Question

Suppose a country experiences a significant immigration of labor. Further, this country produces both labor-intensive and capital intensive goods. According to the Rybczynski theorem, what changes in the production of the two type of goods should we anticipate because of the labor immigration? Be sure to use the Rybczynski theorem to answer the question.

Answer 1

According to the theory,If any factor X availablity increases will also effect the factor Y productivity to decline.

We can understand the situation with the help of the theory.

The country experiencing immigration is the country which produces both labour intensive and capital intensive commodities.As the availability of the labour increased the production of the good which are capital intensive declined.

We can understand the situation with the help of the figure. Initially E is the point where both factors are utilised equally. But with the effect of immigration, labour availability increased. With availablity of excess labour,a new constraint curve takes place.

As the assumptions of Rybczynski theorem,the other things being constant and only the amount of output produced by using factors changed.