Friday, May 27, 2005
Economics Friday - Ricardo’s Law of Comparative Advantage
Ricardo is better at hairdressing than Jeff Brazier. He is also better at reality television. If they both split their time equally between the two activities, Ricardo will create 10 excellent dos, and 5 great, shrieking television moments. Brazier will manage one shoddy wedge and two alright bits of television where he gets drunk and slides off a chair.
Let’s pretend that we can sum across the two activities and that Blogger can handle tables.
Ricardo and Jeff Brazier spending equal time on hairdressing and cutting hair:
---------------HAIR---------------TV----------Both
Ricardo----------10----------------5------------15
Brazier------------1----------------2-------------3
-------------------------------------------Total: 18
Ricardo is better at both, but he is even better at cutting hair. If he spends all his time on that, and leaves Jeff Brazier to go on the next series of Celebrity Love Island, then total production for society will be higher - even though Ricardo would have been better on Celebrity Love Island.
Ricardo and Jeff Brazier spending all their time on what they're better at.
---------------HAIR---------------TV----------Both
Ricardo----------20----------------0------------20
Brazier------------0----------------4-------------4
-------------------------------------------Total: 24
Society has the greatest gains when you do what you’re better at, not what you’re best at. To each according to his comparative advantage.
|
Ricardo is better at hairdressing than Jeff Brazier. He is also better at reality television. If they both split their time equally between the two activities, Ricardo will create 10 excellent dos, and 5 great, shrieking television moments. Brazier will manage one shoddy wedge and two alright bits of television where he gets drunk and slides off a chair.
Let’s pretend that we can sum across the two activities and that Blogger can handle tables.
Ricardo and Jeff Brazier spending equal time on hairdressing and cutting hair:
---------------HAIR---------------TV----------Both
Ricardo----------10----------------5------------15
Brazier------------1----------------2-------------3
-------------------------------------------Total: 18
Ricardo is better at both, but he is even better at cutting hair. If he spends all his time on that, and leaves Jeff Brazier to go on the next series of Celebrity Love Island, then total production for society will be higher - even though Ricardo would have been better on Celebrity Love Island.
Ricardo and Jeff Brazier spending all their time on what they're better at.
---------------HAIR---------------TV----------Both
Ricardo----------20----------------0------------20
Brazier------------0----------------4-------------4
-------------------------------------------Total: 24
Society has the greatest gains when you do what you’re better at, not what you’re best at. To each according to his comparative advantage.
|
