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Suppose an economy produces two (2) goods, wheat (W) and steel (S). Wheat is produced with labor and land, while steel is produced with labor
Suppose an economy produces two (2) goods, wheat (W) and steel (S). Wheat is produced with labor and land, while steel is produced with labor and capital. Labor can move freely between the wheat and steel sectors. Suppose you have the following data for each sector:
Payments to labor in the wheat sector (w*L_W) = 100 Payments to labor in the steel sector (w*L_S) = 200 Value of output of wheat sector (P_W*X_W) = 500 Value of output of steel sector (P_S*X_S) = 400
- Calculate the cost share of capital in the steel sector.
- Calculate the cost share of land in the wheat sector.
- Calculate the cost share of labor in the steel sector.
- Suppose the price of steel rises by 10 percent while the price of wheat remains unchanged. Calculate the impact of the rise in the price of steel on the return to capital. Assume that the wage rate rises by 4 percent.
- Using the same information in part (4), calculate the impact of the rise in the price of steel on the return to land in the wheat sector.
- Using the results from parts [4] and (5), calculate the change in the real return to capital in terms of steel.
- Using the results from parts [4] and (5), calculate the change in the real return to capital in terms of wheat.
- Using the results from parts [4] and (5), calculate the change in the real return to land in terms of steel.
- Using the results from parts [4] and (5), calculate the change in the real return to land in terms of wheat.
- Calculate the change in the real wage in terms of wheat.
- Calculate the change in the real wage in terms of steel.
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