Stolper–Samuelson theorem

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A result stating that in a competitive world economy with constant returns to scale and two factors of production, a rise in the relative price of a good will lead to an increase in the return to the factor which is used most intensively in the production of that good, and to a fall in the return to the other factor. The theorem, named after its originators, is used to explain the consequences of opening an economy to trade, or of introducing trade protection. In either case, the relative prices of goods will change, and the theorem predicts the consequences of this change for income distribution.

Subjects: Economics.

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