Research Paper on:
Comparative Advantage Case Study

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three financial statements or answer 12 calls in the same hour. To consider if they should be self sufficient or special and work together we need to apply the theory  of comparative advantages usually seen in the study of international trade. With Adam Smith we see the foundations of what was to  become the theory of comparative advantage, although this is not the formation of the theory. Smith stipulates that each nation, or in this case employee, should concentrate on producing  goods where they have the absolute advantage (Smith 1994). This means that they should produces the goods that they can produce in a more effective manner than any other nation.  Conversely, in international trade they should also import any commodity where they have the absolute disadvantage, that is where they can only  produce the commodity at a high cost than any other nation. For example, if Phil can produce 3 financial reports for the same cost as answering 12 phone calls, and  Francis can answer 10 calls for the same cost as 1 financial report, each employee should undertake the services that has the lowest cost and then trade for what it  needs. For Phil the cost of 1 report is 4 phone calls and the cost fo 4 phone calls is 1 report. For Frances the cost of 1 report is  10 calls, but the cost for 10 calls is one report. There is a problem, Phil has the absolute advantage when it comes to financial reports and with the phone  calls, and Francis has the disadvantage, with the reports and with the phone calls as the level of production in each if lower than Phil. From this perspective Phil is