7. Consider two countries Philippines and Indonesia and the two goods they produce are

wheat (in bushels) and rice (in kilograms). Philippines in one month can produce either 12

bushels of wheat or 6 kgs of rice whereas, Indonesia can produce 16 bushels of wheat or 4

kgs of rice.

(4 marks)

(a) Which country has the absolute advantage in producing rice?

(b) Calculate which country has the comparative advantage of producing wheat and rice

while showing the complete working.

(c) How will trade occur between Philippines and Indonesia