In Chapter 8 we discussed Leap frogging in details. Can you identify 2 meaningful reasons why leap frogging may not occur in real life scenarios. Explain clearly in few sentences why in your opinion each of these reasons may prevent Leap frogging to occur?
QUESTION 2 (Chapter 9)
Consider a production function in which only factors of production are land (X) and labour (L)
Y. Note β is the share of income paid to the landowners. Assume β = 0.33 for parts a to d.
a)Write down the production function in per worker form.
b)Write down the above equation in growth rate form.
c)If land resource is held constant, find the expression for productivity growth.
d)If income per worker has grown by 0.1% annually and population has grown by 0.2% annually, by how much the productivity has grown over a year? (2 marks).
e)Repeat part d again with β = 0.5.
f)Based on your answer explain the relationship between β and growth rate of productivity.
g)In this model to achieve better growth in productivity, relatively speaking who should be paid more – workers or landowners? Explain your answer based on results obtained in part f.
QUESTION 3 (Chapter 10)
Consider a 2-sector model with labour mobility across the sector as explained in Lecture video10.
In sector 1, production function is given by Y1 = ln L1 and in sector 2, it is Y2 = ln L2. The total labour force in this economy is 400 workers.
i.Draw a well labeled graph showing the initial allocation of workers following the steps discussed in Lecture video. For your answer derive the MP of labour in each sector and determine the point of equilibrium allocation by calculating the number of workers employed in each sector. Find the equilibrium wage rate and show it on your graph.
ii.Now suppose sector 1 workers form a Worker’s Union and the main purpose of this organization is raise the wage rate in sector 1. The owner of sector 1 reacts by firing few workers. In all this there is no change in sector 2 employment of workers and wage rate – it remains same as part i. answers. Show the impact of this change on your graph. (You may draw a new graph for this part of the answer but make sure the comparison between the outcomes in parts i and ii are clearly shown.
iii.Continuing with part ii, explain in words what happens to the GDP per capita of this country in comparison to part i scenario with no Unions. Do you observe the relevance of the concept of Featherbedding here? Explain your answer
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