Comparative Advantage for Everyone

One of the most profound insights from economics, made simple:

Let’s say I have a day job as contract web developer for which I get paid $50/hr. After work, I can either eat out for dinner or buy ingredients and cook at home.

When I go out to eat, my favourite meal is a Thai stir fry which has meat, vegetables and rice, which I can buy for $10. The resturant takes care of all the preparation and cleaning. All I do it eat and leave.

When I eat at home, I might prepare something in the kitchen with frozen vegetables, beef and potatoes, and the ingredients for that will average out to $5/day over the course of a week.

On the surface, it seems that I am saving $5/day when I eat at home, but this is not the whole story.

In addition to the time spent shopping, I will also have to spend time to unpack and prepare the ingredients, wait for them to cook and clean up afterwards. Let’s say that the total time from preparing to washing up takes 1 hour.

What If instead of doing that, I worked for an additional hour per day and decided to always eat out?

I would earn an extra $50, spend $10 on the Thai meal, leaving me up $40 from my starting balance, and $45 ahead of cooking at home. Amazing.

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