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.

Eat protein/fat together, Eat carbohydrates alone.

How many know this person:

How many of you know about her book:

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?