The selected country is Yellow Island which has more capital than labor. A country that has more capital than labor can produce effectively and efficiently. The machines help to improve the quantity and quality of output and reduce production costs. When using machines, the amount of labor required is minimal and it is used to enhance economies of scale through mass production. A country with more capital than labor can produce high quantities of output at low costs compared to the payment of labor. Therefore, the country can compete effectively in the market and engage in trade with trading partners.
The selected trading partner is Green Island which has more labor than capital. The main aim of trading is to obtain the products that are not produced in the country. In this case, the appropriate trading partner for Yellow Island is a country producing the products that are not produced in Green Island. Yellow Island has a comparative advantage in producing capital products and Green Island has a comparative advantage in producing labor-intensive products. Since Yellow Island has more capital than labor, it will trade with Green Island that has more labor than capital to obtain goods that require more labor to produce.
The welfare of the Yellow Island did not change after the trade. Although the main aim of trading is to improve the welfare of citizens, the welfare did not change. This is because the exchange rate of the goods was relatively balanced. The goal of the two countries is to obtain the products they do not produce at the least price possible and improve the welfare of the citizens. However, in this trade, the Yellow and Green Islands obtained the products each country required but did not benefit from the trade. Therefore, the welfare of the Yellow Island citizens remained the same after the trade.