1 Answer | Add Yours
We generally talk about comparative advantage with reference to countries rather than individuals, but individuals could be used to illustrate this theory as well.
If Person A has a lower opportunity cost for making a good than Person B, Person A has a comparative advantage in terms of that good. Person A should make that good and Person B should buy it from him/her.
The reason for this is that it is in Person B's best interests to buy that good from Person A even if Person B could make it him/her self. If Person B buys this good from Person A, B can use the time and resources she saved (by not making the good) to make something that is more valuable. Person B could then sell that more valuable good to Person A and both will be better off.
To fully understand this, it is really useful to look at a chart showing opportunity costs for different people and different goods. You can click here to find such a chart.
We’ve answered 319,206 questions. We can answer yours, too.Ask a question