Class Notes (836,580)
Canada (509,856)
ECON 314 (35)
Lecture 2

ECON 314 Lecture 2 - Lewis Model.docx

3 Pages
Unlock Document

Economics (Arts)
ECON 314
Eesha Sen Choudhury

Lewis Model  Agricultural sector was family farm based - subsistence farming - there is not any extra after you consume in this example so the economy can't grow . The number of kids also affected  With so much under utilized labour in agricultural sector who claim part of output as there consumption - you use this under used labour in a sector of production where you can sell their goods and make profits, this is why he introduced manufacturing sector  Assumptions o The economy has two sectors - agricultural and manufacturing o The agricultural sector has surplus labour, such that MLA=0  Labour that is additional, surplus, under utilized  MP = marginal product = returns on the last product that is produced o Labour in the agricultural sector share the output equally such that wages are determined by the average product  W = AP L wages = average product of labour  Wages = MP = profit maximizing o All wages are consumed and all the profits are saved in the manufacturing sector and reinvested o The supply curve of labour is assumed to be infinitely elastic at the wage ratemW in the manufacturing sector  The Traditional (Agricultural Sector) AP = TP/LA* The Moderns (Industrial) Sector  Here are profit maximizers, won't give wage to people who don't do anything for us  Optimal employment is L1 - people migrate from agriculture for wage r
More Less

Related notes for ECON 314

Log In


Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.