Victoria can produce four bridges per day, while Joseph can make 12. Joseph is the more efficient bridge producer, so he has the absolute advantage in bridgework. Joseph is also more efficient at filling cavities because he can fill 24 per day, while Victoria can only fill 20. Therefore, Joseph also has an absolute advantage in cavity work.
However, Victoria has a comparative advantage in filling cavities. Why? Because her opportunity cost to fill a cavity is less than Joseph’s. When Victoria fills a cavity, she gives up the opportunity to complete 0.2 bridges (4 / 20). Therefore, her opportunity cost for cavities is 0.2 bridges. Joseph’s opportunity cost for cavities equals 0.5 bridges. When Joseph fills a cavity, he gives up the opportunity to complete 0.5 bridges (12 / 24). Victoria has the comparative advantage in cavity work because her opportunity cost of 0.2 is less than Joseph’s of 0.5. Joseph has the comparative advantage in bridgework. Joseph gives up the opportunity to fill two cavities if he constructs a bridge (24/12). Victoria gives up the opportunity to fill five cavities for every bridge, so her opportunity cost is five. Joseph has a lower opportunity cost and comparative advantage in bridgework, which means that Joseph should specialize in bridgework while Victoria should focus on cavities.
Assume that in a typical 8-hour day, Joseph completes six bridges and twelve cavities. (It takes Joseph 0.67 hours to complete a bridge and 0.33 hours to fill a cavity.) On the other hand, Victoria can complete three bridges and five cavities in a typical day. (Bridges take Victoria two hours, and cavities take her 0.4 hours.)
If Joseph and Victoria formed a partnership and Joseph specialized in bridges while Victoria specialized in cavities, they could complete all of the work in 12.8 hours. In the remaining 3.2 hours, they could each generate added income for their new practice.
Today, specialization has become more prominent. When we tear a ligament, we seek an orthopedic surgeon, not a general practitioner. A professional orchestra seeks a musician specializing in the violin rather than a talented musician who plays several instruments reasonably well. You would not hire someone who fixes your car to fix your computer. In each case, we seek the services of specialists.
Everyone possesses gifts, whether they are material, mental, or physical. These gifts enable us to specialize in particular areas. Your resources and passions will influence your choice of specialization. These same resources and passions will give you a comparative (not necessarily absolute) advantage over others entering the workforce. Best of luck!
Comparative Advantage And Specialization
Production Possibilities Frontier
Fundamental Economic Assumptions
Opportunity Cost – The Cost of Every Decision
Managing Supply Using Outsourcing, Tariffs, Subsidies, Quotas & Licenses
