Describe carefully the Lewis dualistic labour surplus model. Does the Lewis model describe accurately the process of economic development in poor countries?
The Lewis model proposes a dualistic economy consisting of a formal, industrial and urban sector, and an informal, agricultural and rural sector. The formal sector is characterised as capital intensive and being run by profit-maximising capitalists who hire labour until the wage rate equals the marginal product of labour. This is because it makes economic sense for a firm to continue to hire labour until the costs (wage) equal the benefits (the marginal product of the additional unit of labour). [...]