The Law of Comparative Advantage and How It Can Benefit Your Life
But the fact of the matter is that, when economics is really broken down, everything is very logical and super applicable to everyday life. One of the theories that is especially useful for most of us is the law of comparative advantage. Understanding this concept and how to utilize it can greatly benefit both your career and your personal life.
What Is Comparative Advantage?
Brown Consultancy gives a pretty thorough explanation of the concept of comparative advantage on its website:
Even if a country can produce everything more efficiently than another country, there is still scope for trade. A country can maximize its wealth by putting its resources into its most competitive industries, regardless of whether other countries are more competitive in those industries. This is called the law of comparative advantage.
… Um, What Does That Mean?
In layman’s terms, the law of comparative advantage means that, if you can easily grow apples but have to work hard hard to grow oranges, and your friend Joe has an easier time growing oranges than apples, it makes sense for you both to stick to your specialties and trade resources. You should grow apples, and Joe should grow oranges. If you need oranges, you should trade with Joe for them, and Joe should trade with you for your apples.
This concept relates strongly to the importance of asking for help when you need it, which can be tough for a lot of us. However, if you look at it from an economic perspective, it makes perfect sense! Why would you put so much unnecessary effort into something when you could do what you’re best at, with less effort, and get what you need from someone else who has an easier time creating it?
The law of comparative advantage allows us all to maximize our productivity and efficiency while benefitting from trading.
How to Utilize This Concept in Your Life
Think about it in terms of taking a test: At a young age, we are taught that if we get stuck on a problem during a test, we should skip it and finish the problems we know how to do. There is no point in wasting time trying to solve a problem you don’t know how to solve when you could be spending that valuable time answering all of the other questions you cansolve.
In other words: Don’t waste valuable time killing yourself over something that someone else can easily help you with!
Do what you can, share your expertise, and ask for aid from others when you need it! If we were all good at the same things, no one would have any jobs. That is why we are all employed in different careers.
Think about it: You visit your doctor for medical advice and your hair stylist for a haircut. You probably wouldn’t ask the person cutting your hair for medical advice, nor would you ask your doctor to cut your hair.
There is absolutely no shame in accepting and acknowledging that you aren’t perfect at everything. That fact is what makes our society so productive! If we all tried to spread ourselves thin and do it all, chances are that nothing would get done. It’s better to focus on one skill and be great at it than it is to focus on a lot of things and be mediocre at them all.
Want to Learn More?
If the law of comparative advantage is something that interests you, do yourself a favor and read the book Freakonomics . (This book has become so reputable that it’s even in Microsoft Word’s dictionary; it didn’t even get the red squiggly line when I typed this!)
Freakonomics explores serious economic concepts, but explains them in ways that even the non-economically-inclined can understand. Economics can be tricky, but when explained in the right way, the subject can teach you a lot of valuable lessons for your life!