Economic Model.... Essay

593 WordsJan 4, 20153 Pages
Lewis model Lewis theory of economic development is a structural change theory. This theory explains the mechanism of changing structure of underdeveloped economics from subsistence agriculture to more modern and more urbanized. There are two main aims of the model firstly the transfer of labour, and secondly the impact upon the modern sector through growth of output and employment. Lewis model consists of two sectors in the economy. The first sectors are traditional sector, shows in the graph 1a and 1b. Diagram 1a demonstrates that as quantity of labour increases total food production increases until a certain point where it then statiblies because of the labour restriction. And using the total product curve (TP) we can drive the maginal product of labour (MP) and average product of labour (APLA). The dashed line illustrates the level of labour accessible in the rural economy. Due to zero marginal productivity of labor it is possible to withdraw labor from this sector without affecting the level of output. WA represents the real wage income earned in the agricultural sector. The labour transferred to the modern sector shows in the graph 1b in arrows. Graph 2a and 2b shows the second sectors are modern industry sector. Productivity is high in this sector. Labor is gradually transferred into this sector from traditional sector. Movement of labor from traditional to modern sector brings the expansion in both out put and employment. Evaluate: Lewis model based on movement of surplus labour from agriculture to industry, rural to urban migration has become extremely high, this could affect the probability of employment opportunities and also the impact upon social services of the developing urban area. And eventually, surplus labour will be exhausted and the rural wage will rise to level of industry level. Modify: The Lewis model is one of two approaches that are

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