illustrates and discusses the trade benefits that can be realized when individuals, firms, or countries specialize in producing goods for which they have a comparative advantage and trade those goods with others.
Gains from specialization and exchange can be seen in a variety of contexts. Most people we pay to do things for us (e.g., grow our food, cut our hair, tutor us, etc.) do so at a lower opportunity cost than we would bear if we did it ourselves. This is where the benefit from trade that benefits both parties comes from, and why you should pay for the service.
To demonstrate your understanding of how comparative advantage works in the modern economy, please discuss a recent purchase and respond to the following prompts:
What exactly is it, and how much did you pay for it?
What is a reasonable estimate of how long it would take you to make the item if you couldn’t afford it? You must calculate how long it will take you in hours, days, years, or whatever time measurement you prefer. Don’t even try to avoid it. Choose another good if you can’t figure it out.
Who worked to obtain the funds to purchase the item, and how long did they have to work to obtain the funds? Was it rational to buy the good if your money came from the government, based on your answers to questions 2 and 3 above? Explain. Make a comparison between the time it would take you to make the good (mentioned in part 2) and the amount of time it would take you to work to get the money (mentioned in part 3). It is only rational to buy something if you spend fewer resources working to earn money to pay for it than you would if you made it yourself. Why did you buy it if it turned out to be irrational?