Economics • Economic BasicsHard
What does the 'Stolper-Samuelson Theorem' in international trade theory demonstrate regarding factor rewards?
A. Free trade equalizes the absolute real wages of all workers across different countries regardless of skill level.
B. An increase in the relative price of a good leads to an increase in the real return to the factor used intensively in producing that good, and a decrease in the real return of the other factor.✓ Correct Answer
C. Tariffs always reduce the total volume of international trade by an amount proportional to the deadweight loss.
D. Technological progress in the export sector benefits the abundant factor while harming the scarce factor equally.
💡 Solution & Explanation
The Stolper-Samuelson Theorem demonstrates that an increase in the relative price of a commodity leads to an increase in the real return to the factor used intensively in its production and a decrease in the real return of the other factor. It explains income distribution effects arising from international trade liberalization. Economic theorems and trade models are vital for specialized optional papers and advanced GS economics.
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