Economics • Economic BasicsHard
What is the primary implication of the 'Rybczynski Theorem' in international trade theory?
A. An increase in the endowment of one factor of production leads to a more than proportional expansion in the output of the industry that uses that factor intensively, and a contraction in the other industry's output.✓ Correct Answer
B. Free trade equalizes the absolute factor prices of labor and capital across countries regardless of transportation costs.
C. Tariffs imposed on imported manufactured goods always increase the real return to the scarce factor of production.
D. Countries will export goods that make intensive use of their abundant factors and import goods using scarce factors.
💡 Solution & Explanation
The Rybczynski theorem demonstrates that an increase in the endowment of one factor causes a disproportionate expansion in the output of the industry using that factor intensively and a contraction in the other industry. It forms a core component of the Heckscher-Ohlin trade model framework. Factor price equalization is explained by a separate theorem.
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