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Should LeBron James Mow His Own Lawn? Opportunity Cost, Absolute Advantage, & Comparative Advantage
Should LeBron James Mow His Own Lawn?Opportunity Cost, Absolute Advantage, &
Comparative Advantage
Should a country produce everything that it wants? Why or
why not?
If Country A is better than Country B at producing everything, would
Country A gain anything from trading with Country B?
When a new home is built, why doesn’t one person do the
carpentry, electrical, plumbing, and landscaping?
Answer the following
questions on a piece of loose leaf paper...
OPPORTUNITY COST
The value for the next best alternative.
COMPARATIVE ADVANTAGE
The ability to produce something at a lower opportunity cost than
other producers.
ABSOLUTE ADVANTAGE
The ability to produce something using fewer resources than other
producers.
THE LAW OF COMPARATIVE ADVANTAGE
An individual, firm, region, or country with the lowest
opportunity cost of producing a good should specialize in
that good.
Assume that LeBron James is both a
great basketball player
great lawn mower
and
HOWEVERLeBron has a young neighbor named
Scotty who is willing to mow his lawn.
Consider the following facts:
LeBron can mow his lawn in two hours. He could also film a Nike commercial in two hours and make $10,000. Scotty can mow LeBron’s lawn in four hours. He could also work at McDonald’s for four hours and make $8 per hour.
LeBron (in 2 hours) Scotty (in 4 hours)
Mow a lawn or make a commercial and earn
$10,000
Mow a lawn or work at McDonalds for $8/hour
What is LeBron’s opportunity cost of mowing his lawn?
What is Scotty’s opportunity cost of mowing his lawn?
Who has the absolute advantage in mowing the lawn?
Who has the comparative advantage?
Would LeBron benefit from a trade?
