Question

Exercise 1

In class, you were told about comparative advantage with examples given of businesses and industries.

Yet, the idea that people specialize into their comparative advantage and then trade with others who have

a different comparative advantage can also be applied inside families and partnerships.

In this exercise, I would like you to write a story. I want you to pick a relationship between two people

you know well. They could be husband and wife, brother and sister, close friends, business partners, or

any other close pairing. You can pick a relationship you are part of, but it could also be a relationship

between others, like friends you know, family you know, or any other relationship you know well.

Describe that relationship in terms of the comparative advantages had by each side and the trade that

there then is between them in terms of goods and services produced by each side. This means you must

describe the things that each side of that relationship is good at and what they thus produce that is then

shared (traded) with the other. Bear in mind that trade does not always need to involve money, but there

has to be a clear exchange of a good or service. Also bear in mind that trade is different from co-production

(like doing an activity together). 20 points.

Then discuss whether the trade you have described is on the basis of static comparative advantage or

dynamic comparative advantage. Motivate on the basis of the lecture slides on the dynamic comparative

advantage topic. 10 points.

As with all the concepts we discuss, I would like you to be able to recognize in the real world the

phenomena that we discuss in class. This leads to a more systematic way of perceiving the reality.

The goal of this exercise is not to explain what a comparative advantage is; it already is explained above.

Rather, the goal is for you to reflect on your own experiences and memories to find examples from your

own life of the concepts discussed in class. I am hoping to read some interesting stories.