ECON 313 Lecture Notes - Lecture 4: Dual Economy, Marginal Product
30 Nov 2017
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Document Summary
Traditional - no new tech, productivity is low (agricultural sector) Marginal product of labor is 0 (mlp=0) If you add one more person, he would produce 0. So many people working there that 1 more person doesn"t change anything. Possibility to withdraw people from this sector without any fall in output (because mpl=0) Wage necessary to attract people from the traditional sector. The wage is very low because mpl=0. Huge profits - more investment (k) - solow type growth. At higher levels of k, firms are more productive. Wage can be higher (but it"s useless so fuck that) When the surplus of labor is absorbed - no more cheap labor. Modern sector needs to increase wages to attract more people. This makes growth and increases the living standards. Favor industries and firms - they are the engine of growth in the modern sector. Eventually no one is left in the traditional sector - then things go to shit.
