a homework of economics

Problem 1

  • Modify the Lewis model and assume that there is a strictly positive marginal product of labor in the traditional sector. Use figures with production functions in the traditional and the modern sectors to show what the equilibrium is when no one wants to move away from agriculture. What assumptions do you have to make about production functions to arrive at the conclusion that fewer people will end up in agriculture?
  • Use the same starting point as in the above question. Derive the demand for labor in the traditional and in the modern sectors. Show graphically what the characteristics of the equilibrium would look like when no one wants to change sectors.

Problem 2

  • What is the main difference in prediction between the Lewis model and the Harris-Todaro model on rural to urban migration?
  • Given the validity of the Harris-Todaro model, what would you tell a government by creating government-subsidized jobs in its cities?
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