Economics • Economic BasicsHard
What does the 'Stolper-Samuelson Theorem' in international trade economics posit regarding the impact of international trade on factor incomes?
A. An increase in the relative price of a good increases the real return to the factor used intensively in the production of that good and decreases the real return to the other factor.✓ Correct Answer
B. Free trade equalizes the absolute prices of identical goods across countries.
C. Countries will export goods that make intensive use of their abundant factors of production.
D. Trade leads to a net loss of welfare for developing nations due to deteriorating terms of trade.
💡 Solution & Explanation
The Stolper-Samuelson theorem posits that an increase in the relative price of a commodity raises the real return of the factor utilized intensively in its production while diminishing the real return of the alternate factor. Incorrect choices refer to different economic principles, such as factor price equalization or the Heckscher-Ohlin model predictions regarding trade patterns based on endowment abundance. This theorem forms a foundational pillar of modern trade theory. An important related economic concept is the Rybczynski theorem, which examines how output changes when factor endowments shift while commodity prices remain constant.
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