Q. Suppose that there are two states that do not trade: Iowa and Nebraska. Each state produces same two goods: corn and wheat. For Iowa opportunity cost of producing 1 bushel of wheat is 3 bushels of corn. For Nebraska opportunity cost of producing 1 bushel of corn is 3 bushels of wheat. Present production is:
Iowa Nebraska
Wheat 20 million bushels 120 million bushels
Corn 120 million bushels 20 million bushels

a. Explain how, with trade, Nebraska can wind up with 40 million bushels of wheat and 120 bushels of corn while Iowa can wind up with 40 million bushels of corn and 120 million bushels of wheat.

b. If states ended up with numbers provided in a, Explain how much would trader get?