Question

Offshoring is an application of:

A. comparative advantage.

B. differences in taste.

C. money market rates.

D. exchange rate theory.

E. none of the above.

Answer 1

Offshoring is an application of comparative advantage.

Step-by-step explanation:

Offshoring is an application of comparative advantage.

The theory of comparative advantage suggests that trade should happen between economies with large differences in opportunity costs of production. Comparative advantage occurs when a country can produce a good or service at a lower opportunity cost compared to other countries.

For example, a country may have a comparative advantage in manufacturing because it has access to cheap labor or advanced technology. By offshoring its manufacturing operations to a country with lower labor costs, a company can take advantage of the comparative advantage and reduce production costs.