Specialization and Trade

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SPECIALIZATION AND TRADE

DEFINITIONS

There has been a sustained progression of humankind's wellbeing since the industrial revolution. This is measured by standards of living, child mortality, income per capita and a number of other useful statistics. This has come about as a result of specialization and trade.

Specialization (division of labor): a system of organizing the manufacture of an article in a series of separate specialized operations, each of whichis carried out by a different worker or group of workers. Simply put, having people do different parts of something and having it all come together in a faster and more efficient way than if everybody did all parts of something.

Trade: Essentially, to exchange (something) for something else, typically as a commercial transaction. Nowadays, this involves the buying and selling of goods.

Production possibilities frontier (PPF): A graph that shows the combination of two goods being produced. In addition, it illustrates the trade off between producing different quantities of these goods.

Absolute advantage: refers to the ability of a party (an individual, or firm, or country) to produce a greater quantity of a good, product, or service than competitors, using the same amount of resources.

Comparative advantage: The ability of a firm or individual to produce goods and/or services at a lower opportunity cost than other firms or individuals. A comparative advantage gives a company the ability to sell goods and services at a lower price than its competitors and realize stronger sales margins.

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EXAMPLE OF SPECIALIZATION

A pizza company gets it's employees to do the parts of the whole that they have (hopefully) a comparative advantage in; whether it be flipping the pizza or putting it in the oven, etc... Specialization doesn't end here however. It also entails all the people that created the ovens, distribution system, farmers who provided cheese from cows, tomatoes, wheat, etc.. Imagine trying to do this all by yourself; it would take much more work to make one pizza!

THERE ARE SERIOUS PROBLEMS WITH INT'L TRADE

Forced child labour

Dangerous working conditions

Exploitation of citizens and poorly constructed laws, particularly in developing countries in Asia and Africa.

Pollution

SUMMARY

Specialization and trade makes people, and by inclusion, the world. No countries have shown significant improvement in their standards of living without int'l trade and specialization.

Prime examples of countries that have opened themselves to trade include Singapore, China, Burma, etc...

Prime examples of countries that have closed themselves off to int'l trade include North Korea, Cuba, etc...

https://www.youtube.com/watch?v=FwPiWz1a1Tw&index=3&list=PLD5BC727C84E254E5 (Embed)