Suppose Mexico has a comparative advantage relative to Canada in clothing manufacturing and Canada has a comparative advantage in producing agricultural products.Which of the following options is most likely to occur?
A)Mexico and Canada will not trade agricultural products or clothing.
B)Mexico will sell clothing to Canada and Canada will sell agricultural products to Mexico.
C)Mexico will sell agricultural products to Canada and Mexico will buy clothing from Canada.
D)Mexico will sell clothing to Canada but not buy any agricultural products from Canada.

Question

Quizplus · Accepted Answer

According to the theory of comparative advantage, countries should specialize in producing and exporting goods in which they have a lower opportunity cost and import goods that they are less efficient at producing. In this case, Mexico is more efficient at producing clothing, while Canada is more efficient at producing agricultural products. Therefore, it is most likely that Mexico will specialize in producing and exporting clothing to Canada while importing agricultural products from Canada. Thus, choice B is the most likely option.

Suppose Mexico Has a Comparative Advantage Relative to Canada in Clothing