Tuesday, February 8, 2011

Continuing lesson from the blizzard - Comparative Advantage

There is a concept in economics that each entity be it individual, business or nation needs to maximize it's comparative advantage. Example, if you run a restaurant than it is probably a good idea to hire a plumber to handle water and waste issues at your establishment rather than spend the amount of time required to master the skill necessary to fix it yourself. Your skill or comparative advantage after all is running a restaurant.

The concept also applies to snow shoveling. Would it be best to hire out the process or do it yourself. Here is where the problem lies and it is a simple cost analysis. You need the walkway in front of your business shoveled now, however the organization that you have hired is not available now because they are of course swamped with other clients. Do you A) offer them more money to come to your establishment first or B) do the work yourself? Most business choose to do the this work themselves because they view the cost associated with waiting or incurring more expenses as an avoidable negative.