Friday, specializing in fish, would need to spend 4 hours to gather enough fish for both himself and Robinson. If Robinson specializes in gathering coconuts and he must now gather 12 coconuts (6 for himself and 6 for Friday), he would need to work 2 hours. Is it advantageous for Robinson Crusoe to specialize in gathering coconuts, even though he can do both fishing and gathering better than Friday? If they each specialize, what will be the time savings to each? Thus, Robinson has a comparative advantage in coconut-gathering, while Friday has a comparative advantage in fishing. In comparing the marginal opportunity cost for gathering coconuts, we find that Friday’s is 1.5 fish per coconut, while Robinson’s is only 2/3 of a fish per coconut. Since Friday has a lower marginal opportunity cost for fishing, he is said to have a comparative advantage in fishing. Friday gives up only 2/3 of a coconut per additional fish, compared to Robinson’s 1.5 coconuts per additional fish. We find that the marginal opportunity cost per additional fish is less for Friday compared to Robinson. To see advantages to specializing and trading, we now look at the marginal opportunity costs of each. If specialization takes place, it should be in the area where the individual or country has what is known as a comparative advantage-that is, where the marginal opportunity cost of producing a good is lower relative to the other individual or country. Friday will spend 2 hours fishing and 3 hours gathering coconuts, for a total of 5 hours.
If they don’t specialize, who long will it take each person working alone to meet their daily needs? Robinson would spend an hour and a half fishing and one hour gathering coconuts, for a total of 2.5 hours. If each person wants 6 fish and 6 coconuts per day, would there be an advantage in them specializing and trading? Note that Robinson has an absolute advantage in both fishing and coconut gathering. To answer this question, let’s use the example of a deserted island with only two inhabitants: Robinson Crusoe and Friday.Īssume that their diet will consist of fish and coconuts, and that Robinson can catch 4 fish per hour or gather 6 coconuts per hour, while Friday can catch 3 fish per hour or gather 2 coconuts per hour. If an individual or country has an absolute advantage in many things, would there still be benefit to specializing and trading? The Advantages of Specialization and Trading
Similarly, a country may have an absolute advantage in both banana and soybean production, which would mean that it’s more efficient at producing these than other countries, which may be great at either banana production or soybean production, or at neither. It costs him less (effort, time, etc.) to produce the same results as it costs other students to produce those same results.
For example, a student may be great at both sports and academics-this would give him an absolute advantage over those students who are great at academics but not at sports, or who are great at sports but not at academics. The taylor does not attempt to make his own shoes, but buys them of the shoemaker.”Īn individual or country has an absolute advantage in the production of a good when it can produce the good using fewer resources compared to another. The United States and the Global Economy Section 01: Specialization and Trading Absolute AdvantageĪdam Smith taught the importance of specialization and trade when he taught: “It is the maxim of every prudent master of a family, never to attempt to make at home what will cost him more to make than to buy.
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