B2. (14 marks) Assume two countries, Home and Foreign, with two factors of production, capital and labour, used to produce two goods, rice and cloth. Technology is the same in two countries. Cloth production is labour intensive; Foreign is capital abundant. Suppose that Home is large, while Foreign is small. a. (6 marks) Suppose Home subsidizes its exports and Foreign imposes a countervailing tariff that offsets the subsidy's effect, so that in the end, relative prices in Foreign are unchanged. What happens to the relative price of cloth, the terms of trade and the welfare of the two countries? Explain your answer, using a relative demand-relative supply curve graph to support your answer. b. (6 marks) Explain out of each country's producers, consumers, and the government, who will win and lose from the both the tariff and the subsidy from both countries. c. (2 marks) Given your answer in part (b), why does Foreign imposes the countervailing tariff