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) When markets do not achieve efficiency, government intervention can improve overall welfare.
B) Trade can make everyone better off.
C) There is a tradeoff between equity and efficiency.
D) All costs are opportunity costs.

Answer 1

Answer: The correct answer is "B) Trade can make everyone better off.".

Explanation: The principle that says that Commerce can make everyone better is the one that best describes this scenario.

This happens because each state in question will specialize in what is most efficient. At the same time, the rest of the products in which they are most inefficient in terms of production will be imported.