Comparative Advantage Explained

Every year, Christmas dinner preparations always seem to create family tension. My dad, a restaurateur by trade, orders everyone around the kitchen on different tasks while he attends to the centerpiece of the meal: the filet of beef. However, a combination of my dad's imperious demeanor and everyone else's reluctance to be bossed around usually ends in a family spat. A common rejoinder to an unsolicited prandial directive is: "why don't you just do it all yourself?" The appropriate retort, it occured to me this year, is: "comparative advantage."

Bren (my dad) is clearly the best cook in the house. He holds the absolute advantage in all aspects of meal preparation, from seasoning the potatoes, sauteing the brussel sprouts, to cooking the beef filet to juicy perfection. The reason he does not just take care of cooking the whole meal is because he faces the constraints of time, and we must consider what he gives up when he devotes time to different tasks.

The way the tasks are divided depends on each family member's opportunity cost for each task, or what they have to give up to complete each task. For illustrative purposes let's say there are three family members: mom, dad, and son, with three tasks to be completed: beef, sprouts, and potatoes. Dad cooks a mean beef filet (compared to mom and son), while his potatoes and sprouts are only marginally better than mom's and brother's. So, in exchange for a significantly better beef filet, we sacrifice only marginally worse potatoes and sprouts.

Essentially, each family member acts like an individual country in the kitchen producing their own good, which is then exchanged for other people's goods (at the buffet line). The overall quality of the dinner can be thought of as the overall welfare and sum of gains from trade.

Overall welfare increases (gains from trade) as an extra producer joins the kitchen because the total available work time increases. The constraint has been expanded, allowing room for overall welfare to increase. In reality, other constraints likely have an effect too. For example, cooking ability might be another constraint considered in addition to time, that would affect each person's opportunity costs.

Click on the image below for a numerical follow-up to the above example...