Comparative Advantage Demo

If this is your first time here, see below for introduction
Agora and Merca Production Schedule
Buns: 20
Franks: 25
Emporia and Prota Production Schedule
Buns: 30
Franks: 22
More Options


Agora Hotdogs: 0
Emporia Hotdogs: 0
Agora and Emporia Hotdogs: 0
Merca Hotdogs: 0
Prota Hotdogs: 0
Merca and Prota Hotdogs: 0

Welcome to the Comparative Advantage demo.

This is a simulation based on Paul Krugman's hotdog economy.

We have 4 countries: Agora, Emporia, Merca and Prota. Each country can produce buns, franks or hotdogs. The goal is to produce hotdogs and a hotdog requires a bun and a frank. To introduce opportunity cost, a country cannot produce buns and franks at the same time. When you set the Production Schedule, you set the time it takes, in simulation ticks, to produce buns and franks. The UI will show you the opportunity cost for franks, which is the amount of buns a country gives up in order to make a frank. In other words, how many buns a frank costs. The bun opportunity cost is the reciprocal of the frank cost.

Agora and Merca use the same production schedule. Emporia and Prota likewise use the same production schedule. Agora and Emporia will trade with each other, while Merca and Prota will not trade with anyone. This allows you to compare the productivity of the trading countries with those that do not trade. Visually, the simulation shows a ship transporting goods between the two trading countries and a barrier of trees between the non-trading countries.

Some stats from the simulation are displayed to the right of this text. You can also click on almost any component in the simulation to get information on that component. Click again on the blue popup to dismiss it.

Some things you can explore with this simulation: what happens if the opportunity costs of Agora+Merca are close to that of Emporia+Prota? What happens if they are far apart? What happens if you let the simulation run for a while? There is a small transaction cost to trading, so if the opportunity cost is too close between the trading countries, Agora and Emporia, they will not trade. To indicate this, the ship will not appear.

The opportunity costs between Agora and Emporia will be the same if their production schedules are identical. It will also be the same if the schedule for buns and franks are the same multiple of each other. For instance, if the production schedule is 4/8 for Agora and 8/16 for Emporia. In that case, the opportunity cost is 2 for each country and trade is not beneficial.

Under 'More Options', you can choose to run the simulation faster and force trade, which will make Agora and Emporia trade even when it's not beneficial. When the simulation is running, you can also save a snapshot of the current state, which will appear at the bottom of the page. This allows you to compare total production over time. You can also use it to compare different scenarios. Here is another scenario you can try: run the simulation for a bit and save a snapshot. Then restart it with the production for Agora+Merca improved. Save a snapshot around the same time as the previous snapshot. What happens to the total production of Emporia?

If you change the production schedules while the demo is running or paused, you need to use the "Reinitialize" button to adopt the new settings.

All images were created by Craiyon.

In this Video you can see more information about comparative advantage.