate a discussion on the concept of roles

6. What information processes operate in communication situations?

3. How can we use information and communication to generate trust?