In context of International Business and Trade the above example of US and Mexico focuses on absolute advantage. Explain the theory of absolute advantage and comparative advantage and also how nation states are competing to gain advantage over each other.
“The U.S. and Mexico can
U.S and the low cost of producing brooms in Mexico. The cost of producing one broom in U.S is 9 microchips. In Mexico the cost
of producing a broom is only 1/9 microchips. If the U.S. produces microchips and imports brooms, and if Mexico produces brooms
and imports microchips, both countries will gain from trade because they‟ll each produce the good they can produce more
cheaply and import the good that the other country produces more cheaply. Note that the U.S. has an
the production of microchips while Mexico has an absolute advantage in the production of brooms.” In context of International Business and Trade the above example of US and Mexico focuses on absolute advantage. Explain the theory of absolute advantage and
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