According to the theory of comparative advantage what tasks should one perform and what tasks should one purchase from others?

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pohnpei397 | College Teacher | (Level 3) Distinguished Educator

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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.

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