Suppose the US and Mexico both produce semiconductors and auto parts and the US has a comparative advantage in semiconductors while Mexico has a comparative advantage in auto parts.Also suppose the US has an absolute advantage in the production of both semiconductors and auto parts.The US should
A) not trade semiconductors and auto parts with Mexico.
B) import semiconductors from Mexico and export auto parts to Mexico.
C) export semiconductors to Mexico and import auto parts from Mexico.
D) export both semiconductors and auto parts to Mexico.

Question

Quizplus · Accepted Answer

Even though the US has an absolute advantage in both industries, it is still beneficial for both countries to trade based on their comparative advantage. The US should export semiconductors to Mexico because it has a comparative advantage in producing them, while Mexico should export auto parts to the US because it has a comparative advantage in producing them. Therefore, the best choice is to export semiconductors to Mexico and import auto parts from Mexico.

Suppose the US and Mexico Both Produce Semiconductors and Auto