The model, which takes to account the context of developing countries, explains a dual economy model of economic development with an assumption that there exists surplus labor in the traditional (agricultural) sector which is to be re-allocated to fill the rising modern (urban) sector labor demands. ... Therefore, labor supply exceeds demand. ... Since labor supply exceeds demand and the wage remains constant at subsistence level, the rate of profits is maximized. ... Lewis also claimed that as capital formation increase there will be more rural to urban population shift but not however an inc...

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• Approx Pages: 18
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• Grade Level: Undergraduate