ECON1101 - The Advantages of Specialisation

The Advantages of Specialisation (vs everyone being a jack of all trades):

Specialisation creates a total greater output.

Example

The town needs 16 bundles of firewood in 8 hours.

Scenario A: Fred spends half his day on firewood, and half his day on shoes. He hence has 12 firewood bundles and 24 shoes. George makes up the remaining 4 firewood in 2 hours, and uses his next 6 to make 12 shoes. Leaving a total of 16 firewood and 36 shoes.
Scenario B: Fred spends all his time on shoes, making 48 in the day. George spends all his time on firewood, collecting the 16 needed. With the same amount of firewood, we have gained 12 more shoes.

With specialization (and hence trade) the consumption potential outweighs the production potential.

Example

Peng collects 4 bags of coffee an hour, or 2 of nuts. Alex collects 2 bags of coffee an hour, or 4 of nuts.
In a 6 hour working day they can each collect 8 bags of each, or collect 24 of their specialty and trade to have 12 each.

Why People Are Slow To Specialise

  • Population density and geographical isolation (However! The Internet!!)
  • Laws and customs that limit trade freedom

Can we have too much specialization?

Benefits: greater produce, more overall (less individual) knowledge/abilities
Costs: One source of income leaves us vulnerable to market movements.