Advantage in production of two products
Explain by giving example of an absolute advantage in production of two products?
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A CPA can paint her house faster and better than a painter. She earns $50 per hour as accountant and can hire a painter for $15 per hour. The CPA can do the painting job in 30 hours; it takes the painter 40 hours. Should she hire the painter? On economic grounds, the opportunity cost is greater for the accountant to paint her house. She is better off to specialize in accounting rather than sacrifice 30 x $50, or $1500, to paint her house, when she can hire the painter for 40 x $15, or $600. The accountant will gain, and the painter will also gain because he is very inefficient in accounting. It may take him 10 hours to prepare his tax return which would mean 10 x $15, hours or $150, in opportunity cost, whereas the accountant could probably complete the forms in 2 hours for a cost of $100. This example shows that even if a person (the accountant) has an absolute advantage in production of two products (painting and accounting), it is still advantageous to specialize and trade. The same is true for nations.
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