The two-sector model in terms of its dual: A geometric exposition

The standard properties of the two-sector model are analyzed in a simple diagram representing the duals of the production finctions for the economy's two outputs. The diagram is especially useful for illustrating propositions that deal primarily with prices: the factor price equalization theorem, the Stolper-Samuelson theorem, and the effects of factor market distortions. Shadow prices of factors in distorted economies are easily determined using the diagram. These shadow prices are useful in measuring the total loss created by a set of distortions and in explaining anomalies associated with ‘highly distorted’ economies in which one factor has a negative shadow price.