Question

Which of the following concepts explains the decision to re-locate market-oriented factories in the United States from the Midwest and North east to locations in the southern United States or Mexico?
A. Comparative advantage, because products can be made more efficiently in the southern United States and Mexico. Operating costs and wages are lower, and the manufactured products are easily transported to major United States markets.
B. Growth poles, because governments in southern United States cities and Mexico strive to stimulate economic development by providing a guaranteed market for all products manufactured at these locations.
C. Just-in-time delivery, because the United States population is shifting to the south and west, and the Mexican population is growing. It is critical to produce goods closer to the consumer base to reduce shipping times.
D. Complementarity, because the regional economy of the midwestern and north eastern United States is shifting to the service sector. There is little interest in maintaining manufacturing at these locations.
E. Post-Fordist production, because traditional midwestern and north eastern manufacturing centers in the United States are unable to keep up with the technological changes of modern industry.

Answer 1

Answer: A. Comparative advantage, because products can be made more efficiently in the southern United States and Mexico. Operating costs and wages are lower, and the manufactured products are easily transported to major United States markets.

Explanation: Comparative advantage of a location is the ability to produce a good at lower cost than elsewhere. Lower wages, as well as lower operating costs in Mexico and Southern states achieve this comparative advantage by reducing total cost. Their locations are still quite close to the Midwest and North east, in contrast with popular outsourcing locations such as China. It therefore makes sense to relocate factories to these locations.