Comparative Advantage and Trade

Comparative Advantage and Trade - Comparative Advantage and...

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Comparative Advantage and Trade Michael Jordan can probably mow his lawn faster than anyone else. But just because he can mow his lawn fast, does this mean he should? Let's say Jordan can mow his lawn in 2 hours while Debbie, the girl next door, can mow Jordan's lawn in 4 hours. Because he can mow the lawn in less time, Michael Jordan has an absolute advantage in mowing lawns. However, is mowing his lawn the best use of Jordan's time? Suppose that in the same 2 hours it takes him to mow his lawn, he could film a Nike commercial and earn $10,000. Jordan's opporunity cost (the value of his next best alternative) of mowing the lawn is $10,000. In contrast, Debbie's next best alternative is to wrap meat at Wegman's where she earns $8 an hour. So, in the 4 hours it would take her to mow Jordan's lawn, she could have earned $32. Debbie's opportunity cost of mowing his lawn is $32. Jordan has an absolute advantage in mowing lawns because he can do the work in less time. But, Debbie has a comparative advantage
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