ABSOLUTE AND COMPARATIVE ADVANTAGE or COWBOYS vs. NINJAS in the ACTION FIGURE INDUSTRY
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. 🥷
Absolute Advantage
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 have factories producing 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.
American Cowboys: 🇺🇸 🤠🤠🤠🤠🤠🤠🤠🤠🤠
Japanese Cowboys: 🇯🇵 🤠🤠
American Ninjas: 🇺🇸 🥷🥷🥷🥷🥷🥷
Japanese Ninjas: 🇯🇵 🥷🥷🥷🥷🥷
America wins! Yee-haw! Ok, but we're only midway 🏝️ through this explanation so keep reading...
Comparative Advantage
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. After all.
🇺🇸 🏭🏭🏭 🤠🤠🤠🤠🤠🤠🤠🤠🤠🤠 🥷🥷🥷🥷🥷🥷
🇯🇵 🏭🏭 🤠🤠 🥷🥷🥷🥷🥷
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! Japan wins (at comparative Ninja production).
Why? Because comparative advantage isn’t about who can make more—it’s about who gives up the least to produce something.
Comparative advantage can be defined as the ability to produce goods at a lower opportunity cost than others.
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.
Takeaway
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 of normal adults who don't play with action figures.
🥷🤝🤠
Fun Fact: The US action figure market is expected to reach USD 3.22 billion in 2025. Japan's market is between 1 and 2 billion dollars - punching above their weight. Haiyaa!
Here we see the United States has an absolute advantage in the production of ninjas. If the US only makes ninjas they can make 7 (kazillion units), while Japan can only make 6. Now that doesn't mean that Japan shouldn't make ninjas - it just means that America has an absolute advantage in ninja action figure production.
The United States also has an absolute advantage in cowboy production. But so what? The question is who should make the cowboys and who should make the ninjas?
To get a better handle of who should do what, let's think about what production would be in terms of cowboys. Let's drag both lines up and down so both countries start at 5 cowboys. For every 5 cowboys America can produce 5 ninjas, but for every 5 cowboys Japan can produce twice as many - so 10. Japan's production is way off the chart! Ahh so this is the power of comparative advantage?!! Nothing says Japanese like skyrocketing efficiency!