A and B need both coconuts and fish. If A catches fish and B collects coconuts, they will produce 20 fish and 10 coconuts per day, but if A collects coconuts and B catches fish, they will produce 16 fish and 20 coconuts. Since they both agree that 1 coconut is worth 1 fish, they will collectively produce more units of value (36) if A collects coconuts and B collects fish than if they divide their labor the other way around (30 units of value).

In economic jargon, A has an "absolute" advantage in both coconut and fish production. B, however, has a "comparative" advantage in producing fish since he can produce 16 units of value per day for an opportunity cost of only 10 units of value.

GROWTH

Every day we are exposed to the notion that growth is very important and we could be forgiven for wondering why. While there may be philosophical differences over the true value of growth (some people may prefer to live simply, while others want everything they can get), many misunderstandings arise because of confusion over the concept of economic growth.

Economic growth is the increase in the total production output of an economy. As long as output grows faster than the population, the standard of living increases. Economic growth happens when an economy either finds new resources or when it finds ways of producing more using existing resources. Since the Industrial Revolution that began around 250 years or so, much of the world has done both. The population has increased dramatically (see Table 2.3), yet living standards have, overall, gone up.

Year	-	Corn	-	Wheat
-	Yield per	Labor hours	Yield per	Labor hours
-	Acre (BU)	per 100 BU	Acre (BU	per 100 BU
1939	26.1	108	13.2	67
1949	36.1	53	16.9	34
1959	48.7	20	22.3	17
1969	78.5	7	27.5	11
1979	95.3	4	31.3	9
1985	107.2	3	36.9	7
1990	112.8	NA	38.0	NA
1995	120.6	NA	38.1	NA