Trade and Specialization

… a core concept in Economic Analysis and Atlas102

Click for MRU video, minute 0.40 to 2:00

Click for MRU video, minute 2:00

Concept description

Tyler Cowen (reference below, video on right), describes how trade increases productivity through specialization and division of knowledge.

This is one of the three benefits of trade:

  1. Trade makes people better off when preferences differ
  2. Trade increases productivity through specialization (see Division of Labour) and the Division of Knowledge
  3. Trade increases productivity through specialization according to Comparative Advantage

Cowen uses the example of heath care specialists to illustrate how specialization leads to specialized knowledge, and to higher productivity for society overall.

Specialization-Knowledge

Cowen makes the crucial point that the reason people are willing to specialize is that they know they can trade the results of their knowledge and efforts for something they value, such as a salary.

This is one of the benefits of globalization since specialization increases the sum of world knowledge and growth. Cowen relates this to Adam Smith’s observation that places close to navigable waters (enabling trade) advanced faster than those without an inexpensive way to trade with other communities.

SmithAndNavigableWaters

Atlas topic, subject, and course

Trade (core topic) in Economic Analysis and Atlas102 Economic Analysis.

Source

Tyler Cowen, The Big Ideas of Trade (11-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/trade-specialization-economics-globalization, accessed 5 May 2016.

Page created by: Ian Clark, last modified 5 May 2016.

Image: Tyler Cowen, minute 0:14 of The Big Ideas of Trade (11-minute video), Principles of Economics – Microeconomics, Marginal Revolution University, at http://www.mruniversity.com/courses/principles-economics-microeconomics/trade-specialization-economics-globalization, accessed 5 May 2016.