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Comparative advantage goes camping

To build an intuitive understanding of how comparative advantage can benefit all parties, set aside examples that involve national economies for a moment and consider the situation of a group of friends who decide to go camping together. The six friends have a wide range of skills and experiences, but one person in particular, Jethro, has done lots of camping before and is also a great athlete. Jethro has an absolute advantage in all aspects of camping: he is faster at carrying a backpack, gathering firewood, paddling a canoe, setting up tents, making a meal, and washing up. So here is the question: Because Jethro has an absolute productivity advantage in everything, should he do all the work?

Of course not! Even if Jethro is willing to work like a mule while everyone else sits around, he, like most mortals, only has 24 hours in a day. If everyone sits around and waits for Jethro to do everything, not only will Jethro be an unhappy camper, but there will not be much output for his group of six friends to consume. The theory of comparative advantage suggests that everyone will benefit if they figure out their areas of comparative advantage—that is, the area of camping where their productivity disadvantage is least, compared to Jethro. For example, it may be that Jethro is 80% faster at building fires and cooking meals than anyone else, but only 20% faster at gathering firewood and 10% faster at setting up tents. In that case, Jethro should focus on building fires and making meals, and others should attend to the other tasks, each according to where their productivity disadvantage is smallest. If the campers coordinate their efforts according to comparative advantage, they can all gain.

Key concepts and summary

Even when a country has high levels of productivity in all goods, it can still benefit from trade. Gains from trade come about as a result of comparative advantage. By specializing in a good that it gives up the least to produce, a country can produce more and offer that additional output for sale. If other countries specialize in the area of their comparative advantage as well and trade, the highly productive country is able to benefit from a lower opportunity cost of production in other countries.

Problems

In Japan, one worker can make 5 tons of rubber or 80 radios. In Malaysia, one worker can make 10 tons of rubber or 40 radios.

  1. Who has the absolute advantage in the production of rubber or radios? How can you tell?
  2. Calculate the opportunity cost of producing 80 additional radios in Japan and in Malaysia. (Your calculation may involve fractions, which is fine.) Which country has a comparative advantage in the production of radios?
  3. Calculate the opportunity cost of producing 10 additional tons of rubber in Japan and in Malaysia. Which country has a comparative advantage in producing rubber?
  4. In this example, does each country have an absolute advantage and a comparative advantage in the same good?
  5. In what product should Japan specialize? In what product should Malaysia specialize?

Review the numbers for Canada and Venezuela from [link] which describes how many barrels of oil and tons of lumber the workers can produce. Use these numbers to answer the rest of this question.

  1. Draw a production possibilities frontier for each country. Assume there are 100 workers in each country. Canadians and Venezuelans desire both oil and lumber. Canadians want at least 2,000 tons of lumber. Mark a point on their production possibilities where they can get at least 3,000 tons.
  2. Assume that the Canadians specialize completely because they figured out they have a comparative advantage in lumber. They are willing to give up 1,000 tons of lumber. How much oil should they ask for in return for this lumber to be as well off as they were with no trade? How much should they ask for if they want to gain from trading with Venezuela? Note : We can think of this “ask” as the relative price or trade price of lumber.
  3. Is the Canadian “ask” you identified in (b) also beneficial for Venezuelans? Use the production possibilities frontier graph for Venezuela to show that Venezuelans can gain from trade.

In [link] , is there an “ask” where Venezuelans may say “no thank you” to trading with Canada?

References

Bernstein, William J. A Splendid Exchange: How Trade Shaped the World . Atlantic Monthly Press. New York. 2008.

Questions & Answers

what is the specialize functions of the organs
Donieta Reply
what is the faction of photo receptors in the eye
Mutangana Reply
transduction of light to nervous impulses occurr it is located in the retina
Maureen
wat are e constituents of blood
marybertiny Reply
Can a cell be destroyed by the bacteria
Makhanya Reply
anamia. because of loss of blood
fon Reply
Name the element which is liquid
Sandeep Reply
hg
RC
CO2
Maureen
Bromine
Aaron
what is the dept of respiration plz?
Maureen
Maureen where are you from
Omokaro
mercury
VANESSA
bromine
VANESSA
which of the muscle can work with out getting tired?
nikkita
heart
Anam
Hg
Samiullah
what is the unit of muscles?
Samiullah
acid are organic or inorganic
Samiullah
why is the baby formed in the uterus n not else where?
Ekali Reply
you may help me ,to know why
mar
lo i am inn
mar
the womb is to protect the baby because inside the womb the lay in a fluid called the amniotic fluid which keeps the baby warm and it also have the placenta which the baby feeds from
Maureen
atom, molecules, organelle, cell, tissue, organ, organ system
Cheila Reply
sub atom atom molecular molecules and cells.
Advertus
cells structural level.
Advertus
what is microorganisms I am a laboratory student.
Advertus
a small organism
Rahbliss
small organism that can only be seen under a microscope
Maureen
i am just interested to be part of ,to learn
mar
explain why is it that old peoples as from the age of 60 usually have eye problems?
Kenn Reply
most old people suffere eye problems.because of short sight where individuals with this kind of problems see only near objects clearly but not distance objects, this is cause by elongated eyeball so light from distance is focus infront the retina so the image on the retina is blurred .
Munyah
plasma DNA cytoplasm Ribosome
Pearl Reply
cell, tissue,organ, organ systems,organism
Pearl Reply
cell is the build block of Life
Pearl
also a smallest unit of life
Frankline
sure..
Pearl
consistsof cytoplsm enclosed with in a membrane which contains many biomolecules such as proteins and nucleic acids
Frankline
differences in the effects of infection by HIV and influenza A virus on host genetic variability.
Yo Reply
i dont know
Ubah
hiv is direct contact of blood or body fluid and if not treated can break down the immune system faster and lead to acids with complications of pneumonia skin infections inflammation of the brain etc.while influenza A is a air borne virus which can cause the common cold pain fever and can be cured
Maureen
A.I.D.S
Maureen
suggest bioingormatics research article plz
peermehirali
what makes the heart to pumps blood?
Jamer Reply
sa node
Ubah
i do think its the nerve tranmission to the brain
Frankline
The contracting and relaxing of the atria and vertricles but the electrical system of the heart is what makes this possible.
keynia
yes which is called autorhymicity
Maureen
Yes,,by sucking blood leading to the weakening of cells,and finally it will be destroyed....
R0se
adrenoline action in brains
Frankline Reply
please describe the human heart brefly
Shah Reply
the size of the heart is like a fist. it has four chambers. the left and right upper atrium which push blood in the lower left and right ventricles which in turns pump blood to the lungs or the rest of the body.
Maureen
how do u prove it
Frankline
Maureen is correct ,
Davis
right
Kenn
right
Ubah
hi
horyaal
mxaa lahayaa
horyaal
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Source:  OpenStax, Principles of macroeconomics. OpenStax CNX. Jan 09, 2015 Download for free at http://legacy.cnx.org/content/col11750/1.2
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