GATE 2024 Question 47: Theories of development

A dual economy consisting of a manufacturing sector ($M$) and an agricultural sector ($A$) is depicted in the figure below. $O_MO_A$ is the total labour available in the economy of which $O_MLS_M$ is the labour supply in the manufacturing sector before any migration was allowed among the labourers. The vertical axis on the left (right) side measures the wage in the manufacturing, $W_M$ (agricultural, $W_A$) sector. $LD_M$ ($LD_A$) is the demand of labour in the manufacturing (agricultural) sector with respect to $O_M$ ($O_A$) as the origin. If wages are flexible, and labour is allowed to migrate between these two sectors, then it will be TRUE that

[Diagram: a back-to-back labour-market box diagram. Horizontal axis runs from $O_M$ (left origin) to $O_A$ (right origin), with the fixed labour split point $LS_M$ marked partway along, and the eventual equilibrium migration point $L_A$ marked to its right. $LD_A$ is an upward-sloping labour demand curve from $O_M$'s side, $LD_M$ is a downward-sloping labour demand curve from $O_A$'s side; they cross at a single point directly above $L_A$, at height $W_2$ on both the $W_M$ and $W_A$ axes. Before migration, reading the demand curves at the fixed split $LS_M$ gives wage $W_1$ in one sector and $W_3$ in the other.]