Question
Chili and Fiji have different relative endowments of the two factors of production, capital and labor. These two factors are used in the production of
Chili and Fiji have different relative endowments of the two factors of production, capital and labor. These two factors are used in the production of two goods, pens, which use relatively intensively capital and bananas, which use labor relatively intensively. Assume that the Chili is relatively better endowed with capital than labor with respect to the Fiji. Describe qualitatively and draw the appropriate graphs to illustrate the impact on the two countries' terms of trade and welfare of the following growth patterns:
A. Increase in the capital stock in Chili
B. Increase in the labor supply in Chili
C. Increase in the capital stock in Fiji
D. Increase in the labor supply in Fiji
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