Question
Consider the specific-factors model and use the following information to answer the questions below: Manufacturing: Sales revenue = P M Q M = 150 Payments
- Consider the specific-factors model and use the following information to answer the questions below:
Manufacturing: Sales revenue = PM QM= 150
Payments to labor = W LM= 100
Payments to capital = RK K = 50
Percentage change in Price of manufacturing goods = -10%
Agriculture: Sales revenue = PA QA= 150
Payments to labor = W LA= 50
Payments to land = RT T = 100
Percentage change in price of agricultural goods = 10%
Note that in each sector percentage change in rental rate is given as:
Assume that the wage rate has also increased by 10%
- Calculate the impact of the increase in the price of agricultural goods on the rental rate of land? SHOW YOUR WORK!
- Calculate the impact of the increase in the price of agricultural goods on the rental rate of capital? SHOW YOUR WORK!
- Explain what has happened to the real rental of land and the real rental of capital. In other words, based on your answer in a) above, why would the rental rate on land and capital change in this way?
- For the agricultural sector compare the percentage changes in price, wage, and rental rate on land. Which one is greater? Which one is the smallest? Explain why.
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Price theory and applications
Authors: Steven E landsburg
8th edition
538746459, 1133008321, 780538746458, 9781133008323, 978-0538746458
