Countries A and B have two factors of production, capital and labor, with which they produce two goods, X and Y. Technology is the same in the two countries. X is capital-intensive; A is capital-abundant. Analyze the effects on the terms of trade and on the two countries’ welfare of the following:
a. An increase in A’s capital stock.
b. An increase in A’s labor supply.
c. An increase in B’s capital stock.
d. An increase in B’s labor supply.