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a.) Assume the price of cloth increases by 10% while the price of food remains un- changed. Draw the effects of this relative price change
a.) Assume the price of cloth increases by 10% while the price of food remains un- changed. Draw the effects of this relative price change into the figures above. What will happen to the output of food and cloth? What will happen to the nominal wage rate (w)? b.) Describe the welfare effects caused by the change in relative final good prices for land- and capital owners as well as for workers. c.) Assume now that due to climate change the land of this country gets less productive (effectively the amount of available land has decreased). Show in the figures below how this affects the wage rate and output in both sectors as well as the production possibilities of that economy. d.) Discuss the effects of climate change on the welfare of workers, land- and capital owners. wage. W
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