The United States and Brazil each produce only cheese and wine. Domestic prices are given in the

Question:

The United States and Brazil each produce only cheese and wine. Domestic prices are given in the following table:

United States Brazil Per pound Per bottle Cheese Wine 4 BRL $6 7 BRL

On April 1, the London exchange listed an exchange rate of $1 = 1BRL.
a. Which country has an absolute advantage in the production of cheese? wine?
b. Which country has a comparative advantage in the production of cheese? wine?
c. If the United States and Brazil 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?

Exchange Rate
The value of one currency for the purpose of conversion to another. Exchange Rate means on any day, for purposes of determining the Dollar Equivalent of any currency other than Dollars, the rate at which such currency may be exchanged into Dollars...

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