Which factor of production best explains why tornado insurance is typically cheaper in New Jersey than in Oklahoma?

• A. Capital, because insurance companies have more resources in New Jersey
• B. Land, because the risk of tornadoes is lower in New Jersey than in Oklahoma
• C. Labor, because insurance agents are more efficient in New Jersey
• D. Entrepreneurship, because there are more insurance startups in New Jersey

Answer: (B)

Verified step by step guidance

1. Step 1: Understand the factors of production, which include Land, Labor, Capital, and Entrepreneurship. Each factor contributes differently to the production and pricing of goods and services.
2. Step 2: Identify what 'Land' represents in economics. It refers not only to physical land but also to natural resources and environmental conditions that affect production and risk.
3. Step 3: Analyze the context of tornado insurance pricing. The cost is influenced by the risk of tornadoes occurring in a given location, which is a natural environmental factor.
4. Step 4: Recognize that since tornado risk is a natural condition tied to geography, it falls under the 'Land' factor of production, as it affects the likelihood and cost of insurance claims.
5. Step 5: Conclude that the lower risk of tornadoes in New Jersey compared to Oklahoma explains why tornado insurance is cheaper in New Jersey, making 'Land' the best factor to explain the price difference.