Capital intensive and capital abundant

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Reference no: EM13818497

Countries A and B have two factors of production, capital and labour, with which they produce two goods, X and Y. Technology is the same in both countries. X is capital intensive; A is capital abundant.

Analyze the effects on the terms of trade and the welfare of the two countries. Use diagrams in your analysis.

(a) An increase in B’s capital stock.

(b) An increase in B’s labour supply.

Reference no: EM13818497

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