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Economics

The United States and Russia each produce only bearskin caps and wheat. Domestic prices are given in the following table:

PRODUCTION	RUSSIA	UNITED STATES	UNIT
Bearskin Cap	10 Ru	$7	Per hat
Wheat	15 Ru	$10	Per quart

On April 1, the Zurich exchange listed an exchange rate of $1=1 Ru

1. Which country has an absolute advantage in the production of bearskin caps? Wheat?

2. Which country has a comparative advantage in the production of bearskin caps? Wheat?

3. If the United States and Russia were the only two countries engage in trade, what adjustments would you predict, assuming exchange rates are freely determined by the laws of supply and demand?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M9450668

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