Egypt has a comparative advantage in the production of linen and an absolute advantage in the production of beer, compared to Russia. If these two countries decide to trade, what would the pattern of trade be?
A) Egypt would export linen to Russia.
B) Russia would export linen to Egypt.
C) Egypt would export both beer and linen to Russia.
D) Russia would export both beer and linen to Egypt.

Question

Quizplus · Accepted Answer

Egypt has a comparative advantage in the production of linen, meaning it can produce linen at a lower opportunity cost than Russia. Russia does not have a comparative advantage in any product, including linen or beer. Therefore, Egypt should specialize in producing linen and export it to Russia while importing beer from Russia. This will lead to mutual gains from trade as both countries can consume more linen and beer at a lower opportunity cost.

Egypt Has a Comparative Advantage in the Production of Linen