Comparative advantage (basic microeconomics)

[magus341]

Imagine you had to produce all the goods you wanted to use yourself with no help or raw materials from others. Everyday would be a fight for survival as you tried to find enough food to eat. Your clothing, if any, would be simple animal skins. Any tools would be made of stone and sticks. Your standard of living would be horrible, even in

Comments

[psyllogism]

You really think this is the hardest idea in micro?

[magus341]

Hmm. I'm just really good at explaining it. Most people don't get it. They assume you have to be absolutely better at things for train to be beneficial.

[anailia]

I think most people must not be very smart =) But you are also good at explaining.

Now, of course, we can get into the "opportunity cost" of the satisfaction a person might get out of producing a product from end to end (or at least closer to it) vs his satisfaction of pressing a button to stamp the orange on a pencil tube....

[magus341]

Satisfaction from making something plays a huge role in explaining human action. Artwork, cooking, music and even writing essays such as this one are best explained not by the financial gain but by the utility one gains from the making. Usually people don't consider pencils to be a good thing to make for the experience itself, but they might.

[psyllogism]

Some people REALLY LIKE pencils.... long, slender, shiny penciles that always smell like nice cut wood, oooh.. I mean. Um.

I think it's that part of the equations that is hard to measure. The equations are easy, it's your constants that are hard to figure out and that people can debate forever. Am I right? How much someone cares about pencils factors in, and is pretty difficult to measure properly.

[magus341]

"Demand", or how much people value things, is a completely different idea from comparative advantage. I wrote an essay about it: http://magus341.livejournal.com/12770.html which might make it easier to understand. No one can know someone else's preferences for sure, so we have to look at how they act to gain an insight ("revealed preference"). If someone buys a lot of pencils, or is willing to pay a lot, then we can infer that they must like pencils.