Consider two countries (England and India) that can produce two goods (cloth and trains) using two factors (labor and capital). The technology to produce each good is the same in either country and allows for substitution among inputs. Cloth production is labor intensive while train production is capital intensive. England is relatively capital abundant, and India is relatively labor abundant. Use diagrams and equations/ explanations to justify your answer.

(II) Consider the two country model in example in (I) . Suppose India and England are trading freely but because of a natural disaster Englands endowments of L and K are reduced in half. What are the effects of this change on : (a) the pattern of trade (b) the free trade commodity prices (c) Indias welfare level (use your answer to (b) and a diagram ) Use diagrams and equations/ explanations to justify your answer.