A recent article in the Wall Street Journal described a small apparel com- pany in Los Angeles that is transferring part of its operations to Mexico, largely in response to the provisions of NAFTA which eliminated quotas on clothing imports from Mexico. The owners commented that wages were much lower in Mexico, $60 a day versus $300 a day in L.A., but absen- teeism and labor turnover were much higher in Mexico and the workers' output is less than in LA. The owners indicated they were transferring the sewing of only their low-end products such as T-shirts to Mexico; the high- end apparel operations were being kept in Los Angeles. Analyze the above situation. Why aren't all firms moving all of their opera- tions to Mexico, since wages there are such a small fraction of those in the U.S.? Are there goods we would not buy from low-wage countries such as Mexico? Why is this firm transferring only the low-end sewing to Mexico?