ECON 2 Lecture 2: Econ 2 Lecture 2 - Comparative Advantage and The Gains From Specialization

• School: Berkeley
• Department: Economics
• Course: ECON 2
• Professor: Christina Romer, David Romer

Document Summary

One party can produce more in a set of time. When each party has absolute advantage on different abilities. There is a lot of dirty dishes that need to be washed. From the graph, we can see that both christina and david have absolute advantage (aka reciprocal absolute advantage) No specialization (each person does hour of work) Specialization (christina does hour of wall painting, then continues to washing dishes) Specialization (christina painted walls for 45 minutes, then washed dishes) Comparative advantage is necessary for gains in specialization. Reciprocal absolute advantage is a special case of comparative. Just so happens each party is good at something different. Gains from specialization when there is different opportunity costs. Level of specialization is based on how much work needs to be done. Note: one person can only work 6 hrs per day. Opportunity cost for 1 coconut per hour. Total (1+8) / (1+2) = 3 fishes / 1 coconut.