Karla and Steve are both small business owners. They both don’t have an important piece to keep making their goods. They come to realize that they can help each other out and benefit from it.
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Hey Karla, how's your chocolate covered strawberries business so far?
Karla and Steve are small business owners. Steve makes flower bouquets and Karla makes chocolate covered strawberries
Hey Steve, sadly I had to pause deliveries today because I didn't have enough strawberries
well I think I can help you with that. As you can see I grow strawberries on my land. I have an idea, I think we can help each othr out
Since I specialize in making strawberries and your family specializes in making wrapping paper which I don't have anymore. If we exchange goods, We can divide the labor to produce our services smoothly.
This would also be their absolute advantage
what's your idea?
That sounds like a great idea. So me making wrap paper and you picking the strawberries concludes our comparative advantage which is when they can produce a good or service at a lower opportunity cost than someone else
Exactly, lets put it on a chart. Come lets head inside
Productivity Chart strawberry paperKarla 45/20 20/45 Steve 5/95 94/5