Suppose that 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. Present production is: Iowa Nebraska Wheat 20 million bushels 120 million bushels Corn 120 million bushels 20 million bushels a. Explain how, with trade, Nebraska can wind up with 40 million bushels of wheat and 120 bushels of corn while Iowa can wind 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?
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