A proportionately greater increase in the nation's supply of labor than of capital is likely to result in a deterioration in the nation's terms of trade if the nation exports:

Question

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If the nation exports the L-intensive commodity, a proportionately greater increase in the supply of labor will lead to a decrease in the relative price of the commodity, as labor becomes relatively abundant. This will result in a deterioration in the nation's terms of trade. On the other hand, if the nation exports the K-intensive commodity, a proportionately greater increase in the supply of labor may not have the same effect on the relative price of the commodity, as the commodity relies more on capital than labor.

A Proportionately Greater Increase in the Nation's Supply of Labor