The United States can produce both grain and oil more efficiently than Mexico can, but the United States can produce grain more efficiently than oil.Therefore, according to _______ , a basis for trade exists between the two countries.

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Quizplus · Accepted Answer

The principle of comparative advantage states that a country should specialize in producing and exporting goods and services in which it has a lower opportunity cost while importing goods and services in which it has a higher opportunity cost. In this case, the United States has a comparative advantage in producing both grain and oil compared to Mexico, but it has a greater advantage in producing grain over oil. Therefore, the United States should specialize in producing and exporting grain, while Mexico should specialize in producing and exporting oil. This creates a basis for trade between the two countries based on their comparative advantages.

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