Use the graph below, which shows the amount of Potatoes and Corn produced each day by Idaho and Iowa, to answer questions 21-25 (You may want to create your own chart and/or Opportunity Cost boxes):
Idaho: Potatoes = 60, Corn = 180
Iowa: Potatoes = 30, Corn = 120
21. Which state has the absolute advantage in Corn production?
22. Which state has the comparative advantage in Potato production?
23. Which state has the comparative advantage in Corn production?
24. Which state should produce Corn?
25. Which state should export Potatoes?
21. Iowa has the absolute advantage in Corn production, as they produce 120 units compared to Idaho's 60 units.
22. Idaho has the comparative advantage in Potato production, as they can produce 2 units of Potatoes for every 1 unit of Corn, while Iowa can only produce 0.25 unit of Potatoes for every 1 unit of Corn.
23. Iowa has the comparative advantage in Corn production, as they can produce 4 units of Corn for every 1 unit of Potatoes, while Idaho can only produce 0.5 unit of Corn for every 1 unit of Potatoes.
24. Iowa should produce Corn, as they have a comparative advantage in Corn production.
25. Idaho should export Potatoes, as they have a comparative advantage in Potato production.
Show your math work
To determine comparative advantage, we need to calculate the opportunity cost for producing 1 unit of each product in each state. The opportunity cost is the amount of one product that must be given up to produce one more unit of another product.
Opportunity cost of producing 1 unit of Potatoes:
- Idaho: 180 Corn / 60 Potatoes = 3 Corn
- Iowa: 120 Corn / 30 Potatoes = 4 Corn
Opportunity cost of producing 1 unit of Corn:
- Idaho: 60 Potatoes / 180 Corn = 1/3 Potatoes
- Iowa: 30 Potatoes / 120 Corn = 1/4 Potatoes
Comparative advantage in Potato production:
- Idaho has a lower opportunity cost of producing Potatoes (1/3 Corn) compared to Iowa (4 Corn).
- Idaho should specialize in Potato production.
Comparative advantage in Corn production:
- Iowa has a lower opportunity cost of producing Corn (1/4 Potatoes) compared to Idaho (3 Corn).
- Iowa should specialize in Corn production.
Therefore, Iowa has the comparative advantage in Corn production and should produce Corn, while Idaho has the comparative advantage in Potato production and should export Potatoes.