Economics • Economic BasicsHard
What does the 'Rybczynski Theorem' in international trade predict?
A. An increase in the endowment of one factor of production will lead to a more than proportional increase in the output of the industry which uses that factor intensively✓ Correct Answer
B. Free trade equalizes the factor prices of homogeneous inputs across trading countries
C. Countries will export goods that make intensive use of their abundant factors
D. Tariffs always reduce the real income of the imposing country
💡 Solution & Explanation
The Rybczynski theorem states that at constant commodity prices, an increase in the endowment of one factor causes an amplified expansion in the output of the industry using that factor intensively, alongside a contraction in the other industry's output. It forms a core pillar of the Heckscher-Ohlin trade theory. Factor price equalization is instead explained by the Stolper-Samuelson related theorems.
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