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The Four-Quadrant Diagram: The diagram below is a reproduction of Figure 6.A.1 in the textbook. In drawing the diagram, it was assumed that capital is
The Four-Quadrant Diagram: The diagram below is a reproduction of Figure 6.A.1 in the textbook. In drawing the diagram, it was assumed that capital is the specic factor in the clothing sector, land is the factor specic to the food sector, and labor is mobile between the sectors. (a) Suppose this economy experiences an increase in the supply of capital. (i) Draw in the shi(s) in the total product of labor curve(s) and the resulting shift in the production possibilities frontier. (ii) Assuming homothetic tastes, what happens to the relative price of clothing? (iii) What happens to the allocation of labor between the sectors
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