Question

2. Write a description of each

a)      Rybczynski Theory

b)      Stopler Samuelson Theory

c)      Optimal Tariff

Answer 1

a) Rybcczynski theorem is the theorem which explains and demonstrates how output of thee goods is affected by difference in endowment when complete employment is there. The theorem give assistance in analyzing effects of emigration, immigration, capital and investment in the H-O model or Heckscher -ohlin model. The relation between factor endowment and product which utilizes the factor is shown by the theorem. It is a positive relation exists within them. And the theorem also depicts negative relation exists within changes in factor endowment and changes in output off the product. RT theorem explains that as endowment of some resources rises, the firm which uses the resource ardently will rise it s output during other firm will diminishes its output.

b) Stopler-samuelson theorem is a fundamental theorem in H-O trade theory. The theorem explains the connection within relative prices of output and relative factor benefits. S-S theorem conveys that in any specific country increase in comparative prices of labor intensive good enhance the work and dimishees the capital and vice versa,, in condition that among of each product is being produced. Positive connection within difference in price of output and thee changes in value of factor used in production off the good is shown. Negative relation within changes in value of output and difference in value of factor doesn’t used in good production can be also found in the theorem.

c) Optimal tariff concept considers big countries which have high purchasing power for different goods. The theory of optimal tariff explains that the huge importing countries can compel their foreign suppliers to decrease their prices by establishing tariff. For a country which is as direct buyer from different foreign suppliers then country which purchases can increase the tariff in order than making its own citizens to pay higher for those goods. To maintain the sale the supplier used to absorb the rise in tariff. And as the rise in tariff for the purchasing country continues the supplier country remains thee good sales prices constant but would pay fees higher and gains small profit.