Chapter 3 Journal

C hapter Three aimed to emphasize one of the 10 Principles of Economics that were introduced in Chapter One: Trade Can Make Everyone Better Off. Mankiw explains the concepts of absolute and comparative advantage, and gives the reader a more in depth look at what opportunity is. While I thought that the analogy used throughout the chapter about the farmer and the rancher was a little hard to understand, the example that really helped to make these concepts click for me was the example about Tiger Woods. Basically, it explained that Tiger Woods could mow his lawn in 2 hours, while the boy next door could mow it in 4, meaning Woods has an absolute advantage. However, in those same 2 hours, Tiger Woods could make a commercial and make $10,000, and the boy could work at McDonald's and make $20. This means the boy has the comparative advantage because he has less to lose. This is where a began to understand opportunity cost: Tiger Woods should do the commercial, even though he could mow the lawn more efficiently than the boy, because he has more to lose, and as long as he pays the boy somewhere between 20 and 10,000 dollars, both of them end up better than they started. Something that I really started to understand with this analogy is that opportunity cost isn't just about money, but other factors, for example labor is factored into opportunity cost, as is time. Tiger Wood's time is much more valuable than the boy's, so he has more to lose.