D Question 3 20 pts The following question relates to the H - O theory of trade. Suppose there are two countries, Nation I and Nation II where two goods are produced, X and Y using two resources, labor and capital. X is a relatively capital intensive and Y is relatively labor intensive. The two countries have identical preferences. (a) Refer to the graph below. Which country has a relative abundance of labor? What explains the shape of the two PPCs? What is the implication about the opportunity cost of X and the opportunity cost of Y? Nation 2 140 Nation 1 B 120 100 100 E 80 80 60 60 C 40 40 B Pg=1 20 20 C PR=1 X 0 10 30 50 70 90 110 130 150 XO 20 40 60 80 100 120 (b) if the two countries are not trading with one another, where is the relative price of X higher