Economics • Economic BasicsHard
What does the 'Rybczynski Theorem' in international trade predict about the effect of an increase in the endowment of one factor of production on output levels?
A. It will lead to an absolute decrease in the output of both industries.
B. It will lead to an absolute increase in the output of the industry that uses the abundant factor intensively and a decrease in the output of the other industry.✓ Correct Answer
C. It will cause no change in the output of the industry using the scarce factor.
D. It will lead to a proportional increase in outputs across all sectors regardless of factor intensity.
💡 Solution & Explanation
The Rybczynski Theorem establishes that an increase in a single factor endowment leads to an amplified expansion in the output of the industry intensively using that factor and a contraction in the other sector. Alternative options incorrectly claim generalized increases or static outputs across all industries. This theorem forms a core component of the Heckscher-Ohlin trade model. A related trade concept is the Stolper-Samuelson theorem, which links goods prices to factor rewards.
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