Question

People in the U.S. state of Iowa eat both corn and potatoes. It is technically possible for farmers to grow both corn and potatoes in Iowa, yet almost no farmers grow potatoes. Instead, every year, Iowa exports corn and imports potatoes from the U.S. state of Idaho, where farmers specialize in potatoes.Which of the following principles of economic interaction best describes this scenario?A. Trade can make everyone better off.B. When markets do not achieve efficiency, government intervention can improve overall welfare.C. There is a tradeoff between equality and efficiency.D.All costs are opportunity costs.

Answer 1

Answer:

A. Trade can make everyone better off.

Explanation:

Iowa is probably only producing corn because it has a comparative advantage in the production of corn. By producing only goods it has a comparative advantage in and importing potatoes, both states are benefiting from the trade as the trade gives both states the opportunity to specialise in the production of goods for which they have comparative advantage in production.

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