All posts tagged: comparative advantage

If You Want It Done Right, Don’t Do It Yourself!

Consider this…Two men live alone on an isolated island. To survive they must undertake a few basic economic activities like water carrying, fishing, cooking and shelter construction and maintenance. The first man is young, strong and educated. In general, he is faster, better, and more productive at everything; he has an absolute advantage in all activities. The second man is old, weak, and uneducated. He has an absolute disadvantage in all economic activities. In some activities the difference between the two is great; in others it is small. Despite the fact that the younger man has absolute advantage in all activities, it is not in the interest of either of them to work in isolation since they both can benefit from specialization and exchange. If the two men divide the work, then the young man should specialize in tasks at which he is most productive (let’s say fishing), while the older man should concentrate on tasks where his productivity is only a little less than that of the young man (let’s say cooking). Such an …