Question

Assume a country produces only wine and cups. Both wine and cup production use land and labor as their only inputs. Wine production is relatively land-intensive while cup production is relatively labor-intensive. According to the Rybczynski theorem, a significant rise in immigration is most likely to lead to

a. an increase in wine production by a greater proportion than the increase in the production of cups
b. an increase in the production of both wine and cups
c. an increase in the production of cups by a greater proportion than the increase in the size of the labor force due to immigration.
d. an increase in wine production by a greater proportion than the increase in the size of the labor force due to immigration.

Answer 1

The correct option is C. an increase in the production of cups by a greater proportion than the increase in the size of the labor force due to immigration.

Explanation: The Rybczynski theorem says that if the capacity of a particular resource is increased, the industry that makes use of that resource the most will increase its productivity while the other industry that does not utilize this resource will experience a decrease in its productivity.

To answer the question above, we can see that the cup production is labour intensive while wine production is land intensive, therefore, a significant rise in immigration will lead to an increase in the supply of labour. Therefore, according to Rybczynski theorem, the enterprise that makes the most use of labour will experience an increase in production. In this case the cup production industry

Answer 2

c. an increase in the production of cups by a greater proportion than the increase in the size of the labor force due to immigration.

Step-by-step explanation:

The theorem state that an increase in the dotation of a factor when open market exist (in this case an open market of labor-inmirgation generates an increase in the quantity available of labor for this country). the production of goods which make intensive use of this facotr will increase by a greater proportion (cups) while the other goods will see their absolute production decrease (wine) as their aren't as efficient in the new posibilities of production frontier