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Autor: anton • December 20, 2010 • 510 Words (3 Pages) • 158 Views
Specialization, division of labour, and gains from trade
Main articles: Division of labour, Comparative advantage, and Gains from trade
Specialization in production is a pervasive feature of economic organization. Its contribution to economic efficiency and technological progress has long been noted. It includes different types of output among farms, manufacturers, and service providers, economies, etc. Among each of these production systems, there may be:
a corresponding division of labour with each worker having a distinct occupation or doing a specialized task as part of the production effort,
correspondingly different types of capital equipment and differentiated land uses.
Adam Smith's Wealth of Nations (1776) notably discusses the benefits of the division of labour. How individuals can best apply their own labour or any other resource is a central subject in the first book of the series. Smith claimed that an individual would invest a resource, for example, land or labour, so as to earn the highest possible return on it. Consequently, all uses of the resource must yield an equal rate of return (adjusted for the relative riskiness of each enterprise). Otherwise reallocation would result. This idea, wrote George Stigler, is the central proposition of economic theory. French economist Turgot had made the same point in 1766.
In more general terms, it is theorized that market incentives, including prices of outputs snd productive inputs, select the allocation of factors of production by comparative advantage, that is, so that (relatively) low-cost inputs are employed to keep down the opportunity cost of a given type of output. In the process, aggregate output increases as a byproduct or by design. Such specialization of production creates opportunities for gains from trade whereby resource owners benefit from trade in the sale of one type of output for other, more highly-valued goods. A measure of gains from trade is the increased output