- people migrate and stay in the region only if it provides a competitive standard of living. - initially opportunities in the region that provide a competitive living standard are limited: so population is small. (VMP is low) - Capital (K) - similar to labour: only invested in region if returns are competitive; limited opportunity initially. - value marginal product of K must be as large as returns on K elsewhere. - few uses for K in the region initially: little K. - So region has low population, little capital initially (frontier region). - Some change makes the staples sector a high value use of labour and capital. (↑VMP curve shifts up to the right) – - Possible changes that raise VMP? - Rise in the price of the staple good makes it profitable to produce; - Technological change (in production, transportation) makes staples production profitable (↑MP); - Resource discovery: gives regional inputs higher value uses (↑MP). - Staples boom results: - New higher demand for inputs pushes up prices of these inputs in the staples region (given initial amounts of K and L).
- people migrate and stay in the region only if it provides a competitive standard of living. - initially opportunities in the region that provide a competitive living standard are limited: so population is small. (VMP is low) - Capital (K) - similar to labour: only invested in region if returns are competitive; limited opportunity initially. - value marginal product of K must be as large as returns on K elsewhere. - few uses for K in the region initially: little K. - So region has low population, little capital initially (frontier region). - Some change makes the staples sector a high value use of labour and capital. (↑VMP – curve shifts up to the right) - Possible changes that raise VMP? - Rise in the price of the staple good makes it profitable to produce; - Technological change (in production, transportation) makes staples production profitable (↑MP); - Resource discovery: gives regional inputs higher value uses (↑MP). - Staples boom results: - New higher demand for inputs pushes up prices of these inputs in the staples region (given initial amounts of K and L).
reg12e.docx