Let's consider a very simply example. Suppose you and your roommate decide to start a business in your spare time putting together a website, www.gerbilsweaters.com, to sell sweaters for gerbils. You could both knit gerbil sweaters and both work on designing the site and setting up the web server, shopping-cart software, sweater database and website. However, suppose you are more skilled at knitting tiny sweaters and your roommate is more skilled at website design. If you agree that you will do all sweater knitting and that she will do all the site design and coding, you have engaged in trade. You have a comparative advantage in knitting and she has a comparative advantage in web design, so both jobs are done in less time because you enjoy gains from trade. The site will be built faster and you'll have more sweaters to sell than if you both worked on both tasks.
Copyright © 1995-2004 OnLineTexts.com, Inc. - All Rights Reserved