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,at what price will Russia and India trade chairs?
A) India will buy automobiles as long as the price is lower than 6 tons of steel
B) India will sell automobiles as long as the price is higher than 5 tons of steel
C) Russia will buy automobiles as long as the price is lower than 6 tons of steel
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