Question

4. Ricardian Corn Theory of Rent (Show your work)

Assume that there are parcels of land with three levels of fertility. There are 300 acres of quality 1 land that produces 200 bushels of corn per acre with one dose of labor-capital. There are 200 acres of quality 2 land that produces 150 bushels of corn per acres with one dose of labor capital. There are 100 acres of land of quality 3, which produces 100 bushels of corn per acre with one dose of labor capital. Assume that only one dose of labor-capital can be applied to each acre of land. One dose of labor-capital includes 1 worker working for a year. The subsistence level of consumption for a worker is 75 bushels of corn per year.

Now assume that population is such that 75,000 bushels of corn are required.

In the simplest case, what will be the distribution of value of the bushels of corn (i.e., how many bushel equivalents do the landlords, capitalists, and workers receive)?

What percentage of the total production goes to each class?

Now assume that the population grows such that 95,000 bushels are now required. How many bushel-equivalents does each class receive?

What percentage of the total production goes to each class?

Answer 1

Given that,

The subsistence level of consumption for a worker is 75 bushels of corn per year.

Quality 1 land = 300 acres: Produces 200 bushels of corn per acre

Maximum bushels of corn that can be produced:

= 300 acres * 200 bushels per acre

= 60,000 bushels of corn

Labor required to produce this quantity of corn = 300

Consumption by labor = 300 * 75

                                        = 22,500

Quality 2 land = 200 acres: Produces 150 bushels of corn per acre

Maximum bushels of corn that can be produced:

= 200 acres * 150 bushels per acre

= 30,000 bushels of corn

Labor required to produce this quantity of corn = 200

Consumption by labor = 200 * 75

                                        = 15,000

Quality 3 land = 100 acres: Produces 100 bushels of corn per acre

Maximum bushels of corn that can be produced:

= 100 acres * 100 bushels per acre

= 10,000 bushels of corn

Labor required to produce this quantity of corn = 100

Consumption by labor = 100 * 75

                                        = 7,500

Required quantity of corn by the population = 75,000 bushels;

So, the optimal solution will be as follows:

Quality 1 land will produce fully and Quality 2 land will produce half.

Hence,

Quality 1 landlords produces = 60,000 bushels of corn

Quality 2 landlords produces = (30,000 / 2)

                                           = 15,000

Therefore, the consumption by the workforce is as follows:

= (60,000 – consumption by labor) + (15,000 – half consumption by labor)

= (60,000 – 22,500) + (15,000 – 7,500)

= 37,500 + 7,500

= 45,000 bushels

Percentage of total production goes to quality 1 land parcel:

= (60,000/75,000) * 100

= 80%

Percentage of total production goes to quality 2 land parcel:

= (15,000/75,000) * 100

= 20%

Percentage of total production goes to quality 3 land parcel:

= 0%

Now, Required quantity of corn by the population = 95,000 bushels;

So, the optimal solution will be as follows:

Quality 1 land will produce fully, Quality 2 land will produce fully and Quality 3 land will produce half.

Hence,

Quality 1 landlords produces = 60,000 bushels of corn

Quality 2 landlords produces = 30,000 bushels of corn

Quality 3 landlords produces = (10,000 / 2)

                                                     = 5,000

Therefore, the consumption by the workforce is as follows:

= (60,000 – consumption by labor) + (30,000 – consumption by labor) + (5,000 – half consumption by labor)

= (60,000 – 22,500) + (30,000 – 15,000) + (5,000 – 3,750)

= 37,500 + 15,000 + 1,250

= 53,750 bushels

Percentage of total production goes to quality 1 land parcel:

= (60,000/95,000) * 100

= 63.15%

Percentage of total production goes to quality 2 land parcel:

= (30,000/95,000) * 100

= 31.57%

Percentage of total production goes to quality 3 land parcel:

= (5,000/95,000) * 100

= 5.26%