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How We Teach Comparative Advantage in YE

In Youth Entrepreneurs, middle and high school students learn economic principles and gain an understanding of how they apply to the real world. One of those principles is Comparative Advantage, also known as Ricardo’s Law.

“Comparative advantage is helping someone create the highest value contribution by thinking about what costs they are incurring to produce it,” said Lydia Hampton, YE Training and Curriculum Specialist. “It’s first looking at how much something costs, then assessing the most value they can provide with the cost they’re having to give up.”

This idea, developed by David Ricardo in the 1800s, can sometimes be difficult to explain, but Lydia notes that when students get it, it’s really powerful.

“When students understand comparative advantage, it forces them to think about key partners in their projects; to think about other people who are better at certain things than they are,” Lydia explains. “I want them to ask themselves, ‘If I’m spending time focusing on this problem, what problem am I not solving?’ It may be a better exchange to pay someone else to do it so they can focus on what’s important.”

In the classroom, YE educators often use the idea of imports and exports as an introductory example to comparative advantage. Why do imports and exports exist? Some countries do things better or more efficiently than others, so they have a comparative advantage. The United States is able to grow tomatoes, but a country like Mexico grows tomatoes more efficiently. So instead of using excess money and energy to grow their own, it serves the U.S. to purchase them from someone else who does it well.

In the YE classroom, educators apply this idea with their students and others in the community. When students plan Market Day, they may need to look outside their own group to see if they can create a trade with someone else who has skill or expertise in an area they need. This also applies to other group activities, like making a pitch. Groups should think about who is best at public speaking and who is best at writing, and assign tasks accordingly.

Lydia and the l teachers she works with see students having the mindset shift of understanding comparative advantage all the time. Thinking back to her time as a YE teacher, Lydia recalled Darius, one of her students in the program:

“Darius was passionate about writing and performing music and wanted to produce some CDs. He recognized there were multiple tasks that would come with this project that would take his focus away from songwriting, which was his strength. So when it came to Market Day, where he wanted to sell his album, he enlisted someone else to work on graphic design for the CD and to help with logistics like burning the CDs. He had another friend make t-shirts. This allowed him to focus on the music itself. And now he’s in a college music program to become a music producer! He’s done a really good job at recognizing comparative advantage.”

Darius and students like him really understand the benefits of using others’ strengths to build up your own. This understanding helps young entrepreneurs in all aspects of life over the long term.

“The great benefit comes when you recognize what you can specialize in and then provide value for others,” Lydia said. “That’s what takes teen entrepreneurs down the road, realizing they don’t have to be good at everything. It’s quality over quantity that works to everyone’s advantage.”

Visit YEAcademy.org for curriculum on the 10 Economic Principles.