Rybczynski theorem

Rybczynski theorem
See also
Assumptions of economics Cross elasticity of demand Baumol model Marginal revenue productivity theory of wages Okuns law Law of supply and demand Competitive equilibrium Endogenous growth theory Short run aggregate supply curve

Rybczynski theorem is a fundamental theorem in economics which states that a change in the supply of a certain good increases the total output of that good. This theorem was established by Włodzimierz Rybczynski in 1955 and is a key factor in analyzing economic growth.

The theorem states that a one-time increase in the endowment of a certain good, ceteris paribus, will increase the production of that good and result in a reallocation of resources to it. This reallocation of resources implies that the production of other goods, in the same economy, will decrease. Furthermore, the theorem states that the total output of the economy, in the absence of increasing returns to scale, will remain the same.

In conclusion, Rybczynski theorem states that a change in the supply of a certain good increases the total output of that good, while resulting in a reallocation of resources and a decrease in the production of other goods. This theorem is of great importance in economics and is used to analyze economic growth.

Example and formula of Rybczynski theorem

Let's consider an example of Rybczynski theorem. Suppose that a country has a certain amount of resources, which can be used for the production of two goods, good A and good B. As such, the total output of the two goods combined is $Y_0$. Now, if the country's endowment of good A increases, then the total output of the two goods after the increase in supply is $Y_1$. According to Rybczynski theorem, we can expect that the total output of the economy will remain the same, however the production of good B will decrease in order to make room for the increased production of good A. Mathematically, this can be expressed as:

$Y_{1}=Y_{0}+{\frac {\partial Y}{\partial X_{A}}}\Delta X_{A}$

where ${\frac {\partial Y}{\partial X_{A}}}$ is the marginal product of good A and $\Delta X_{A}$ is the change in the endowment of good A.

When to use Rybczynski theorem

Rybczynski theorem is an important tool in economic analysis and can be used in a variety of situations. Some of these include:

• When analyzing the effects of an increase in the endowment of a good on an economy's output
• When determining the effects of an increase in the production of a good on an economy's resource allocation
• When predicting the effects of a change in the supply of a certain good on the total output of an economy

Advantages of Rybczynski theorem

• Rybczynski theorem is useful in analyzing economic growth. The theorem can be used to understand how a change in the supply of a certain good affects the production of that good and the production of other goods in the same economy.
• The theorem also helps economists understand how resources are reallocated in response to a change in the supply of a certain good. By analyzing the reallocation of resources, economists can determine how the change in the supply of the good affects the overall output of the economy.
• The theorem is also useful in analyzing economies with increasing returns to scale. By applying the theorem, economists can understand how the change in the supply of a certain good affects the total output of the economy.

Limitations of Rybczynski theorem

Despite its importance, Rybczynski theorem does have certain limitations. Specifically, this theorem does not take into account:

• The impact of increasing returns to scale: Rybczynski theorem disregards any changes in the scale of production and does not take into account the possibility of increasing returns to scale, which could lead to an increase in the total output of the economy;
• Complex supply and demand curves: the theorem assumes a linear demand and supply curve and does not take into account any changes in the shape of the curves;
• Diminishing returns: the theorem does not consider the possibility of diminishing returns in production, which could lead to a decrease in total output.

Other approaches related to Rybczynski theorem

Rybczynski theorem is related to a variety of economic theories and approaches. These include the following:

• Comparative Advantage: This theory states that companies should specialize in the production of certain goods in order to maximize profits. This is based on the idea that different countries have different advantages or “endowments” in terms of resources or capabilities that can be used to produce certain goods.
• Factor Proportions Theory: This theory states that the relative abundance of factors of production, such as land, labor, and capital, will determine the relative prices of different goods.
• Heckscher-Ohlin Model: This model states that countries will specialize in the production of goods that require inputs of factors in which they have a comparative advantage.

In conclusion, Rybczynski theorem is related to a variety of economic theories and approaches, such as comparative advantage, factor proportions theory, and the Heckscher-Ohlin model. These theories and approaches help to explain the behavior of economic actors and the allocation of resources.

Suggested literature

• Hanson, G. H., & Slaughter, M. J. (1999). The Rybczynski theorem, factor-price equalization, and immigration: evidence from Us states.
• Opp, M. M., Sonnenschein, H. F., & Tombazos, C. G. (2009). Rybczynski's theorem in the Heckscher–Ohlin world—anything goes. Journal of International Economics, 79(1), 137-142.