Which country has an absolute advantage in production/ Econometrics
The United States and Russia each produce only bearskin caps and wheat. Domestic prices are given in the following table.
Russia US
Bearskin caps 10Ru $7
Wheat 15Ru $10
Exchange rate is $1 = 1Ru.
a. Which country has an absolute advantage in production of caps? In wheat?
b. Which country has a comparative advantage in production of caps? In wheat?
c. If the US and Russia were the only two countries engaging in trade, what adjustments would you predict, assuming exchange rates are freely determined by the laws of supply and demand
