The Lewis Theory of Economic Development is a structural change model. With the aid of the figure below, discuss the rationale of the model and how the theory proposes countries can achieve self-sustaining economic growth. Total product (manufactures)Real wage (= MPLM)TPM3TPM2ТРМ10D3D2WMWATPM=f(LM, KM, TM)KM3> KM2 > KMI0KM3>KM2 > KMIIL3IIH.ТРм (Кмз)(a) Modern (industrial) sectorTPM (KM2)TPM (KMI)QLMSLD3 (KM3)D₂ (KM2)D₁ (KM₁) = MPLML3L₁ L2Quantity of labor (QLM) (thousands)Average (marginal) productsTotal product (food)APLAMPLAWATPA=f(LA, KA,TA)0APLALASurplus laborQuantity of labor (QLA) (millions)(b) Traditional (agricultural) sectorFigure: The Lewis model of Modern-Sector Growth in a Two-Sector Surplus-Labour EconomyLAMPLATPA (KA)WAQLA

One of the main points of the model was that, due to "disguised unemployment in agriculture," there…

Answered: The Lewis Theory of Economic…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The Lewis Theory of Economic Development is a structural change model. With the aid of the figure below, discuss the rationale of the model and how the theory proposes countries can achieve self-sustaining economic growth.

Total product (manufactures)
Real wage (= MPLM)
TPM3
TPM2
ТРМ1
0
D3
D2
WM
WA
TPM=f(LM, KM, TM)
KM3> KM2 > KMI
0
KM3>KM2 > KMI
I
L3
I
I
H
.ТРм (Кмз)
(a) Modern (industrial) sector
TPM (KM2)
TPM (KMI)
QLM
SL
D3 (KM3)
D₂ (KM2)
D₁ (KM₁) = MPLM
L3
L₁ L2
Quantity of labor (QLM) (thousands)
Average (marginal) products
Total product (food)
APLA
MPLA
WA
TPA=f(LA, KA,TA)
0
APLA
LA
Surplus labor
Quantity of labor (QLA) (millions)
(b) Traditional (agricultural) sector
Figure: The Lewis model of Modern-Sector Growth in a Two-Sector Surplus-Labour Economy
LA
MPLA
TPA (KA)
WA
QLA

Definition Definition Increase in the amount of goods and services produced by a country in a given period of time compared to an earlier period. Economic growth is generally coupled with a rise in national income or the purchasing power of individuals. It is often measured in terms of the increase in a country's gross domestic product (GDP), or the overall monetary value of all the complete or final services and goods that a country can produce within its domestic boundaries in a specific period.

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