I'm having trouble with the Rybczynski theorem. Let's say there's a migration to the domestic economy, increasing the Labor endowment. It states that the production of the good that uses labor more intensely will increase and the other one will decrease (which makes a lot of sense). However, it also states that the relative prices (both for goods and factor remuneration) will keep constant.

This doesn't make sense for me because when I solve for the equilibrium, the relative prices do depends on the relative scarceness of production factor. If I change this, it should go to a whole new equilibrium, shouldn't it?

  • $\begingroup$ Could you link to your version of the Theorem? After googling it I only found versions that make claims about the output, not about the prices. $\endgroup$
    – Giskard
    Mar 29 '16 at 3:32
  • $\begingroup$ Just found the answer! The hypothesis underlying it is that the relative prices are taken as given because we are dealing with a small open economy that can't influence the international relative prices. $\endgroup$ Mar 30 '16 at 12:51
  • 2
    $\begingroup$ I'm voting to close this question as off-topic because this is too specific, unlike to help anyone else. $\endgroup$
    – luchonacho
    Jun 14 '17 at 7:31
  • $\begingroup$ @luchonacho This is a request to clarify fundamental theoretical economic results. Nothing should be considered as too specific when we discuss theory. $\endgroup$ Jun 15 '17 at 17:54

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.