Question
The small open economy of Colombia produces coffee (which requires labor and arid mountain land) and cut flowers (which requires labor and coastal high plains
The small open economy of Colombia produces coffee (which requires labor and arid mountain land) and cut flowers (which requires labor and coastal high plains land). The current world market price of coffee is $3.00 per pound and of cut flowers is $9 per pound.
(A) (8 points)Suppose that world prices change such that coffee costs $2 a pound and flowers costs $8 a pound. Graphically show the impact of the price changes on employment, output, and the marginal product of labor in coffee and flowers in Colombia?
(B) (7 points)How would the outcomes in (A) affect real incomes for owners of arid mountain land and owners of coastal high plains land in Colombia?
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