Economics • Economic BasicsHard
What does the 'Rybczynski Theorem' in international trade economics demonstrate?
A. How changes in endowment of one factor of production affect the outputs of sectors differently.✓ Correct Answer
B. The exact equivalence between tariffs and import quotas.
C. The equalization of factor prices across trading nations.
D. The deadweight loss created by monopoly pricing.
💡 Solution & Explanation
The Rybczynski Theorem demonstrates how changes in the endowment of one factor of production affect the outputs of different sectors at constant relative prices, predicting an absolute expansion in the sector that intensively uses the growing factor. It forms a core component of the Heckscher-Ohlin model of international trade. It contrasts with theories addressing tariff equivalence or factor price equalization.
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