Comparative advantage, on its face, is indeed a difficult idea. Our unexamined gut reaction to the question “who should do X?” is to say “the person who is best at X.” Part of the confusion of comparative advantage rises from this word “best.” Best according to what metric? Typically, people use “best” in an absolute manner: who can, in absolute terms, produce the most. If a senior lawyer can write 8 briefs in a day and his junior partner can write 2 briefs a day, the senior lawyer should write the briefs because he is “best” at it. Likewise, if the senior lawyer can spend the same amount of time and write 4 divorce settlements and his junior partner can write 2 divorce settlements, it may seem like it’s best for the senior lawyer to write the divorce settlements as well. Why, then, does the senior lawyer employ a junior partner? The answer is because the senior lawyer’s time is scarce: every minute he spends writing a brief is one minute he cannot be writing a settlement. It would make sense for him to employ a junior partner to free up some of his time.
When economists use the word “best,” we mean whoever can produce with the lowest cost; it does not always make sense for one person to do everything.
In our example above, let’s say that each day is 8 hours. Thus, the senior lawyer can spend his 8‑hour day either writing 4 divorce settlements or writing 8 briefs. His partner can spend the same day writing 2 divorce settlements or writing 2 briefs. The (opportunity) cost1 for the senior lawyer of one settlement is 2 briefs. Alternatively, the cost of one brief is 1/2 a settlement. For the junior partner, her cost of writing settlements is writing 1 brief. Conversely, her cost of writing a brief is 1 settlement. This is represented in Table 1 below:
|Cost of doing one of each:||Senior lawyer||Junior Partner|
|Divorce Settlement||2 briefs||1 brief|
|Briefs||½ divorce settlement||1 divorce settlement|
We can quickly see, then, that each lawyer has different costs facing them for the same tasks. If the each specialize in the tasks that incur the lowest cost, they can combine their forces and produce both more briefs and settlements then they could do alone. In our example above, the senior lawyer would specialize in writing briefs (since it only costs him ½ of a settlement, as opposed to 1 settlement for the junior partner) and the junior partner would specialize in settlements (since it only costs her 1 brief whereas it costs the senior lawyer 2 briefs).
By specializing according to their comparative advantage (what they do at least cost), they can produce a total of 8 briefs and 2 divorce settlements. If the senior lawyer divided his time evenly and did it all himself, he would produce 4 briefs and 2 divorce settlements. Producing by comparative advantage creates more output than relying on just the person who is absolutely “best.”