Question

In: Economics

Suppose that land is specific to corn, capital is specific to automobiles, labor is mobile between...

Suppose that land is specific to corn, capital is specific to automobiles, labor is mobile between sectors, and payments are as follows:
Automobiles: Sales revenue = 200; payments to labor = 100; payments to capital = 100
Corn: Sales revenue = 100; payments to labor = 40; payments to land = 60
Holding the price of automobiles constant, suppose the increase in the price of corn is 20% and the increase in the wage is 10%.
What is the impact of this on the income of land and the income of capital? What has happened to the real income of land? What has happened to the real income of capital? What has happened to the real income of labor?

Solutions

Expert Solution

  • For production of corn: land, labor are used
  • For production of automobiles: capital and labor are used.
  • With the price of the automobiles constant there is increase in the price of corn by 20% and increase in wage is 10%.

IMPACT ON INCOME OF LAND:

Income of land will increase. Because as price increases for labor , they will move towards agricultural (corn) sector. There, the price of automobiles haven't increased nor does the price of capital. On the other hand in production of corn amount of labor will be more now and more labor labor will be there on sae piece of land thus productivity of land will increase and so its income.

INCOME OF CAPITAL :

Income of capital will increase as less labor is available now for the manufacturing sector so more capital will replace labor.

Real income of land will increase whereas real income of labor will decrease as more labor are induced in agricultural sector now. Real income of capital will increase.


Related Solutions

Suppose that land is specific to agriculture, capital is specific to manufacturing, and labor is mobile...
Suppose that land is specific to agriculture, capital is specific to manufacturing, and labor is mobile between sectors. If you know that the nominal rental of capital and labor in manufacturing has fallen, then what can you say about the changes in the prices of manufactured goods and agricultural goods?
Assume that capital is mobile, but labor is specific. That is, assume that labor is not...
Assume that capital is mobile, but labor is specific. That is, assume that labor is not mobile between industries, but capital is mobile between industries. Assume that in autarky, all firms are in equilibrium where w/r = MPL/MPK, and that wages are the same in both industries. In the relatively capital-abundant country, what happens when trade begins to the following variables? I. The real income of wage earners in the labor-intensive industry. J. The real income of wage earners in...
Suppose a country uses Land to produce either wheat or corn. Each unit of Land produces...
Suppose a country uses Land to produce either wheat or corn. Each unit of Land produces either 3 Corn or 4 Wheat. The country has 1200 units of land. a) What is the opportunity cost of corn? b) If the country produces 2400 Wheat, how much Corn can they produce? c) If they increase Corn production by 300 how much will they reduce Wheat production? d) Is the combination 1500 units of Corn and 3200 units of Wheat Efficient, Inefficient...
How is exploitation reflected in the historic struggles between capital and labor? What are some specific...
How is exploitation reflected in the historic struggles between capital and labor? What are some specific focal points of this struggle?
Suppose an economy has enough labor, capital, and land to produce 1,000 apples per year. Apples...
Suppose an economy has enough labor, capital, and land to produce 1,000 apples per year. Apples are the only product of the economy and the price is $10 per apple. In 2019, money supply is $5, 000 and velocity of money is constant. a. State the quantity theory of money. b. Compute nominal GDP and velocity of money in 2019. In 2020, the central bank of the economy increases the money supply by 10%. c. Compute nominal GDP and price...
Suppose low skilled labor and capital are substitutes but high skilled labor and capital are complements....
Suppose low skilled labor and capital are substitutes but high skilled labor and capital are complements. Over the past 45 years the price of capital has dropped substantially because of the computer revolution. Draw and explain 2 labor market diagrams To show what has happened to the demand for high and low skilled labor Now add new supply curves to your diagrams to show the effect of an increase in the number of high skilled workers and a decrease in...
A firm uses skilled labor, unskilled labor, and capital, and is initially in equilibrium. Suppose that...
A firm uses skilled labor, unskilled labor, and capital, and is initially in equilibrium. Suppose that the wage paid to unskilled labor falls, and that unskilled labor is a substitute in production with both skilled labor and capital. Depict in separate graphs of (a) capital and unskilled labor and (b) capital and skilled labor how the original equilibrium choices change in response to the decline in wages paid to unskilled workers. What are the expected impacts on the wage and...
The country of Freedonia produces cars and avocados using capital, which is specific to cars; land,...
The country of Freedonia produces cars and avocados using capital, which is specific to cars; land, which is specific to avocados; and labor, which is mobile between the two sectors. Freedonia has 100 workers, 100 units of capital and 400 acres of land. We assume our framework to be the “Specific-Factors Model”. a) Define the marginal product of labor and the marginal product of land in the avocado sector. [4 marks] b) Draw the production possibilities frontier for Freedonia with...
how are the 4 factors of production (land, labor, capital, and entrepreneurship) used in foreign manufacturing?
how are the 4 factors of production (land, labor, capital, and entrepreneurship) used in foreign manufacturing?
Class, there are four limited resources: land, labor, capital, and entrepreneurial ability.  Given the role of...
Class, there are four limited resources: land, labor, capital, and entrepreneurial ability.  Given the role of the entrepreneur is he/she crucial to the production process?  Provide an example.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT