Economics • Economic BasicsHard

What does the 'Rybczynski Theorem' in international trade theory demonstrate?

A. At constant relative commodity prices, an increase in the endowment of one factor leads to a more than proportional expansion in the output of the industry intensive in that factor and an absolute decline in the output of the other industry.✓ Correct Answer

B. Free trade equalizes the factor prices of nations engaged in exchange.

C. A country will export goods that intensively use its relatively abundant factor of production.

D. Tariffs can improve a large country's terms of trade at the expense of trading partners.

💡 Solution & Explanation

The Rybczynski Theorem establishes that under constant relative commodity prices, an increase in the endowment of a single factor causes a magnified expansion in the output of the industry that intensively uses that factor, alongside an absolute contraction in the output of the other industry. This principle contrasts with factor price equalization or simple abundance theories like the Heckscher-Ohlin model.

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What does the 'Rybczynski Theorem' in international trade theory demonstrate?

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