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The Stolper-Samuelson Trade Effects Trigger the Rybczynski Trade Effects Negatively

Guo, Baoping (2021): The Stolper-Samuelson Trade Effects Trigger the Rybczynski Trade Effects Negatively.

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Abstract

Most literature talks about trade effects of price changes on outputs in international economics as that a price increase of a good will lead to an expansion of the output of that good and a reduction in the output of the other good (see Bhagwati, Panagariya, and Srinivasan, 1998, p. 62). It only tells the story from the supply side. It is not in line with the fundamental economic principle, the law of demand, that says that there is an inverse (or negative) relationship between the price of a good (or service) and the quantity demanded. This study investigates it again based on the price-trade equilibrium from integrated world equilibrium (IWE). The paper shows that the overall result of supply and demand by the equilibrium is that a price increase of a good leads to a reduction in the output of that good and an increase in the output of another good. It is just a process of the Stolper-Samuelson trade effects negatively triggering the Rybczynski trade effects. The study proves the law of demand analytically.

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