Question

Consider the Malthusian model with workers who face the law of diminishing average product of labor as in two diagram Malthusian and land owners who own the limited supply of land who receive rental income from the land. What happens relative economic position of landowners as the population decreases and increases? What does this imply about the relative income of landowners as the population increases?

Answer 1

As population increases more and more labor works on the same fixed amount of land hence by law of diminishing marginal product of labor each additional worker will add lesser and lesser in the production process as we keep increasing the number of workers.

Since, labours are paid the value of their marginal product in the production process the wages will keep declining due to falling marginal products.

Hence,the income to workers (w) will fall.

On the other hand as more and more amount of labour is used on the fixed amount of land the total production on the land will keep increasing.However at a diminishing rate due to law of diminishing returns to scale. So the return to land (r) or the land owners income will increase because ultimately they are able to produce more with the same amount of land.

This the relative income i.e return on land by wages to labours (r/w) will keep increasing as population keeps increasing.