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ABSOLUTE AND COMPARATIVE ADVANTAGE or COWBOYS vs. NINJAS in the ACTION FIGURE INDUSTRY

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When it comes to international trade, two key concepts often come up: absolute advantage and comparative advantage. Let’s break them down considering the production of 🇯🇵 Japanese ninjas and 🇺🇸 American cowboys, and their possibly less well known cousins: 🤠 Japanese cowboys and American ninjas. 🥷

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Absolute Advantage

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Absolute Advantage is relatively simple—it's when one country (or person) can produce more of something than another with the same resources.

 

Imagine America and Japan both produce action figures: ninja action figures and cowboy action figures.

 

America is huge, with more factories, workers, and resources, so it produces more of both ninjas and cowboys. That’s absolute advantage—America is just bigger and faster overall. ​

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American Cowboys: 🤠🤠🤠🤠🤠🤠🤠🤠🤠🤠 

Japanese Cowboys: 🤠🤠

American Ninjas: 🥷🥷🥷🥷🥷🥷🥷

Japanese Ninjas: 🥷🥷🥷🥷🥷🥷

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America wins! Yee-haw! Ok, but we're only midway through this explanation so keep reading... 

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Comparative Advantage

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Even though America can crank out more of everything, Japan is way better at making ninja action figures than it is at cowboys. Ninjas are kind of their thing.

 

Meanwhile, America isn’t bad at ninjas, but it’s way better at making cowboy action figures than Japan is. This means Japan has a comparative advantage in ninjas, and by extension America has a relative comparative advantage in cowboys. ​

 

Banzai! 

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Why? Because comparative advantage isn’t about who can make more—it’s about who gives up the least to produce something. Japan sacrifices fewer resources making ninjas, while America sacrifices fewer resources making cowboys. So, if both countries specialize—Japan makes ninjas 🥷 America makes cowboys 🤠—and trade with each other, they both end up with more action figures overall.

 

However to fully understand this you need to study the concept of opportunity cost. 

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Takeaway

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Even if you’re great at everything, focusing on what you’re relatively best at and trading with others is the way to maximize efficiency. Plus, the world gets more ninjas and cowboys, which is a win for everyone. Except for the vast majority who don't play with action figures. 

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