Question

Which of the statements below is TRUE in the context of the Lewis Model?

	a.	There are three turning points.
	b.	In the surplus labor phase, the average agricultural surplus is falling.
	c.	In the surplus labor phase, the industrial wage is rising.
	d.	Once disguised unemployment ends, agriculture enters the phase of commercialization.

Answer 1

d is the correct answer

In the Lewis model or the duel-sector model, there is one Lewis turning point when the economy fully transitioned by absorving the exceess supply of agricultural labor. In the surplus labor phase, the average agriculture surplus is not changed since the marginal product of a labor is zero. Also, the industrial wage is asssumed to be fixed. Now, when the disguised unemployment ends, the economy transitions and agricultural sector will enter commercialization.