Question

1. Which of the following is an accurate statement of the Rybczynski Theorem? (2)

a) A country will tend to export the good that uses its abundant factor of production

b) When countries open up to trade, the abundant factor gains purchasing power, while the scarce factor loses purchasing power

c) A country will tend to export the good that abundantly uses the country’s intensive factor

d) At a given world price, growth biased towards an industry will increase output in that industry and reduce output in the other industry

e) None of the above statements is accurate

Based on your choice, draw a diagram that illustrates how the Rybczynski Theorem works, demonstrating what happens clearly. (8)

Be as specific as possible with the diagram and label everything clearly

Answer 1

d) At a given world price, growth biased towards an industry will increase output in that industry and reduce output in the other industryhow Rybczynski Theorem works, at the end assumptions are also given.