If, at constant relative prices in a two-commodity and two-factor world, growth in a country’s labor force causes an expansion in output of the labor-intensive good and a contraction in output of the capital-intensive good, this situation is an example of the

Rybczynski theorem.

Explanation:

Rybczynski theorem is of the opinion that says that if the demand of some resource increases, the resultant effect will be for the industry that uses that resource most intensively to also increase its output while the other indus­try will decrease its output. Here, relative factor intensity is measured by the ratio of factor use in each industry.

The theory suggests that If, at constant relative prices in a two-commodity and two-factor world, growth in a country’s labor force causes an expansion in output of the labor-intensive good and a contraction in output of the capital-intensive good.

This implies that If two commodities (such as food and cloth) are not jointly produced, but are evenly matched, this relationship will entail that a growth in one factor, such as labour, acts as a force to cause an actual fall in the production of one commodity.

Rybczynski theorem

Explanation:

Rybczynski theorem states that if the supply of one of the factors of production increases, and other factors remain the same, the output of the product that uses the increase factor will like increase while the output of other goods that do not use the increasing factor will decrease in absolute amount as long as factor and commodity prices do not change. For example, in labor-surplus country, if there is an increase in the supply of labor, there will be a corresponding increase in the output of the commodity that needs labor and reduced output in the commodity that do not need labor, but instead are capital-intensive.

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