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Factor price equalization is an economic theory, by Paul A. Samuelson (1948), which states that the prices of identical factors of production, such as the wage rate or the rent of capital, will be equalized across countries as a result of international trade in commodities. The theorem assumes that there are two goods and two factors of ...
The factor-price equalization theorem about the relationship between factor prices and factor supplies is empty. This is an important supplement to show the supply-demand relationship between factor prices and factor supplies. The equilibrium links Heckscher-Ohlin theorem with factor price equalization theorem.
Factor price equalization – The relative prices for two identical factors of production will eventually be equalized across countries because of international trade. Stolper–Samuelson theorem – A rise in the relative price of a good will lead to a rise in the return to that factor which is used most intensively in the production of the ...
But a fall in rent also affects equation 1. For it to still hold true, then, the rise in wages must be more than proportional to the rise in cloth prices. A rise in the price of a product, then, will more than proportionally raise the return to the most intensively used factor, and decrease the return to the less intensively used factor.
Trade in goods and services can to some extent be considered a substitute for factor movements. In the absence of trade barriers, even when factors are not mobile, there is a tendency toward factor price equalization. In the absence of barriers to factor mobility, commodity prices will move toward equalization, even if commodities may not ...
At this level, Smith's natural prices of commodities are the sum of the natural rates of wages, profits, and rent that must be paid for inputs into production. (Smith is ambiguous about whether rent is price determining or price determined. The latter view is the consensus of later classical economists, with the Ricardo-Malthus-West theory of ...
In economic theory, a factor price is the unit cost of using a factor of production, such as labor or physical capital. There has been much debate as to what determines factor prices. Classical and Marxist economists argue that factor prices decided the value of a product and therefore the value is intrinsic within the product.
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