Rybczynski theorem

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A proposition concerning the results of increasing only one factor of production. The proposition, named after its originator, concerns a two-good, two-factor economy with constant returns to scale, and economic growth due to an increase in one factor of production, holding other factors and techniques constant. This leads at constant relative prices to an increase in the output of the good intensive in the factor which has increased, but a decrease in the output of the industry using the factor which has not. This result at first sight seems surprising: the argument behind it is that with constant prices the techniques used in each industry must stay the same. To employ the extra supply of the growing factor, output rises in the industry using it intensively; but this also uses some of the other factor, so that less is left for the second industry, whose output therefore declines. See also factor intensity.

Subjects: Economics.

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