Suppose the only input in agriculture is time and the following chart depicts the time it took for the Middle Colonies and New England to produce barley and milk. Using the principle of comparative advantage, what would be the most efficient solution?
To determine comparative advantage compare the productivities of producing the two goods - one in terms of the other. To produce 1 ton of milk, New England would have to not produce 3\4 tons of barley. The Middle Colonies must give up 6\5 of a ton of barley to produce 1 ton of milk. Therefore, New England has a lower opportunity cost of producing milk and the Middle Colonies have a lower opportunity cost of producing barley. New England should produce milk and trade for barley, while the MC should produce barley and trade for milk.
A) New England produces both barley and milk.
B) New England produces barley and the Middle Colonies produce milk.
C) New England produces milk and the Middle Colonies produce barley.
D) There is insufficient information given to determine comparative advantage.
Correct Answer:
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