Look for the Advantage
Loyal learners, here are a few tasks of justice that need your attention. Let's look
at the idea of comparative advantage. A comparative advantage is simply the ability
to produce a good or service at a lower opportunity cost than some other producer.
Look at the table below and compare Jack's opportunity cost of car repair to Andy's.
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Look at the table below and compare Jack's opportunity cost of car repair to Andy's.
| Opportunity Cost of 1 Car Repair | ||
|---|---|---|
 |
Jack | 1 shoveled driveway |
 |
Andy | 2 shoveled driveways |
Given what you see, who has the "advantage" in terms of opportunity cost
when doing car repairs?
|
A. Jack |
|
|
B. Andy |
That's correct. If Jack repairs a car, he gives up one shoveled driveway.
If Andy repairs a car, he gives up two shoveled driveways. Jack has the
advantage compared to Andy—Jack has the comparative advantage in
car repair because his opportunity cost is less—he gives up only
one driveway per car repair.
That's incorrect. If Jack repairs a car, he gives up one shoveled driveway.
If Andy repairs a car, he gives up two shoveled driveways. Jack has the
advantage compared to Andy—Jack has the comparative advantage in
car repair because his opportunity cost is less—he gives up only
one driveway per car repair.
Let's try another. Remember, with comparative advantage, we are comparing the opportunity cost of two entities. Whoever gives up less has the comparative advantage.
This time, let's consider the reverse scenario by referring to the table below. For every two driveways Jack shovels, he gives up two car repairs. For every two driveways Andy shovels, he gives up one car repair.
| Opportunity Cost of 2 Shoveled Driveways | ||
|---|---|---|
| |
Jack | 2 car repairs |
| |
Andy | 1 car repair |
In terms of opportunity cost and snow shoveling, who has the comparative
advantage?
|
A. Jack |
|
|
B. Andy |
That's incorrect. Of course it's got to be Andy. He gives up only one-half
of a car repair but Jack gives up one car! Andy gives up less, so he
has an advantage when shoveling driveways. Who would have thought? Certainly
not Andy!
That's correct. Of course it's got to be Andy. He gives up only one-half
of a car repair but Jack gives up one car repair! Andy gives up less,
so he has an advantage when shoveling driveways. Who would have thought?
Certainly not Andy!