A consultant works for 200 per hour. She likes to eat...

A consultant works for $200 per hour. She likes to eat vegetables, but is not very good at growing them. Why does it make more economic sense for her to spend her time at the consulting job and shop for her vegetables?

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Key Concepts

Opportunity Cost

Opportunity cost is the economic concept that measures the cost of forgoing the next best alternative when making a decision. In this case, the consultant loses $200 per hour of potential consulting income by choosing to grow vegetables instead of consulting. This illustrates why allocating her time to activities that yield the highest economic return is crucial.

Comparative Advantage

Comparative advantage refers to the ability to produce a good or service at a relatively lower opportunity cost compared to others. The consultant's skills make her highly efficient in consulting, while she is less efficient at growing vegetables. By focusing on what she does best and purchasing vegetables, she leverages the benefits of comparative advantage.

Specialization and Trade

Specialization and trade involve concentrating on the activity where one has an efficiency advantage and then exchanging goods and services with others to meet other needs. The consultant specializes in consulting, which maximizes her income, and trades by buying vegetables, thereby achieving a more efficient allocation of her limited time resources.

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