7. 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.