00:01
So here we've got two individuals, jimmy and robert, in some unfortunate circumstances.
00:05
Jimmy, sorry, robert can catch 10 fish or 15 coconuts.
00:11
So i'm going to say f is fish and c is coconuts.
00:15
This is a horrible example, beloved by economics professors everywhere.
00:20
Jimmy can catch nine fish or three coconuts.
00:23
The key is that from the perspective of these people individually, these things are equal, right? and they're equal because they're both produced using one day, right? jimmy can produce nine fish or three coconuts.
00:36
So those are both equal to one day of work, right? robert can produce 10 fish or 15 coconuts in a day.
00:43
So from his perspective, those are equal to one day of work.
00:47
For comparative advantage, let me think about reducing these by dividing, right? if i divide by, say, nine on the first one, i get one fish is equal to one over three coconuts.
01:03
And if i divide roberts by 10, i get one fish equals 1 .5 coconuts.
01:09
So jimmy has comparative advantage in fish, gives up fewer coconuts, right? that's the whole idea.
01:21
Comparative advantage says, who has the lowest opportunity cost of production? so for each fish jimmy catches, he's only giving up a third of a coconut.
01:30
But for each fish, robert catches he's giving up 1 .5 coconut.
01:35
So he's giving up way more coconut than jimmy is to catch fish, right? conversely, that means that robert has comparative advantage in coconuts, right? if i take these and redo them down here, right, you'll see that three.
01:56
40f is equal to 1c for jimmy.
02:01
And for coconuts, we've got 2 over 3f is equal to 1c for robert.
02:08
So again, robert's opportunity cost here is a whole lot smaller...