Question

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

Answer 1

According to the theory of comparative advantage, Russia will produce steel.

Step-by-step explanation:

According to the theory of comparative advantage, countries will trade with each other based on their comparative advantage. Comparative advantage refers to the ability of a country to produce a good or service at a lower opportunity cost than another country.

In this case, Russia's opportunity cost of producing 1 ton of steel is 5 automobiles, while India's opportunity cost is 3 automobiles. Therefore, Russia has a comparative advantage in steel production and should focus on producing steel.