1. The principle of comparative advantage establishes that they are gains
from specialization and trade
2. For both parties to gain from trade, the price at which they trade must lie
between the two opportunity costs
3. Each party can buy a good at a price that is lower than his or her opportunity
4. If one specializes in the good for which they have a comparative advantage,
then they are better off
Applications of Comparative Advantage:
1. The principle of comparative advantage explains interdependence and the
gains from trade
2. Because interdependence is so prevalent in the modern world, the
principle of comparative advantage has many applications
3. Two examples:
1. Should Mike Weir Mow His Own Lawn?
He can mow it faster than anyone else, but should he?
2. He can mow in 2 hours, but in the same 2 hours can make