Economics 103
Lecture # 9
Comparative Advantage
When we introduce the idea of Comparative Advantage, we’re
starting to talk about Production.
30 minutes
8 minutes
Clearly my wife is Absolutely Better at everything
(she tells me all the time).
But who is the low cost cleaner
and weeder?
Gayle is the low cost weeder … she has a comparative advantage in
weeding.
I am the low cost cleaner …. I have a comparative advantage in
vacuuming.
If we had specialized according to our comparative disadvantage:
30 +30 =60
16 + 16= 32
Total 92 minutes.
Note that one cannot have a CA in everything. Even though
one can have a AA in everything.
When you produce against CA, costs either go way up, or
quality and quantity go way down.
People’s Express Airline.
Assembly lines are examples of extreme specialization.
The Classic Custom Auto
Co. suggests 200 hours for the
drive train.
What is the wealthiest university in Canada?
Why would married couples where both are working full time
have higher divorce rates?
Because you forgo many of the gains from cohabitation
and specialization.
Why are we not completely specialized?
Because life is pretty boring on the assembly line.
Comparative Advantage and Marginal Cost Curves
Let’s just use the example in the book:
Who is the low cost
(efficient) producer of
spinach?
Technical vs. Economic
Efficiency.
What is more efficient: a shovel or a tractor?
- the low cost producer isn’t always what produces the most.
What is the best way to produce Guns and Spinach?
When production
takes place
according to CA
then the MC is
increasing.
What would the PPC look like if they produced according to their
comparative disadvantage?
If the little economy gets more people in it, then the curves
start to “smooth” out.
So one reason for why MC increases with output is because increased
output requires the use of higher cost inputs.
Comparative Advantage Questions
1. Bangladesh has very low wages, how is it they don’t put
Canada out of “business”. Ie. how can Canada trade with low
wage countries?
2. How can Canada trade with the US? They are better at everything!
3. Who do we hurt when we stop importing cars from Japan?
-growing Cars on the prairies.
4. Should the smartest people be the brain surgeons?
5. Should the fastest typist in an office be the secretary?
We’ve introduced the idea of Marginal Cost
-for us the “something” will be output, but marginal costs can
be defined in terms of other things … like input costs.
Here’s an odd marginal cost application.
How many know this person:
How many of you know about her book:
Eat protein/fat together,
Eat carbohydrates alone.
What would the Marginal Cost of
one cookie be if you’d just eaten
2000 calories of protein?
What is the MC of the second cookie?