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 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 (hint: use standard trade model):
a. Country A experience biased growth toward good X.
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