Suppose that land is specific to corn, capital is specific to automobiles, labour is mobile between sectors,
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Question:
Suppose that land is specific to corn, capital is specific to automobiles, labour is mobile between sectors, and payments are as follows:
Automobiles:
Sales revenue = 200; payments to labour = 100; payments to capital = 100
Corn:
Sales revenue = 100; payments to labour = 50; payments to land = 50
Holding the price of automobiles constant, suppose the increase in the price of corn is 10% and the increase in the wage is 20%.
(a) What has happened to the real income of land?(5 marks)
(b) What has happened to the real income of capital?(5 marks)
(c) What has happened to the real income of labour?(4 marks)
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