Question: Suppose there are two states that do not trade: Iowa and Nebraska. Each state produces the same two goods: corn and wheat. For Iowa the

Suppose there are two states that do not trade: Iowa and Nebraska. Each state produces the same two goods: corn and wheat. For Iowa the opportunity cost of producing
1 bushel of wheat is 3 bushels of corn. For Nebraska the opportunity cost of producing 1 bushel of corn is 3 bushels of wheat. At present, Iowa produces 20 million bushels of wheat and 120 million bushels of corn, while Nebraska produces 20 million bushels of corn and 120 million bushels of wheat.
a. Explain how, with trade, Nebraska can end up with 40 million bushels of wheat and 120 million bushels of corn while Iowa can end up with 40 million bushels of corn and 120 million bushels of wheat.
b. If the states ended up with the numbers given in a, how much would the trader get?

Step by Step Solution

★★★★★

3.49 Rating (162 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

a Since their opportunity costs differ they can gain from specia... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

729-B-E-M-E (6129).docx

120 KBs Word File

Students Have Also Explored These Related Economics Questions!

Suppose there are two countries. In the rich country, the representative consumer has Hr units of human capital, and total factor productivity is zr. In the poor country, the representative consumer...

Suppose there are two kinds of oil left, underground oil and shale oil. The cost of extracting a unit of underground oil is $2/barrel, of shale oil $10/barrel. Once extracted from the earth, the two...

Suppose there are two groups of workers, unionized and nonunionized. Congress passes a law that requires all workers to join the union. What do you expect to happen to the wage rates of formerly...

3. Suppose there are two states that do not trade: Iowa and Nebraska. Each state produces the same two goods: corn and wheat. For Iowa the opportunity cost of producing 1 bushel of wheat is 3 bushels...

uestion: 1. IN A STOCK ACQUISITION ACCOUNTED FOR BY THE EQUITY METHOD, A PORTION OF THE PURCHASE PRICE OFTEN IS ATTRIBUTABLE TO GOODWILL OR TO SPECIFIC ASSETS OR LIABILITIES. HOW OR UNDER WHAT BASIS...

2a. Using the outline discussed in lecture, "Major Determinants of FDI," and in context of producing autos in Princeton, Indiana, provide an overview of the critical issues Toyota must address to...

correct answers. 4. Suppose a doctor's visit actually costs $90. In other words, the marginal cost of seeing the doctor is constant at $90. Bob has demand for doctor's visits given by the following...

Your five-year-old daughter has just announced that she would like to attend college. The College Board has reported that the average cost of tuition, room, board, and other expense at public...

Social workers' primary goal is to help people in need and to address social problems. What struggles might you see in the practice of this principle?

Which assets have the highest liquidity? Marketable securities Accounts receivable Inventories

The mean of the normal probability distribution of possible returns of Gidney and Cloyd Corporation common stock is 18 percent. The standard deviation is 3 percent. What is the range of possible...

Economist Daron Acemoglu of the Massachusetts Institute of Technology has written extensively about the role of political institutions and economic growth. Acemoglu distinguishes broadly between two...

In studying the economic history of England before the Industrial Revolution, Professor Gregory Clark discovered an interesting fact. Examining archival data on wills and estates, he found that...

On the hills surrounding Lima, Peru, and many other South American cities, large numbers of residents live in urban slums, many having taken over these lands through urban invasions. Many families...

Help solving A quiz is out of 100 points. Suppose the scores on a quiz are normally distributed with a mean of 82 with a standard devation of 2.7. Suppose Jeff's score on the quiz has a z-score of...

Assume an investor buys a newly issued coupon rate of 5 percent, semi-annual 13 year bond at par. He sells it two years later, when market interest rates change to 6 percent. How much is the...

Hello! I only need help on questions 4-6. Thank you so much for the help! Use the following financial statements to calculate the leverage ratios for Belfor Brothers 1. Calculate the debt to equity...