Specialization and Exchange

Specialisation and Exchange

  • The problem of scarcity can be addressed through specialisation
  • Specialisation is where workers, firms, regions or economies concentrate on a particular task
  • It is trade that allows specialisation to take place, as this allows the specialised entity to trade their services or products for things they’re not producing
  • Trade can either be internal (domestic) or external (international)

Specialisation offers benefits like:

  • An increase in the output of goods and services compared to unspecialised entities.
    • This has caused living standards to rise, since there is a greater output from a particular volume of resources
  • A widening of the range of goods that are available in an economy
  • Exchange between developed and developing economies.
    • Trade allows for expert-led growth

Specialisation does have risks:

  • If a country has finite resources like copper or oil, then when these run out, the economy is likely to suffer (unless it’s invested its revenues for the future)
  • De-industrialisation – loss of jobs due to cheaper labour elsewhere
  • Bad weather can wipe out a whole years’ crops
  • Consumer needs and wants may change, leaving a country’s exports in a vulnerable position
  • Because the world’s economies rely on each other due to specialisation, if political disruption were to happen, it would have an adverse effect on the specialised economy



  • Trade permits countries to specialise in products that they are able to produce efficiently
  • This is due to different economies having different factors of production and factor endowment – some countries will be rich in oil or copper; others may have a good climate.


Division of Labour

  • As a result of the division of labour, productivity increases, as an employee can undertake one part of the production process
  • A result of the division of labour is that the produce of such a process is very price competitive
  • However, the work is often monotonous and the quality of the product is usually poor.