Question

At one time, most of the cars produced in Mexico were sold in Mexico. Today, however, Mexico both exports and imports cars. Which of the following is a plausible explanation for this observation?

Answer 1

Answer:

Comparative advantage helps to explain why Mexico now imports and exports cars.

Explanation:

At one time in Mexico, the economic model that was applied in the 1950s and 1960s for example was import substitution. Mexican factories tried to produce most of the products that were used or consumed locally so that they wouldn't have to rely on imports. However, now most countries in Latin American ascribe to notions of free trade and using their comparative advantage.  Mexico is now producing more high-end cars for global car manufacturers like Volkswagen, which they export, and imports low-end cars that are more accessible to the general population in Mexico because they are produced at lower cost elsewhere.