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Adam smith

The image is a profile sketch of Adam Smith.
Adam Smith introduced the idea of dividing labor into discrete tasks. (Credit: Wikimedia Commons)

The division of and specialization of labor

The formal study of economics began when Adam Smith (1723–1790) published his famous book The Wealth of Nations in 1776. Many authors had written on economics in the centuries before Smith, but he was the first to address the subject in a comprehensive way. In the first chapter, Smith introduces the division of labor    , which means that the way a good or service is produced is divided into a number of tasks that are performed by different workers, instead of all the tasks being done by the same person.

To illustrate the division of labor, Smith counted how many tasks went into making a pin: drawing out a piece of wire, cutting it to the right length, straightening it, putting a head on one end and a point on the other, and packaging pins for sale, to name just a few. Smith counted 18 distinct tasks that were often done by different people—all for a pin, believe it or not!

Modern businesses divide tasks as well. Even a relatively simple business like a restaurant divides up the task of serving meals into a range of jobs like top chef, sous chefs, less-skilled kitchen help, servers to wait on the tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—not to mention the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where it is located. A complex business like a large manufacturing factory, such as the shoe factory shown in [link] , or a hospital can have hundreds of job classifications.

Division of labor

The image is a photograph of factory workers for a shoe company working separately on individualized tasks.
Workers on an assembly line are an example of the divisions of labor. (Credit: Nina Hale/Flickr Creative Commons)

Why the division of labor increases production

When the tasks involved with producing a good or service are divided and subdivided, workers and businesses can produce a greater quantity of output. In his observations of pin factories, Smith observed that one worker alone might make 20 pins in a day, but that a small business of 10 workers (some of whom would need to do two or three of the 18 tasks involved with pin-making), could make 48,000 pins in a day. How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves? Smith offered three reasons.

First, specialization    in a particular small job allows workers to focus on the parts of the production process where they have an advantage. (In later chapters, we will develop this idea by discussing comparative advantage .) People have different skills, talents, and interests, so they will be better at some jobs than at others. The particular advantages may be based on educational choices, which are in turn shaped by interests and talents. Only those with medical degrees qualify to become doctors, for instance. For some goods, specialization will be affected by geography—it is easier to be a wheat farmer in North Dakota than in Florida, but easier to run a tourist hotel in Florida than in North Dakota. If you live in or near a big city, it is easier to attract enough customers to operate a successful dry cleaning business or movie theater than if you live in a sparsely populated rural area. Whatever the reason, if people specialize in the production of what they do best, they will be more productive than if they produce a combination of things, some of which they are good at and some of which they are not.

Questions & Answers

If the government decrases spending by ksh. 500 billion what is the change in output given MPC is 0.75
Gichana Reply
375
Philip
how can policy makers strike the balance between inflation and unemployment?
Oreva Reply
c=800 + 0.75y i=500 G=900 compute the equilibrium level of national output
Omar Reply
y=c+I+g+(X-M) y=800+.75y+500+900+0 y-.75y=2200 .25y=2200 y=2200/.25 y=8800=national level of output
Anik
Please tell me the current crr, repo rate etc
Ranjeeta Reply
cash reserve ratio is the amount that is deposit by the commercial bank in Central bank.... n repo rate is a loan interest amount
Sahar
what is slr madam sahar
Rohit
jo amount bank reserve rakhti hai bank mai customers k liye jese ATM mai ya bank mai rakha hota hai, wo slr hota hai
Sahar
pakka sahi hai
Rohit
good joke
Rohit
Argentina Lose !!😭😭
MR.ASHIM
SLR refers to that portion of total deposits of a commercial bank which it has to keep with itself in the form of cash reserve
Ranjeeta
What is cash crop?
Ranjeeta Reply
commeciaal crops
Amal
So jowar is not cash crop?
Ranjeeta
anything which is plant inorder to sell in the market
Simeon
How demand deposits are different from savings?
Ranjeeta
can unemployment be a factor of inflation?
David Reply
yeah it has an impact on cost push inflation
Vincent
microeconomics is individual firms and macroeconomics is a large as a full
kendra Reply
That's true 👍
Kwibuka
word micro means small and tiny part. word macro means large and big part.
saddiq
Exactly
Emmanuel
is unemployment another cause of inflation?
David
can I say unemployment can cause inflation?
David
no. unemployment can possibly lead to deflation
Asdfghjkl
if their are no production am I correct to say inflation will occurs
David
one of the causes of inflation is excess demand. if there's no production there would be no demand so no inflation
Asdfghjkl
if we take a look at inflation, it occur because of low production. High price chasing few goods.
David
So are you saying demand creates supply?
David
to an extent because if s9mething is demanded, it's likely to be supplied
Asdfghjkl
OK am still confused, if there is unemployment low production, and employment high production, inflation high increase in price, how can production be high and we are faced with inflation? When inflation is referred to higher price chasing few goods.
David
if the demand is increased , what is the graphics on it?
Tadesse Reply
what is macroeconomics
Prosenjit Reply
large-scale economics, such as interest rates or the gross national national product rate of of a country
Michael
Macroeconomics: is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies.
Khadar
well said
Michael
hello everyone, would like to ask a favor... i need your help to answer this problem: Assume that equilibrium GDP is 400B; potential GDP is 500B, the marginal propensity to consume is 9/10, the interest rate is 8%, investment spending is P20B, the money supply is 120B, and the reserve requirement
Jerelyn
is 1/10. By how much and in what direction should the Fed change the monetary base?
Jerelyn
what are the factors that influence surplus budget? and its effects
Christopher Reply
what is credit creation
Christopher
join
Christopher
how monetary and fiscal policy affect money supply? on economy
Christopher Reply
what is hyperinflation
David Reply
what is stagflation
Riaz
in an economy when there is both inflation & unemployment prevailing at the same time.
Yogesh
@david - hyperinflation is very rapid inflation; it is sometimes reckoned to set in when price increases exceed 50 percent per month. Such rapid inflation not merely makes money useless as a store of value, but seriously affects its use as a medium of exchange
sagar
thanks
Riaz
@yogesh: the one you are describing is Stagflation
Tutohar
I was answering to Riaz's querry.
Yogesh
Sorry, didn't see the question
Tutohar
what is credit creation?
Christopher
what are the factors that influencing surplus budget
Christopher
may I ask master level questions on this chat?
saddiq Reply
yes
deepali
am so confused about the concept of scarcity. can u hlp me
saddiq
 · Concepts of Scarcity. Scarcity refers to the condition of insufficiency where the human beings are incapable to fulfill their wants in sufficient manner. In other words, it is a situation of fewer resources in comparison to unlimited human wants. Human wants are unlimited.
Shittu
what is PPC
Kalpana
Production possibility curve is a curve that shows different possibilities of production of a set of two good which can be produced with the given resources
Ranjeeta
micro vs macro which is complex in your view?
Bijaya
the aggregate expenditure function determines a specific national equilibrium income. substantiate graphically noting the sheets where applicable
Asbel Reply
formula of economics
PRASANTH Reply

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Source:  OpenStax, Macroeconomics. OpenStax CNX. Jun 16, 2014 Download for free at http://legacy.cnx.org/content/col11626/1.10
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