The effect of agricultural price on return to factor and output under a model with an informal sector

In this paper we examine the effect of a rise in the price of agricultural sector on return to factor and production in the short-, medium- and long cases. The outputs of the three sectors all are unchanged in the short-run case, the output of the formal sector is fixed but the output of the informal sector decreases and the agricultural output increases in the medium2 run case, and in the long-run case, the outputs of the formal and agricultural sector increase but the output of the informal sector decreases after a rise in agricultural price. Real wage of agricultural sector does not change under immobility of capital between the urban formal and informal sectors and nominal wage of agricultural sector does not change under perfect mobility of capital. Real wage in the agricultural sector falls as time elapses.