In the long run, when factors are mobile, an increase in the relative price of a good will increase the real earnings of the factor used intensively in the production of that good. This is known as:
A) the Heckscher-Ohlin model.
B) the Stolper-Samuelson theorem.
C) the Ricardian model.
D) the specific-factor theorem.

Question

Quizplus · Accepted Answer

The Stolper-Samuelson theorem states that an increase in the price of a product will increase the real earnings of the factor used intensively in the production of that good. This is because a higher price increases the demand for that product, and thus the demand for the factor used in its production. The Heckscher-Ohlin model and Ricardian model are broader theories of international trade, while the specific-factor theorem relates to the short run effects of changes in relative prices.

In the Long Run, When Factors Are Mobile, an Increase