Assume a country that produces only cloth and paddy. Cloth production requires significant amounts of labor and capital, but relatively less land. Assume that paddy production requires relatively less labor and capital, but relatively large amounts of fertile arable land. If there is an increase in the country's endowments of capital and labor, the Rybczynski theorem would predict that:

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The Rybczynski theorem states that, in a two-good world, if there is an increase in the endowment of a factor of production, the output of the good that uses that factor intensively will increase, while the output of the other good will decrease, assuming goods prices remain constant. Since cloth production is more labor and capital intensive and there's an increase in these factors, cloth production will increase and paddy production, which is less dependent on these factors, will decline.

Assume a Country That Produces Only Cloth and Paddy