Problem Set #2, 20 pts.

Fred Foldvary

The Kingdom of Econia consists of the island of econia and the surrounding ocean. In the island, there is one product, corn. There are 100 square miles in which 10 bushels per year per square mile can be cultivated by one farmer, and 100 square miles in which 6 bushels per year per square mile can be cultivated by one farmer. All 200 square miles are occupied by one farm per square mile, and all farmers are equally skilled and work the same number of hours.

There are currently two hundred families in econia, and in each family, only one of the members currently works on the farm. Each farm has one farmer, and a second farmer would add nothing to the output.

In order to grow corn, a farmer needs a plow. One plow can be imported in exchange for 2 bushels of corn. A plow lasts one year and then it is worn out and has to be replaced. (Note: the output figures above already involve the plow; do not double or otherwise adjust the data.)

People could also engage in fishing in the ocean, which is common property and has unlimited fish. One could catch 200 fish per year and export them in exchange for 2 plows, and then sell the plows to the farmers. The importer offers fishermen a free boat to get them started, and the boat lasts a long time. But at the present time, nobody fishes. There are free land and materials available for housing any fisherman.

Questions, 4 pts. each.

Note: do not add facts not already in the problem! Please print your name clearly at the top right, first-name then last-name.

1. How many bushels of corn would a fisherman earn as wages if he exchanged his fish for a boat and 2 plows, and then exchanged the 2 plows for corn?

2. What is the "margin of production," and where (farm area, ocean) is the rent-free margin or margins?

3 What are the total wages in the island, total rent in the island, and total spent for capital goods per year in all of econia?

4. If all the rent were distributed to all families in econia equally, what would be the total per-family income (wages plus rent)?

5. Is there any reason why a new worker in econia able and willing to work would be unable to find work? Explain briefly.