Economics · Level 5 · 243 words

Comparative Advantage

Original passage © Studio AM, written for Fluency.

It seems obvious that if you are better than someone at everything, you should do everything yourself. Economics says otherwise, and the reason is one of the field's deepest and least intuitive ideas: comparative advantage.

Suppose a skilled lawyer is also the fastest typist in town. Should she type her own documents? Absolute skill says yes; she is best at both. But her hour spent typing is an hour not spent on law, where she earns far more. The true cost of typing is the legal work she gives up to do it. So she is better off hiring a slower typist and spending her own hours where her advantage is greatest. Both people end up richer than if each did everything alone.

What matters is not who is better in absolute terms but who gives up the least to perform a task. Even a person who is worse at everything still has some activity they sacrifice the least to do, and that is where they hold a comparative advantage. Trade lets each party concentrate there and exchange for the rest.

This is why nations trade even when one could produce every good more cheaply. Specialization according to comparative advantage expands the total that gets made, and exchange shares the gain. The counterintuitive lesson is that being outmatched at everything does not shut you out of useful, profitable work. It only tells you to specialize in whatever you surrender the least to do.

Comprehension questions

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4 questions
1. What is the central idea of the passage?

Show answer for question 1

A. People and nations gain by specializing where they give up the least, even if one is better at everything.
Comparative advantage means concentrating where you 'sacrifice the least,' which makes both parties richer through trade.

2. Why might the skilled lawyer hire a slower typist?

Show answer for question 2

C. Because her typing hour costs her the more valuable legal work she gives up
Her true cost of typing 'is the legal work she gives up to do it,' so she is better off elsewhere.

3. The passage implies that a person who is worse at everything:

Show answer for question 3

A. Still holds a comparative advantage in whatever they sacrifice the least to do.
The text says even someone 'worse at everything still has some activity they sacrifice the least to do.'

4. In 'The counterintuitive lesson,' the word "counterintuitive" most nearly means:

Show answer for question 4

A. against what common sense expects
The essay first states what 'seems obvious,' then denies it, so the lesson runs against common sense.

Source: Written for Fluency. Original passage © Studio AM, written for Fluency.