Explaining one of the oldest models of comparative advantage
In recent articles, I discussed both the benefits of trade and the concept of comparative advantage. As we know, a country has a comparative advantage in producing a good if the opportunity cost of producing that good is lower in that specific country than it is in other countries. We also know that trade between two countries can benefit both countries if each country exports the goods that they have a comparative advantage in.
Although it is easy to understand how the concept of comparative advantage might work, it is more difficult to understand just why comparative advantage shapes international…
Economics can be a difficult subject to learn, so it’s no surprise that many students are intimidated by economics classes in high school and college. But at it’s core, economics is the study of how humans interact with value. Economics studies what people value and how their values influence their actions.
To really break down economics, it’s important to look at the underlying principles that are foundational to the field. This list is adapted from “Modern Principles of Economics” by Tyler Cowen and Alex Tabarrok.
1. Incentives Matter
The first economic principle is that incentives matter. …
Explaining the distinction between both terms
Economists often focus on the externalities that occur between individuals. Externalities can be thought of as a cost or benefit that is imposed on a party without the party agreeing to incur that cost or benefit.
Two common externalities that we see in the real world are trespasses and nuisances. We’re all familiar with those terms — after all, it’s not difficult to find private property that is marked with “No Trespassing” signs. But what exactly is the difference between a trespass and a nuisance?
A trespass is defined as a physical invasion of another individual’s land. This standard is…
Explaining the theory of comparative advantage
Why do we trade?
You might not always think about it this way, but you’re trading all the time. You trade with the owner of the gas station by exchanging money for the fuel you put into your car. You trade with the grocer when you buy food each week. You trade with your landlord when you lease your apartment each month. In a broader, institutionalized sense, we trade with the government by paying taxes to enjoy public benefits (government defense, social security, and infrastructure).
We’re always trading, but why do we do it? Aren’t there alternatives to trade? Couldn’t…
Explaining when and why your rights may be limited
I recently explained the importance of private property rights, describing how rights can lead to an increase in investment and economic growth. But now let’s take a look at another question: are property rights absolute?
In other words, can your property rights ever be limited?
The simple answer is that yes, your property rights can be limited.
As we learned earlier, the broad bundle of property rights includes a few simple rights. …
Explaining why it’s essential to economic growth
Why do we need private property laws? Couldn’t we all just share property together?
No, not really. As Daniel Cole and Peter Grossman write in “Principles of Law and Economics,” productive capital is the result of both “economically valuable assets and the sociolegal fact of functional and secure property systems to govern those assets.”
The authors quote the Peruvian economist Hernando de Soto, who wrote that property rights are a “staircase” that allows countries to move “from the university of assets in their natural state to the conceptual universe of capital where assets can be viewed in their full productive…
A lesson in successful marketing and restoring consumer trust
Since its inception in 1993, Chipotle has grown to become one of the most popular fast-casual restaurants, successfully balancing the convenience of fast food with the quality of a casual, sit-down restaurant. Chipotle’s growth hasn’t been easy, though — over three years between 2015 and 2018, the company faced reports that consumers were contracting E. coli and norovirus after eating Chipotle. These scandals tainted the company’s reputation for a brief period, but the restaurant was able to restore consumer trust and continue growing.
What is Chipotle’s secret? Yes, good food attracts consumers, but most companies wouldn’t be able to survive…
And what’s holding them back from further growth
I recently wrote about Morning Brew, the newsletter that covers updates in the business and tech industry. Founded by two college students in 2015, Morning Brew grew rapidly and was sold in 2020 to Business Insider. The deal valued Morning Brew at $75 million.
Morning Brew is not the only newsletter founded in 2015 that has amassed widespread success. Another 2015-established newsletter, The Hustle, was recently acquired in a deal that valued the company at an estimated $27 million.
Sure, $27 million is a bit smaller than Morning Brew’s $75 million valuation. But if you were Sam Parr, the founder…
It’s time to wake up to everything around you
At the end of the day, do you find that you can’t remember what actually occurred within the past 24 hours?
You woke up, went to work, ate lunch at noon, worked some more, and then went home. You ate dinner, caught up on your favorite TV show, scrolled through social media for an hour, and then got ready for bed. The next morning, you woke up and began the same routine.
It’s easy to feel like you’re stuck in the same routine, doing the same thing over and over again. It happens to all of us. We become comfortable…
How nine years of innovation led to success
Chances are high that you didn’t know about Zoom one year ago.
Unless you’re a tech junkie who follows the market and watches IPOs carefully, you likely paid no attention when Zoom became a public company in April of 2019. Perhaps you read about Zoom on a finance article, perhaps you saw an advertisement about it on social media — but you probably did not truly know about it.
Until the pandemic began, of course.
In March of 2020, as the COVID-19 pandemic began to spread rapidly across the United States, Zoom suddenly emerged as the greatest technological marvel of…
Aaron Schnoor
Occasional Writer, Full-Time Student at Campbell University, and Editor of Exploring Economics
