A Model of a Two-Factor Economy An increase in the price of cloth relative to that of food, PcPF, will Raise the income of workers relative to that of landowners. w/r Raise the ratio of land to labor T/L. in both cloth and food production and thus raise the marginal product of labor in terms of both goods Raise the purchasing power of workers and lower the and lowering real rents in terms of both good al wages purchasing power of landowners, by raising real Copyright C 2003 Pearson Education, Inc Slide 4-11Copyright © 2003 Pearson Education, Inc. Slide 4-11 ▪ An increase in the price of cloth relative to that of food, PC/PF ,will: • Raise the income of workers relative to that of landowners, w/r. • Raise the ratio of land to labor, T/L, in both cloth and food production and thus raise the marginal product of labor in terms of both goods. • Raise the purchasing power of workers and lower the purchasing power of landowners, by raising real wages and lowering real rents in terms of both goods. A Model of a Two-Factor Economy