Video Visual
An Analogy
Imagine you and your friends have decided to organize a potluck dinner. Each person attending the dinner has a special dish they are known for and can cook exceptionally well in a fairly short amount of time.
In this scenario, comparative and absolute advantage can be compared to each person's unique cooking skills, kitchen ingredients and expertise.
Let's say your friend is an excellent baker and makes the most mouthwatering desserts. On the other hand, you are a fantastic cook and can whip up savory appetizers effortlessly. Instead of both of you trying to prepare both sweet and savory dishes, it would make more sense for Sarah to focus on making desserts and for you to focus on cooking main courses. This way, you both specialize in what you are best at, saving time and effort. If Sarah can make better dishes quicker, she has an absolute advantage in making desserts.
In contrast, comparative advantage can be likened to choices around the speed and efficiency at which each person can prepare their respective dishes. You might not have an obvious absolute advantage in speed or efficiency or resources. However, out of your available choices, these are the best. If you can both make desserts in the same amount of time, but you cook appetizers quicker, and Sarah is quick on salads, then you could both make desserts, while you create the appetizer and Sarah makes the salad.
Overall, this potluck dinner analogy demonstrates how comparative advantage allows individuals (or countries) to specialize in what they do best, while absolute advantage highlights the efficiency gained by focusing on tasks where one has a higher level of skill, speed, or resource advantage. By understanding and applying these concepts, countries can trade goods and services more efficiently, benefiting from each other's strengths and expertise.
In this scenario, comparative and absolute advantage can be compared to each person's unique cooking skills, kitchen ingredients and expertise.
Let's say your friend is an excellent baker and makes the most mouthwatering desserts. On the other hand, you are a fantastic cook and can whip up savory appetizers effortlessly. Instead of both of you trying to prepare both sweet and savory dishes, it would make more sense for Sarah to focus on making desserts and for you to focus on cooking main courses. This way, you both specialize in what you are best at, saving time and effort. If Sarah can make better dishes quicker, she has an absolute advantage in making desserts.
In contrast, comparative advantage can be likened to choices around the speed and efficiency at which each person can prepare their respective dishes. You might not have an obvious absolute advantage in speed or efficiency or resources. However, out of your available choices, these are the best. If you can both make desserts in the same amount of time, but you cook appetizers quicker, and Sarah is quick on salads, then you could both make desserts, while you create the appetizer and Sarah makes the salad.
Overall, this potluck dinner analogy demonstrates how comparative advantage allows individuals (or countries) to specialize in what they do best, while absolute advantage highlights the efficiency gained by focusing on tasks where one has a higher level of skill, speed, or resource advantage. By understanding and applying these concepts, countries can trade goods and services more efficiently, benefiting from each other's strengths and expertise.