This week we set out on the following mission:
Apply the basic concept of comparative advantage in everyday living and explain its benefits in terms of specialisation, division of labour, and exchange/trade.
Which you would have accomplished by now if you had followed the series closely!
Here were the finer objectives:
- Define comparative advantage.
Elucidate the assumptions and limitations behind each concept.
The video I posted yesterday provides a great summary to most of these ideas. It’s just 4 minutes long, so do check it out if you haven’t.
What’s up next week
If you recall, we started this week with a post on Allocative Efficiency. For the more astute ones, you may have realised it was kind of out of place. Well, you are absolutely right!
But we put it there because we wanted to give you a sense of the big picture first, and also a preview of what’s about to come up.
In the coming week, we have a slightly more complex task that consists of two parts:
1. Explain that economic agents make decisions to arrive at the best alternative based on their objective.
2. Understand that economic agents weigh the incremental benefits against incremental costs in decision-making.
Like we said on Tuesday — it’s time to unravel the details and understand HOW exactly the fundamental questions of economics can be answered. This week we have looked the “How to produce” and provided a preliminary answer. Next week we will focus on “What and How much to produce.”
The answer to yesterday’s question is b — Costs of production are not minimised.
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Till next time, dream economics.
Be an inspiration to yourself