What is specialization?

1. What is specialization? Specialization is when an individual or a company specializes in doing one part of a task, and relies on others to complete the other parts.

2. Specialization A division of labor occurs when the production of a good is broken down into numerous separate tasks with different workers performing each task.

3. Specialization Within a single country, different regions specialize in certain economic activities. A country’s specializations are shown by its exports. The exports are the goods and services it produces and sells abroad.

4. Specialization is the key to trade. This is true in a town or around the world. A specialist may supply a service, such as fixing a TV, or a product, such as shirts. The specialist is paid for his or her services or the product he or she produces. He or she then uses the money to buy goods and service from those who specialize in other things.

5. Specialization Most people consume little of what they produce and produce little of what they consume!

6. Benefits of Specialization Specialization allows for • greater production. • higher living standards than otherwise possible.

7. Further Gain From Specialization Absolute Advantage • the ability to produce a good or service using fewer resources than other producers use • the ability of one country to produce a produce more efficiently than another country

8. If a country can make more of a specific product than another country, it has an absolute advantage in trade. For example, Country A and Country B can both grow coffee and cashew nuts. Country A can produce 40 million pounds of coffee, and Country B can produce six million pounds. Country A can produce eight million pounds of cashews, while Country B can produce six million pounds. This means that Country A has an absolute advantage over B in the production of both coffee and cashews.

9. ANOTHER GAIN FROM SPECIALIZATION Comparative Advantage • if one can produce some good with a smaller opportunity cost than others can • the ability of one country to produce a product relatively more efficiently, or at a lower opportunity cost, than another country Note: Opportunity cost is the thing that is given up when something else is chosen.

10. ANOTHER GAIN FROM SPECIALIZATION Comparative Advantage • total production of every good or service will be greatest when individuals specialize according to their comparative advantage • another reason why specialization and exchange lead to higher living standards than being self-sufficient

11. To trade successfully, a country needs to specialize. It must produce more of the good for which it has a comparative advantage. Then it trades its extra production for extra goods made by its trading partner. For example, the United States has iron, coal, industries, and skilled labor. It can produce farm machinery efficiently. Colombia has few industries, but it has the resources to produce coffee. Each country has a comparative advantage for a certain product. That makes trade benefit both countries.

12. What is interdependence? Interdependence is when people depend on one another. Specialization results in interdependence.