The Rybczynski theorem asserts that in a two-good model, assuming that product prices stay constant, growth in the endowment of one factor of production with the other factor remaining unchanged, will result in_____________.

The Rybczynski theorem demonstrates how a change in an endowment can affect outputs of the goods when full employment is maintained. It is useful in analyzing the effects of capital investment, immigration, and emigration within the context of a Heckscher-Ohlin (H-O) model.

The relative factor intensity is measured by the ratio of factor use in each industry.

ogechukwubenedict ogechukwubenedict · Answer 2 · 2020-03-18T16:31:02+01:00

Answer: B. an increase in the output of the good that uses the growing factor intensively and a decrease in the output of the other.

Explanation: The Rybczynski theorem plays vital roles in analyzing the outcome of capital investment, immigration and emigration within the context of a Heckscher-Ohlin model (that changes occur in relative factor supplies between the two regions when there's open trade, which can lead to an adjustment in the quantities and types of outputs between the two regions). The Rybczynski theorem explains the outcome from an increase in one factor's supply and its resulting effect on the output of a good which depends on an opposing factor.

By definition, the theorem states that at constant relative goods prices, a rise in the endowment of one factor will lead to an increase/expansion of the output in the sector which uses that factor intensively, and an absolute decline of the output of the other good.