Discussion:
1. A certain developing country currently imports all its wheat but is considering funding an irrigation project that would allow domestic farmers to grow and sell wheat. The domestically grown wheat would be sold in competitive markets at an estimated price of 15 dubyas per bushel. The wheat the nation currently imports has a CIF price of US $3 per bushel. The official exchange rate is 4 dubyas per dollar. The nation's tariff on imported wheat is 2 dubyas per bushel. Transportation and distribution charges from the port to a typical market are
2 dubyas and 1 dubya per bushel, respectively. The APR has been estimated to be 0.6 for transportation and 0.8 for distribution.
a. Calculate the market price of imported wheat.
b. Calculate the shadow price of imported wheat.
c. Should the irrigation project proceed?
Assume that a typical unskilled rural worker in a developing country would be paid 2 dubyas a week if he migrates to the city and finds a job. However, the unemployment rate for unskilled workers is 40 percent in the city.
a. What does the Harris-Todaro model predict the worker's rural wage is?
b. Assume now that the government is considering funding a project in the city that would use substantial numbers of unskilled workers. Using your answer to part a, suggest a reasonable upper-bound and lower-bound estimate of the market wage rate for unskilled workers that the government might use in conducting a CBA of the proposed project.