# Economics Students: Comparative Advantage Questions



## Faded Lines (Sep 22, 2006)

I am having trouble understanding the concept of comparative advantage. I know the answers, and would like a thorough explanation as to why they are correct. Thank you.

Andy cleans offices in 60 minutes, Hannah does it in 20
Andy cleans jail cells in 30 minutes, Hannah in 15

Who has the comparative advantage in cleaning offices? Hannah
Who has the comparative advantage of cleaning jail cells? Andy

Why??? When I try to understand it, it just brings me to what absolute advantage means.


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## coldmorning (Jul 4, 2007)

Faded Lines said:


> I am having trouble understanding the concept of comparative advantage. I know the answers, and would like a thorough explanation as to why they are correct. Thank you.
> 
> Andy cleans offices in 60 minutes, Hannah does it in 20
> Andy cleans jail cells in 30 minutes, Hannah in 15
> ...


Think in terms of the goal... which is to optimize resource allocation. If you had Hannah and Andy both working for 40 hours in a week, what would you do to make sure that the maximum TOTAL amount of offices and jail cells get cleaned? You would have Hannah clean offices and Andy cleaning jail cells. Therefore those are their comparative advantages.

Absolute advantage means that Hannah is better at both skills because she is faster at both. She has an absolute advantage in both cleaning offices and cells, but it would be considered a waste of resources to have her cleaning jail cells.

It's a little depressing to use the examples of cleaning offices and jail cells. They really should use something a little more inspiring like surgeons. Let's say a surgeon happens to be a really good surgeon. He also happens to have really quick hands and is extremely good at making coffee. But it would be an enormous waste of resources to make him stand at a coffee stand and make coffee just because he happens to be good at it. That would not be his comparative advantage... even if he were the greatest coffee maker in the world.

In theory, prices adjust to ensure that countries will spend their resources to fit comparative advantage. This can directly go against their absolute advantage. So Brazil might be the best global producer of corn and only the second best producer of soybeans. But if there are one hundred countries that are good at producing corn but only a couple that can produce soybeans (and assuming there is equal demand for both globally), prices will rise for soybeans (relative to what it costs to produce them). That would cause Brazil to start producing more soybeans (even though they are better at producing corn on an absolute scale). That's because soybeans would be their comparative advantage.

Hope this makes sense and isn't just causing more confusion.


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## coldmorning (Jul 4, 2007)

Faded Lines said:


> Andy cleans offices in 60 minutes, Hannah does it in 20
> Andy cleans jail cells in 30 minutes, Hannah in 15
> 
> Who has the comparative advantage in cleaning offices? Hannah
> Who has the comparative advantage of cleaning jail cells? Andy


Ok, let's do a math example to see comparative advantage in action. Let's say you have 40 offices and 100 jail cells that need to be cleaned.

Scenario 1... you let Hannah start cleaning jail cells and Andy clean offices...
After 25 hours, Hannah is done cleaning jail cells (25x4 per hour=100 done). In that time Andy has only cleaned 25 of the offices (25x1 office per hour=25 done). You're left with 15 offices to clean which will take both Andy and Hannah another 4 hours to finish (Hannah at 3 offices per hour = 12 done in 3 hours), (Andy at 1 per hour finishes the last 3).

Total time taken for scenario 1 is 29 hours.

Scenario 2... you decide to use comparative advantage and have Hannah start cleaning offices while Andy works on the Jail cells. Hannah at 3 offices per hour, finishes the 40 offices in 13 and 1/3 hours. In that time, Andy has completed (2 per hour x 13.3 hrs) = 26.6 jail cells. There are still 73.4 jail cells needing to be cleaned. They take the two of them 12 hours to finish the remaining cells (at 4 per hour for Hannah, and 2 per hour for Andy).

Total time taken for scenario 2 is 25 hours.

So in other words, using comparative advantage, you were able to do the same amount of work saving about 4 hours of time. If you're a business owner that's 8 hours of less pay (for two people) you need to spend while getting the same amount of work done.... thanks to comparative advantage.

I did not do the math carefully so I might have made a mistake, but that will give you the chance to check on it and learn for yourself. Try using other hypothetical situations.

In the real world, the situation is likely to fall in between the two above... e.g Hannah and Andy alternate between cleaning offices and cells. In that case, you'd likely get a time to complete between the two examples above.


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## Faded Lines (Sep 22, 2006)

I pretty much understand it now. Thank you so much for taking the time to answer!


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## coldmorning (Jul 4, 2007)

No problem. I can go on all day about this stuff... :lol 

So optimal resource allocation means that you want Hannah (a resource) to spend as much time on offices as possible. Even though she has an absolute advantage in cleaning jail cells over Andy, you actually want Andy spending as much time as possible cleaning cells... as that's his comparative advantage (and not Hannah's).


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## Faded Lines (Sep 22, 2006)

Well, I kind of just looked at it this way, but not sure if it's even right. So please correct me. Hannah should clean offices, because while she's doing that she's only losing the chance to clean one jail cell, while Andy would actually be losing his chance of cleaning TWO jail cells within his time of cleaning the office. After cleaning one jail cell, he can still get 1/2 of an office done, while Hannah would only be able to clean like 1/4 of an office after the jail cell. Is it as simple as relating to opportunity costs, or what?


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## coldmorning (Jul 4, 2007)

Yes, you could use opportunity cost. 

For offices, Hannah's opp cost is 1.3 jail cells. Andy's is 2 jail cells.

For jail cells, Hannah's opp cost is .75 offices and Andy's is .5.

So yes, that would work too. Certainly, if you understand opportunity cost, this would probably be an easier way of figuring it.


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