Suppose that a worker in Cornland can grow either 40 bushels of corn or 10 bushels of oats per year, and a worker in Oatland can grow either 5 bushels of corn or 50 bushels of oats per year. There are 20 workers in Cornland and 20 workers in Oatland. If the two countries do not trade, Cornland will produce and consume 400 bushels of corn and 100 bushels of oats, while Oatland will produce and consume 50 bushels of corn and 500 bushels of oats. Combined output for the two countries would therefore be 450 bushels of corn and 600 bushels of oats. If the two countries do trade, each will completely specialize in producing the crop for which it has a comparative advantage. If trade occurs, by what amount will the combined output for the two countries increase?
A) 200 bushels of corn and 200 bushels of oats
B) 350 bushels of corn and 400 bushels of oats
C) 400 bushels of corn and 500 bushels of oats
D) 800 bushels of corn and 1000 bushels of oats

Question

Quizplus · Accepted Answer

Cornland has a comparative advantage in producing corn because it can produce corn at a rate of 40 bushels per worker, compared to Oatland's 5 bushels per worker. Oatland has a comparative advantage in producing oats because it can produce oats at a rate of 50 bushels per worker, compared to Cornland's 10 bushels per worker. If both countries specialize:- Cornland's 20 workers will all produce corn, resulting in 20 workers * 40 bushels/worker = 800 bushels of corn.- Oatland's 20 workers will all produce oats, resulting in 20 workers * 50 bushels/worker = 1000 bushels of oats.The combined output before trade was 450 bushels of corn and 600 bushels of oats. After specialization and trade, the combined output is 800 bushels of corn and 1000 bushels of oats. The increase in combined output is therefore 800 - 450 = 350 bushels of corn and 1000 - 600 = 400 bushels of oats.

Suppose That a Worker in Cornland Can Grow Either 40