Friday, September 26, 2008

Comparative advantage

Hypothetical:
1. Tiger Woods has a lawn that needs mowing.
2. Tiger Woods has a teenage neighbor who charges $10/hour to mow lawns.
3. Tiger Woods can mow his law three times as fast as his neighbor.
4. Tiger Woods makes $80 mil a year, or about $913.25/hour in endorsements.
so
5. Although Tiger Woods can mow his own lawn three times as fast as his neighbor, his time would be better spent filming another ad or working on his swing.

Tiger Woods has the absolute advantage in this situation. He is better at mowing, golfing and making money in endorsements. However, if he pays someone else to mow his lawn, he can not only increase his own productivity by filming an ad, but also the productivity of his neighborhood.

And that is why we get our flowers from South America, kids.

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