No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Two: Fundamentals of Economic Behavior 53 course, she would have been practicing law, and being paid $500 per hour! So the opportunity cost of firing Martha would be $1,520 (3.2 hrs. X $500 per hour - $80). We can begin to see the truth: Mary has an absolute advantage over Martha in every area—she can type faster and she can practice law. But Martha has a comparative advantage at typing. The amount of legal services that Martha has to give up to type is nothing, while Mary would have to give up much more valuable time performing legal services in order to type. GAINS FROM TRADE The concept of everyone having a comparative advantage gets even more powerful when we begin to see that differences in productive capability provide opportunities for social cooperation. God is social in His Trinitarian nature, and has designed us to be social both with Him and with others. The very God-given differences between people provide the basis for cooperative interaction, as we shall see below. We are rewarded for working together in relationship, whether by increased productivity from the division of labor and gains from specialization, or by trading with one another. One of the central themes of this text is that God has designed positive and negative sanctions, both carrots and sticks, to help guide our behavior. Gains from trade are a powerful motivator for us to cooperate and work together despite our differences—differences which otherwise might make us enemies. For an elaboration on these contexts, listen to Professor Don Boudreaux: The Hockey Stick of Human Prosperity COMPARATIVE ADVANTAGE Even though someone may have an absolute advantage in all areas, everyone has a comparative advantage at something , once we appropriately consider the opportunity cost of our time. OPPORTUNITY COST Mary : Every 19,200 words typing takes 3.2 hours that could have performed legal work valued @ $1600 Martha : Every 19,200 words typing takes 8 hours that had no other alternative, and costs $80