ABSTRACT
This chapter examines the simplest version of the two-sector growth model. There are two productive sectors which produce consumption and investment goods respectively, using two factors of production, capital and labour. Although the fixed coefficient model is essentially a technologically determined model, the use of different savings assumptions highlights the important role that demand plays in this model. The problem of determining the uniqueness and existence of equilibrium is more complicated. Conditions are needed for the relative demand function to be monotonic. The relative demand curve is constructed for given stocks of factors. Given a price ratio, some point on the production possibility frontier is determined, from considerations of profit maximization. A model of economic growth is obtained by letting commodity two to be an investment good, and commodity one be a consumption good.
