Grp04 S01 - Comparative Advantage Qn01

1(a) If a lawyer earns $100 per hour at practicing law but can also type faster than her secretary who receives $10 per hour, does it pay for the lawyer to fire her secretary and do her own typing? Ans: No 1(b) The reasoning you employed in answering (a) is an example of what principle? Ans: This is based on David Ricardo’s comparative advantage. The lawyer might have absolute advantages in both practicing law and typing but if the lawyer spent an hour typing instead of practicing law, the lawyer loses $90. Since the secretary can only type and not being able to practice law, she will have a comparative advantage in typing whereas the lawyer has comparative advantage in practicing law. Therefore the secretary should just continue to type for the lawyer even though she might not be able to type faster than the lawyer.