ABSTRACT
This chapter describes to apply the two-sector model to the investigation of the effect of changes in each of the exogenous factors on the prices and quantities of the goods that are produced and traded, the distribution of income between the separate groups that comprise the economy and the potential welfare of the community. The analytical technique employed will be to assume that prices are held constant when a change occurs, and to examine the effect of such change on excess demands and supplies at those prices using the assumption of stability of equilibrium to predict the direction of the price change required to restore equilibrium. The levels of potential, welfare indicated, by the respective equilibrium consumption points are not directly comparable, since the community indifference contours on which they lie are indexed with respect to different sets of utility distributions.
