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?
A) Missouri would specialize in pear production and trade pears to Washington pecans.
B) Missouri would specialize in pecan production and trade pecans to Washington for pears.
C) Washington would produce both pears and pecans and Missouri would produce neither.
D) Half of both Washington's and Missouri's resources would be devoted to pears and the other half to pecans because that is the comparative advantage.

Question

Quizplus · Accepted Answer

Missouri has a comparative advantage in producing pecans because it can produce them at a lower opportunity cost compared to pears (1 ton of pecans costs 0.5 tons of pears in Missouri, whereas in Washington, 1 ton of pecans costs 4 tons of pears). Washington has a comparative advantage in producing pears due to its higher efficiency. Therefore, Missouri would specialize in pecan production and trade with Washington for pears.

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