specialisation and trade

• Specialization


  The concentration of production on a narrow range of goods and services
• Entities that can specialize


  • Countries
  • Regions
  • Firms
  • Workers
• Advantages of specialization


  • Higher output and maximization of output
  • Mutually beneficial trade
  • Greater allocative efficiency
  • Greater productivity
• Specialization requires


  Mutually beneficial trade
• Specialization leads to


  • Export revenues rise
  • Economic growth rise
  • More job opportunities
  • Higher incomes
• Specialization leads to


  • Greater living standards
  • Greater choice for consumers
• Specialization can drive greater productivity as workers specialize
• Specialization can lead to lower cost of production that can be passed on to consumers via lower prices
• Specialization can lead to quality improvements
• Issues with specialization


  • Finite resources
  • Changes in fashion or taste
  • Foreign competitors becoming more efficient
• If trade is blocked due to international relations issues

  Specialization won't give benefits
• Division of labor


  The production process is broken down into separate tasks
• Advantages of division of labor


  • Worker productivity increases
  • Time savings
  • Lower cost of production
  • Output maximized
  • Profitability increases
  • Complementary machinery increases productivity
• Division of labor leads to


  • Low prices
  • High consumer surplus
  • High quantity
  • High choice
  • High quality
• Issues with division of labor


  • Worker demotivation and declining productivity
  • Risk of long-term unemployment due to over-specialization
  • Standardized goods and services