What is the Stolper-Samuelson theorem? What are the underlying conditions and assumptions for the theorem

Question

What will be an ideal response?

Answer 1

POSSIBLE RESPONSE: The Stopler-Samuelson theorem concludes that opening trade splits a country into specific gainers and losers in the long run. Any event that changes relative product prices in a country raises the real return to the factor used intensively in the rising-price industry and lowers the real return to the factor used intensively in the falling-price industry. Four important conditions and assumptions are needed for the Stolper-Samuelson theorem: (1) the country produces positive amounts of two goods with two factors of production used in producing each good. One good is relatively land-intensive; the other is relatively labor-intensive. (2) Factors are mobile between sectors and fully employed overall in the economy. In addition, it is often assumed that total factor supplies (factor endowment sizes) are fixed. (3) Competition prevails in all markets. (4) Production technology involves constant returns to scale (e.g., if all factors used in producing a product double, then output of the product doubles).