The Clothes We Wear
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Hey Joel! I heard we both are in the same business! I can make either 40 shirts or 10 pants but I prefer to make 20 shirts and 5 pants.
Hey Eric! That's cool and yes we are in the same business. Compared to you, I can only produce 15 shirts or 30 pants but I usually make 7.5 shirts with 15 pants.
Here, Eric has absolute advantage in shirts since he makes 25 more than Joel. Joel has absolute advantage in pants since he makes 20 more pants than Eric.
You know that you have comparative advantage since your opportunity cost of 1 pants is 1/2 a shirt. I have comparative advantage since my opportunity cost for 1 shirt is 1/4 of a pants.
I hope his idea is a real good idea....
Eric, if you specialize in making shirts and I specialize in making pants, we would be able to trade and have more goods!
With this division of labor, we can produce and trade so that I can have 25 shirts and 10 pants, and you can have 15 shirts and 20 pants!
With this, we would also have economic interdependence since I get my pants materials from China and you get your shirt materials from Italy, correct?
That is correct! Now with this trading, we both can increase in our products giving us much more!
Thank God we specialize in different things! This is going to be amazing thanks to trading!
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