Country X produces two goods, guns and roses, using labor and land. Assume that production of guns is relatively labor-intensive, and production of roses is relatively land-intensive. Suppose a large number of workers from a neighboring country migrate to Country X. Carefully explain all the predictions of the Rybczynski theorem about the changes in output of both guns and roses in Country X. Be certain to explain any shifts in resources from one industry to the other.

Question

What will be an ideal response?

Answer 1

POSSIBLE RESPONSE: The immigration of workers to Country X causes an increase in the size of the labor force in this country. The Rybczynski theorem asserts that, if the supply of labor increases, the supply of land remaining unchanged, the country will expand its production of the labor-intensive product (guns) and will decrease its production of the land-intensive product (roses). 

Expansion of the gun industry requires not only greater quantities of labor but also more land. 

However, the total national amount of land available remains constant. This implies that some of the land will be withdrawn from the production of roses and will be used in producing guns. As a result of such a resource transfer, the production of roses will decline. On the other hand, the production of guns will increase by a greater proportion than the initial increase in the labor supply due to immigration.