Question

Show how the Ricardian steady-state is reached. What is the wage rate, land rental rate, and rate of profit at the steady–state?

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Answer 1

Dear Student,

Please find below answer to your questions

In the Ricardian theory of rent, it is suggested that the rate of profit eventually fall when land is scarce because the population expands and the demand for food rises while the quantity of land is same. As more land is added, wage rate remains unchanged but the total profit as a % of total product declines.

Now the rate of profit would not fall if there is no land scarcity. This means it will not fall in the long run in the manner similar to the wage rate which remains unchanged. The rate of profit definitely depends on the wage rate in that if the marginal productivity of labor is increased, the wage rate and the rate of profit both would rise.

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