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. Using the standard trade model (USE
GRAPHS OR EQUATIONS IF NEEDED) analyze the effects on the
terms of trade and on the two countries’ welfare of the following:
(PLEASE USE YOUR OWN ANSWER, EXPLAIN
THOROUGHLY with graphs or equations.)
(a) An increase in A’s capital...