Specialization in Economics, Is A Miracle
I do not mean to exaggerate.
Specialization in economics is nothing short of a miracle.
There are few circumstances where you can literally create something out of nothing. Economic specialization, however, does this very thing.
An example is the best way to show it.
Take two people: John and Grace.
John and Grace are both farmers.
They spend half of their time growing apples, and the other half growing oranges.
In one year, John grows and has 25 apples and 5 oranges.
In one year, Grace grows and has 50 apples and 100 oranges.
Therefore, in one year, John and Grace together grow a total of 75 apples and 105 oranges – for a total of 180 pieces of fruit.
Can they make more? What if they were to specialize?
Let’s look at the opportunity cost of each to see who should specialize in what.
The cost of John only growing apples is forgoing the production of 5 oranges.
The cost of Grace only growing apples is forgoing the production of 100 oranges.
As you can see, the opportunity cost of Grace specializing in growing apples is more expensive than it is for John.
I’d rather give up having 5 oranges than give up having 100 oranges!
Therefore:
John should specialize in growing apples – giving him 50 apples.
Grace should specialize in growing oranges – giving her 200 oranges.
Out of thin air, more food is available then there was before specialization!
Now we have 250 pieces of fruit.
And all we did was rearrange everyone’s work time!
This same principle can be applied to regions within states, states within countries, and to entire nations.
Specialization in economics produces more output with the same amount of work.
It makes us all better off.