Question
1.Consider an agricultural economy of the type envisioned by Ricardo.The regional economy has the following characteristics: i.Land is owned by absentee landlords. ii.All the land
1.Consider an agricultural economy of the type envisioned by Ricardo.The regional economy has the following characteristics:
i.Land is owned by absentee landlords.
ii.All the land in the region in initially farmed by tenant farmers growing indigo (plant used for blue dye).
iii.The price of indigo is determined in international markets.
iv.Each tenant initially pays the landowner 30% of the indigo harvest as rent (this is in quantity terms).
v.Output per acre is initially 1000 units per year and the price of indigo is $2 per unit.
a.What is the rent per acre initially paid by each tenant farmer, in units of indigo and in dollars?Show your calculations.
b.Using the "leftover principle" compute the nonland cost per acre per year. Also define the meaning of the "leftover principle."
c.Draw a diagram that conveys the information from parts (a) and (b).Be careful to identify land rent and nonland input costs in your diagram.
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