Assume that Country 2 is capital abundant and that Country 1 is labour abundant. Steel is capital intensive and Cloth is labour intensive. Steel is placed on the vertical axis and cloth is placed on the vertical axis. With reference to the Hecksher-Ohlin model a. Country 1's terms of trade is steeper than the international terms of trade. This means that the price of producing cloth in country 1 is less than producing cloth internationally.Therefore, Country 1 has a comparative advantage in producing cloth Country 1 will specialise in producing cloth, produce more cloth and export cloth. b. Country 1's terms of trade is flatter than the international terms of trade. This means that the price of producing cloth in country 1 is less than producing cloth internationally.Therefore, Country 1 has a comparative advantage in producing cloth. Country 1 will specialise in producing steel, produce more steel and export steel.Country 1's terms of trade is flatter than the international terms of trade. This means that the price of producing cloth in country 1 is less than producing cloth internationally Therefore, Country 1 has a comparative advantage in producing cloth. Country 1 will export cloth.Country 1's terms of trade is steeper than the Country 2's terms of trade. This means that the price of producing cloth in country 1 is greater than producing cloth in country 2.Therefore, Country 1 has a comparative advantage in producing cloth. Country 1 will specialise in producing cloth, produce more cloth and export cloth.Country 1's terms of trade is flatter than the international terms of trade. This means that the price of producing cloth in country 1 is less than producing cloth internationally.Therefore Country 1 has a comparative advantage in producing cloth. Country 1 will specialise in producing cloth, produce more cloth and export cloth.