Final answer:
Businesses outside the United States may have production efficiency advantages due to lower labor costs and the concept of comparative advantage, where countries specialize in producing goods where they have the lowest opportunity cost and then trade these goods.
Step-by-step explanation:
When considering production efficiency, it is evident that certain businesses outside the United States possibly have competitive advantages. One of the fundamental reasons for this lies in the concept of factors of production, which include labor, capital, and technology. For instance, in some cases, labor costs might be significantly lower in other countries, enabling businesses to manufacture products at a lower cost than in the U.S.
Looking at the concept of comparative advantage helps to explain this phenomenon further. Although the United States may have an absolute advantage in producing certain goods (meaning it can produce them more efficiently than other countries), it does not always have the comparative advantage, which is determined by which goods it can produce at the lowest opportunity cost relative to other nations. An example is the trade relationship between the United States and Mexico, where the United States may efficiently produce both shoes and refrigerators, but the comparative advantage lies with refrigerators due to the greater productivity gap compared to shoes.
This understanding encourages nations to specialize and increase production in the areas where they have a comparative advantage and then engage in trade. The benefit of this arrangement is that it allows all involved parties to enjoy a greater variety of goods at lower prices due to increased production possibilities and efficiency across borders.