Tuesday, October 13, 2009

Comparative Advantage--The Engineering Way

Hi, my name is Gareth McDonald and tonight I'm writing Sam's econ post for him. I am a fellow EE student and we have spent many hours doing homework and labs together over the past couple years. Tonight he asked me to write his econ assignment for him to illustrate the principle of comparative advantage in a somewhat usual way. Here's how.

I am better at Electrical Engineering than Sam is (according to him, anyway). He is better at Econ. We both have a midterm in our Communcations Systems class tomorrow and he has this post due tonight. Looking at the simple definition of Comparative Advantage--"do what you're better at" one would think that he should write his Econ post while I study for the midterm. Then we can trade and exchange. I'll help him with the EE studying and he will share economic insights with me.

But we live in a world of scarcity. There may not be enough time for him to do both. So now we have to start looking at opportunity costs. Is it worse for him to do badly in the midterm or to not write an econ post? Well Sam tells me he loves econ but EE is his major so it is more important for him to study for his exam.

Why am I writing his assignment then? I don't have the "comparative advantage" at econ. Well the answer lies in the true definition of comparative advantage, one that takes into account the opportunity costs of situations. Sam needs to study for his midterm but also needs to post his econ assignment. It's very expensive for him not to study for his midterm, but not so much for me. I can study a little bit and do very well at the exam because I have a very good advantage in electrical engineering. So while Sam studies I write this econ post.

What's the incentive for me to write the econ post (you should ask)? I am hedging against future uncertainties based on past occurences. I got sick last week and missed a take home quiz, the professor allowed me to take it late and Sam helped me with some of the concepts because he had done it already. This could happen in the future, I might miss a homework assignment or not have time to read up on a chapter and if Sam has, he can help fill me in. So by writing his assignment tonight I engaging in some sort of hedging action.

Besides, he says he'll give me the $5 he gets for posting this assignment.....


  1. Only $5 eh? Sam gets $10 for every post...

  2. So I think this goes to show that Sam has the absolute advantage in bargaining skills.

  3. This is another example of how comparative advantage quickly becomes a race to the bottom. I'll write a better post for $4. (Trust me, the post will be amazing.) You get to pocket a buck for nothing! FREE LUNCH!

    I'm guessing there's a Chinese person who would happily produce a post for the blog for a quarter or even less. Do they have a comparative advantage in blog posts? Maybe? Any way if you want your next post written by me, send me 4 bucks + 25 cents (shipping and handling fee).