Rybcznski Theorem Assignment Help

Assignment Help: >> Theorems of international trade - Rybcznski Theorem

Rybcznski Theorem:

Now, we consider the effect of charges in endowment (of labor or capital) on the output. For  this we need  to consider only the equations (xxiv) and  (xxv). We have already noted the coefficients are functions of factor prices only, i.e.,

2339_Rybcznski  Theorem.png

Thus,  if either L or K  changes, aij's  remain constant. Under  this assumption, differenting (xxiv) and (xxv) i.e., with respect to L, we have,  

1926_Rybcznski  Theorem1.png

1104_Rybcznski  Theorem2.png

These results  are  known  as  the  Rybcznski  theorem. They are  perfectly intuitive. It can,  for example, be said  that an  increase in endowment of labor (holding output prices constant) will  increase the output of the labor-intensive industry and  decrease the output of the capital-intensive industry. Analogous explanation follows for an  increase  in the endowment of capital.
Now, we offer a diagrammatic illustration for the proof of Rybcznski theorem.  Here, assumption is that  there  is multiple production technique  such  that the  contract  curve  is  smooth  and  always lies below  the diagonal.

1075_Rybcznski  Theorem3.png

Since the wage-rental  ratio is unchanged, optimum factor will be unchanged. The new  production  point  is E1. O2' E1 and O2 Eo are parallel to each other. Clearly, there  is an  increase in  the production of good yl  (of  the sector -1) and fall  in  production of y2  (good of the sector -2),  since 02' El = 02  G <  02 Eo. lncrease in  the endowment of labor causes expansion of labor intensive good (here X1). Since endowment of capital is fixed  it is to be released from the sector-2, which  involve contraction  of y. Therefore, production of  increases more than the actual increase in  the endowment of labor. This is known as the 'magnification effect'.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd