Strategic Management And Business Policy

Economics in a Global Environment

Instructor: Ramin Maysami

BUS305-0504B-24 Unit 1 IP - 1

Introduction to Economics

Nathaniel Davis

November 16, 2005

"A person has a comparative advantage at producing something if he can produce it at lower cost than anyone else.

Having a comparative advantage is not the same as being the best at something. In fact, someone can be completely unskilled at doing something, yet still have a comparative advantage at doing it!" (The Library of Economics and Liberty, 2004)

If you add the numbers for both Phil and Francis for a week, you can see that Francis has an absolute advantage over Phil when it comes to producing both products.

Phil Francis

Statement Phone Calls Statement Phone Calls

1=PH* 10=PH* 3=PH* 12=PH*

8=PD* 80=PD* 24=PD* 96=PD*

*Per Hour

*8 Hours Per Day

With the two financial planners, Phil and Francis, their out-put can be explained in conjunction with productivity and opportunity costs. Phil's opportunity cost of one financial statement versus answering 10 phone calls. This is almost similar with what Francis's opportunity cost, three financial statements versus 12 phone calls.

It would benefit Francis to specialize in