Russia can produce 25 tons of steel or 5 automobiles using the same amount of resources.Using the exact same amount of resources,India can produce 18 tons of steel and 3 automobiles.According to the theory of comparative advantage,the countries will trade with each other.What will Russia produce?
A) steel
B) automobiles
C) some steel and some chairs
D) Impossible to determine with the information given
E) None of the above

Question

Quizplus · Accepted Answer

Russia has a comparative advantage in making automobiles; it costs Russia 5 tons of steel to make an automobile,and it costs India 6 tons of steel to make an automobile.Russia makes automobiles more efficiently than it makes steel,and the countries will trade as long as the price of automobiles is higher than 5 tons of steel (otherwise Russia will not sell)and lower than 6 tons of steel (otherwise India will not buy).

Russia Can Produce 25 Tons of Steel or 5 Automobiles