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Skills: Diversity And Specialization

Comparative advantage is also measured by the salary yardstick, and how much a person’s time, skills and core skill sets are worth.

Example: Michael Jordan is a skilled basketball player, and is very tall. If he wants, he could paint his own house by himself and do it quickly due to his height. But as he is also a skilled sportsperson, he could earn much more in that time, and probably hire someone else to paint his house, even if the hired painter (who has a comparative advantage due to his specialization of painting houses) takes more time to do it.

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The law of comparative advantage was first mentioned in 1817 by English economist David Ricardo.

Governments around the world impose rules, regulations and restrictions like:

Certain countries have unique strengths, local resources and talent that can be a comparative advantage to them, and make products at a cheaper cost than other countries. If they indulge in protectionism, the end result is higher costs and inefficiency for all.

When a company is at a better position to provide strong value to the customer, it is said to be at a competitive advantage.

An opportunity cost is the potential ‘alternative’ or benefit that is forfeited when one chooses a particular option.

  • Comparative advantage is only an advantage of a lower opportunity cost, and does not factor in volume or quality.
  • Absolute advantage is the pure ability of a company to produce better goods or services (in quantity or quality) than...

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