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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 ...
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 ...
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.
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.
The Rybczynski theorem was developed in 1955 by the Polish-born English economist Tadeusz Rybczynski (1923–1998). It states that at constant relative goods prices, a rise in the endowment of one factor will lead to a more than proportional expansion of the output in the sector which uses that factor intensively, and an absolute decline of the output of the other good.
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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