"Hapless, hopelessly clumsy Gilligan is washed ashore along with the competent, self-assured skipper. Two tasks must be done -- fishing and building shelters. Assume that the skipper can catch a fish dinner in 10 hours and build a thatched hut in 20, and that Gilligan usually hooks himself and takes 15 hours to catch fish and 45 hours to build hut. By Adam Smith's logic, the skipper should move as far away from Gilligan as possible, building and fishing on his own, since he outperforms Gilligan in everything. But economists still shudder with reverence when Ricardo shows that the skipper should split the chores with Gilligan!
Let's first calculate how many fish diners and huts they could build on their own, spending half their time fishing, the other half building. Assume that during a year, the skipper will work a total of 2,000 hours and his younger first mate Gilligan is ordered to work 3,600. If the skipper spends 1,000 hours on fishing, he will garner 100 fish dinners; and 1,000 hours of hut building by him will produce 50 huts.Gilligan's 1,800 hours of fishing will bring 120 dinners; and 1,800 hours of building will make 40 huts. So the total number of dinners on the island is 220, eaten in the comfort of 90 huts.
What happens if they specialize? If the skipper spends all his time on huts, he will construct 100; if Gilligan concentrates on fish, he will return with 240 fish dinners. Thus the island has increased output dramatically just by specializing, even though Gilligan was far less competent in both tasks!
Imagine Ricardo responding to Smith's hypothetical insult of the French by saying "I dislike French as much as Adam Smith did. But I do not snicker at them just because they cannot do anything as cheaply as we can. I would trade with them despite their inferiority."
The next key question is: how do we know what to specialise in? Let is return to the island. Since it takes the skipper twice as long to erect a hut as it does to catch dinner, he gives up two dinners every time he builds a hut. But Gilligan, who takes three times longer to build a hut than to catch dinner gives up three dinners everytime he builds a hut. Since building hut is a smaller sacrifice for the skipper, he shoud build huts. Ricardo showed that people and coutries should specialise in whatever leads them to give up the least. This is their "comparative advantage." And the sacrifice they make by not producing a good is their "opportunity cost." Thus, specialisation is determined by whoever has the lower opportunity cost.
The point of Ricardo's analysis: free trade makes it possible for households to consume more goods regardless of whether trading partners are more or less economically advanced. The point of Ricardo's Corn Law position: If French farmers are willing to feed us for less than it would "cost" us to feed ourselves, let us eat French food and spend our time doung something else."
excerpt taken from New Ideas From Dead Economists, by Todd G. Buchholz
I think the conclusion I can make of this theory is that two heads are really better than one. Regardless of skill or intelligence, dividing work load does make some things easier to accomplish.
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