| Line 73: |
Line 73: |
| | In sports, sometimes an athlete is good at one sport (e.g., baseball) but great at another sport (e.g., football). John Elway and Deion Sanders, for example were great at football but only good at baseball. John Elway did what he did best: he played only professional football, and became one of the greatest quarterbacks ever. Deion Sanders played both football and baseball, and perhaps did not achieve as much at either as he could have by focusing what he did best. | | In sports, sometimes an athlete is good at one sport (e.g., baseball) but great at another sport (e.g., football). John Elway and Deion Sanders, for example were great at football but only good at baseball. John Elway did what he did best: he played only professional football, and became one of the greatest quarterbacks ever. Deion Sanders played both football and baseball, and perhaps did not achieve as much at either as he could have by focusing what he did best. |
| | | | |
| − | Economists observe that utilizing the Law of Comparative Advantage can improve the production possibilities. Suppose your job paid you $9 but you could hire a cook for $6. Then it might make sense for you to work one more hour and hire someone to save you one hour of cooking. In the absence of taxes, you would be $3 better off. Then you could work one-third of an hour less to make the same money (after expenses) as before. That extra one-third of an hour could be added to your sports or relaxation time. You have moved your “production possibilities frontier” (the curve of all possibilities) outward, for greater benefit | + | Economists observe that utilizing the Law of Comparative Advantage can improve the production possibilities. Suppose your job paid you $9 but you could hire a cook for $6. Then it might make sense for you to work one more hour and hire someone to save you one hour of cooking. In the absence of taxes, you would be $3 better off. Then you could work one-third of an hour less to make the same money (after expenses) as before. That extra one-third of an hour could be added to your sports or relaxation time. You have moved your “production possibilities frontier” (the curve of all possibilities) outward, for greater benefit. |
| | | | |
| − | Note that "comparative advantage" is not the same as "competitive advantage," which simply means something that gives you an advantage in competition over someone else, such as a better location for your gas station. | + | == Example == |
| | + | |
| | + | Suppose this is how much in resources it costs the Yankees and Mets to produce great pitchers or outfielders: |
| | + | <br><br> |
| | + | <div style=float:left; padding: 20px"> |
| | + | {|style="border-collapse:collapse" |
| | + | |- |
| | + | | |
| | + | | |
| | + | |style="border-style:solid; border-width:1px; padding:10px"|Yankees |
| | + | |style="border-style:solid; border-width:1px; padding:10px"|Mets |
| | + | |- |
| | + | !rowspan=2 style="padding:10px"| |
| | + | |style="border-style:solid; border-width:1px; padding:10px"|outfielders |
| | + | |style="border-style:solid; border-width:1px; padding:10px"|10 resource units |
| | + | |style="border-style:solid; border-width:1px; padding:10px"|5 resource units |
| | + | |- |
| | + | |style="border-style:solid; border-width:1px; padding:10px"|pitchers |
| | + | |style="border-style:solid; border-width:1px; padding:10px"|9 resource units |
| | + | |style="border-style:solid; border-width:1px; padding:10px"|3 resource units |
| | + | |} |
| | + | </div> |
| | + | <br><br><br><br><br><br><br><br><br> |
| | + | |
| | + | Even though the Mets can produce outfielders more efficiently than the Yankees can, the Mets are better off spending all their resources developing pitchers and then trading with the Yankees to obtain outfielders. |
| | + | |
| | + | [[David Ricardo]] (1772-1823), one of the greatest of the classical (conservative) economists, first developed the Law of Comparative Advantage. Note that "comparative advantage" is not the same as "competitive advantage," which simply means something that gives you an advantage in competition over someone else, such as a better location for your gas station. |
| | | | |
| − | == economics of bus trip? ==
| |
| − |
| |
| | ==Review: Inputs== | | ==Review: Inputs== |
| | | | |