Suppose there are two states that do not trade: Iowa and Nebraska. Each state produces the same two goods: corn and wheat. For Iowa the opportunity cost of producing 1 bushel of wheat is 3 bushels of corn. For Nebraska the opportunity cost of producing 3 bushel of wheat is 1 bushels of corn. At present, Iowa produces 100 million bushels of wheat and 600 million bushels of corn, while Nebraska produces 100 million bushels of corn and 600 million bushels of wheat.

a. Explain how, with trade, Nebraska can end up with 120 million bushels of wheat and 600 million bushels of corn while Iowa can end up with 120 million bushels of corn and 600 million bushels of wheat.