Answer to Question #248657 in Macroeconomics for Lorina

Question

Disucss the applicability of the Stolper-Samuelson theorem for predicting terms of trade in two countries.

Answer 1

The Stolper-Samuelson theorem asserts that an ad valorem import tariff (in a two-commodity, two-factor country) will bring about a more than proportionate rise in the price of the corresponding “intensive” factor in that industry.