Chapter 2 shows and discusses the gains from trade that can result when individuals, firms, or countries specialize in producing goods for which they have the
comparative advantage, and trade those goods with others.
Gains from specialization and exchange can be seen in many situations. For example, most people that we pay to do things for us (e.g. grow our food, cut our
hair, tutor us, etc.) perform the task for a lower opportunity cost than we would bear if we were to do it ourselves. This is where the gain from trade that
benefits both parties comes from, and is why it is rational for you to pay for the service.
To show that you understand how comparative advantage works in the modern economy, please discuss a good or service you recently purchased and address the
following prompts:
What is the item or service, and how much did you pay for it?
What is a reasonable estimate of how long it would take you to make the item or perform the service at the same quality level of the one your purchased, if
you had been unable to buy it? You need to come up with a number of hours or days or years, or whatever time measurement you want, for how long it would take
you. Don’t try to avoid this. If you can’t figure it out, pick another good or service.
Who worked to get the money to pay for the item, and how long did they have to work to get the money? If your money came from the government, see the how the
government gets money page.
Based on your answers to 2 and 3 above, was it rational to buy the good? Explain. Make sure you compare the time it would take you to make the good or perform
the service (mentioned in part 2) and the amount of time that had to be worked to get the money (mentioned in part 3). It is only rational to buy something if
you give up less resources working to earn money to pay, than you would have if you made the good or perform the service yourself. If it turned out to be irrational, why did you buy it?
Sample Solution
