Choose the correct answerand discuss:

Question

The Lewis model of the dual economy makes the following assumption(s):
a.The rural wage initially remains constant
b.Industry makes a profit by employing cheap labor
c.Rural wage will rise when industry expands sufficiently
d.all of the above
e.none of the above

Answer 1

The correct answer is d. all of the above.

The Lewis model of the dual economy assumes that the rural wage initially remains constant. This assumption is based on the idea that the surplus labor in the rural sector is so large that wages do not increase even as industrial employment expands.

The model also assumes that industry makes a profit by employing cheap labor. This is because the surplus labor in the rural sector is willing to work for low wages, providing a cheap source of labor for the industrial sector.

Finally, the Lewis model assumes that the rural wage will rise when industry expands sufficiently. As industrial employment and output increase, the demand for labor in the urban sector grows, leading to an increase in wages in both sectors. This assumption reflects the idea that the surplus labor in the rural sector eventually becomes scarce, thereby driving up wages.

In conclusion, the Lewis model of the dual economy makes all of the above assumptions regarding the behavior of the rural wage and the profitability of the industrial sector.