Question

If Iowa's opportunity cost of corn is lower than Oklahoma's opportunity cost of corn, then Select one:

a. Iowa has an absolute advantage in the production of corn.
b. Iowa has a comparative advantage in the production of corn.
c. Oklahoma should produce just enough corn to satisfy its own residents' demands.
d. Iowa should import corn from Oklahoma.

Answer 1

b. Iowa has a comparative advantage in the production of corn.

Step-by-step explanation:

Iowa's opportunity cost of corn means, for Iowa, the value of the products they need to give up in order to produce corn.

For example, given 2 crops, corn and banana, which have equal price.

Given the fixed amount of resources, to produce a ton of corn, Iowa has to give up 0.5 ton of banana, while Oklahoma has to give up 1 ton of banana. This means Iowa's opportunity cost of corn is lower that that of Oklahoma so Iowa has a comparative advantage in the production of corn.