Economics • Economic BasicsHard
What is the primary implication of the 'Rybczyinski Theorem' in trade theory when an economy experiences an increase in the endowment of one factor of production?
A. Output of the industry utilizing that factor intensively increases more than proportionally, while output of the other industry decreases absolutely.✓ Correct Answer
B. Factor prices equalize across trading nations regardless of transport costs.
C. Tariffs always improve the terms of trade of the imposing country.
D. Economic growth always harms a country if it is export-biased.
💡 Solution & Explanation
The Rybczynski theorem proves that an increase in a single factor endowment leads to a disproportionate expansion in the output of the industry using that factor intensively and a contraction in the other industry. Other choices describe different international trade theorems like factor price equalization or the Stolper-Samuelson theorem. This model forms a foundational cornerstone of the Heckscher-Ohlin trade framework.
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