Missouri can produce 10,000 tons of pecans per year or 5,000 tons of pears per year. Washington can produce 12,000 tons of pecans per year or 48,000 tons of pears per year. If these two states were to engage in trade, which of the following is true?

Question

Quizplus · Accepted Answer

Missouri has a comparative advantage in producing pecans as it can produce 10,000 tons per year compared to 12,000 tons by Washington, whereas it can only produce 5,000 tons of pears compared to 48,000 tons by Washington. Therefore, Missouri should specialize in pecan production and trade with Washington for pears, where Washington has a comparative advantage. This will lead to both states benefiting from efficiency gains and an increase in the overall output. Option A is incorrect because the resources will not be evenly split between the two goods as it does not consider comparative advantage. Option C is incorrect because if Washington has a comparative advantage in both goods, then it should specialize in the good where it has a greater comparative advantage. Option D is incorrect because, as mentioned earlier, Missouri has a comparative advantage in pecan production, so it should specialize in producing pecans and trade for pears.

Missouri Can Produce 10,000 Tons of Pecans Per Year or 5,000