a homework of economics

User Generated

426180_

Economics

Description

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?

Unformatted Attachment Preview

Homework 2 (Due on 12/10/2018 on class) Instructions: Complete the questions for each problem. Answers must be typed. Everybody needs to submit their own assignment and type up their own answers. If you copy another person’s work, or allow another person to copy your own work, that will be considered cheating. Then, you will fail this homework. Problem 1 a) 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? b) 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 a) What is the main difference in prediction between the Lewis model and the Harris-Todaro model on rural to urban migration? b) Given the validity of the Harris-Todaro model, what would you tell a government by creating government-subsidized jobs in its cities? Problem 3 Consider the market for oranges in Israel. Assume the supply and demand lines take the following form: S=20+20P, D=200-10P, where P is the price for oranges. Assume that the world price is equal to $2. Assume that a 50% tariffs is imposed on imported organs. Calculate the welfare loss. In order to do that, it is useful to make a drawing similar to Figure 6.6. Problem 4 Many solutions to informational problems emerge spontaneously as contractual innovations. Is there a role for the formal institution of law with respect to these contractual innovations, and if so, why? Problem 5 Assume that an Indian firm is contacted by a multinational car company to produce brake systems. This requires an initial investment of I from the Indian subcontractor and a variable cost c per braking system. The car company plans to buy n brake systems from the subcontractor. What is the price p at which the Indian subcontractor would break even? At what price 𝑝′ can the car company still convince the subcontractor to produce the systems once it has made the investment? a). When price p0 is equal to marginal cost, then Indian subcontractor will break even. b). Once the specific investments is made, at price p1 Indian subcontractor will be willing to produce if p1 is higher than p0. Problem 6 Write down the problem of cooperation for two countries, A and B, in the fight against climate change and use a payoff matrix as in the case of the prisoner’s dilemma. Payoffs are 𝑦𝐴 (𝑥𝐴 , 𝑥𝐵 ) and 𝑦𝐵 (𝑥𝐴 , 𝑥𝐵 ), where 𝑥𝐴 and 𝑥𝐵 can take two values: 1) if measures are taken in the country against climate change and 2) if no measures are taken. What are the conditions of the payoffs in each cell for each player so that there is a unique Nash equilibrium in which no country takes any action against climate changes? Problem 7 Team Production Two player work together, and each of them has two strategies, shirk or work. Player A a) b) c) d) e) f) Shirk Work Shirk (2,2) (1,3) Player B Work (3,1) (4,4) Does player A have any strictly dominated strategy? If so identify them. Does player B have any strictly dominated strategy? If so identify them. Does player A have a weakly dominant strategy? If so identify them. Does player B have a weakly dominant strategy? If so identify them. Find all pure-strategy Nash equilibrium using best response. Find all Pareto efficient outcomes.
Purchase answer to see full attachment
User generated content is uploaded by users for the purposes of learning and should be used following Studypool's honor code & terms of service.

Explanation & Answer

Attached.

Homework 2
Name of Student
Institution Affiliation
Date

Problem 1
a) 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?
SOLUTION
Lewis mode of unlimited supply
Consider dual economy agriculture emfr

OW is a real wage in agriculture sector
And average product per human
OW is the rate fixed in modern sector, demand for lab increase from MP1 to MP 2
So that marginal product = OW

b) 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.
SOLUTION
Lewis assume that all wages are consumed and profit is reinvented to increase demand
for labor with expansion of modern sector
Thus absorption of surplus labor depends upon distribution of income which is main
source of capital accumulation and only few ends up in agriculture sector.

Problem 2
a) What is the main difference in prediction between the Lewis mod...


Anonymous
Great! 10/10 would recommend using Studypool to help you study.

Studypool
4.7
Trustpilot
4.5
Sitejabber
4.4

Related Tags