Lesson 1.7 Specialization and Exchanges SSEF3 A. GIVE EXAMPLES OF HOW INDIVIDUALS AND BUSINESSES SPECIALIZE. SSEF3 B. EXPLAIN THAT BOTH PARTIES GAIN AS A RESULT OF VOLUNTARY, NON- FRAUDULENT EXCHANGE.

How does specialization and trade help us?

Think about this…  Two people are doing two different jobs.  Determine how to best allocate the time of each person based on the concept of specialization.

Essential Question : What role do incentives play in exchange?  Words to Know : Division of Labor, Specialization, and Voluntary Exchange  Role of Exchange  Producers (businesses) purchase scarce resources and produce goods and services that  consumers (individuals) both need and want.  This relationship relies on voluntary exchange (willing exchange of goods and services based on mutually attractive incentives ).

Essential Question : What role do incentives play in exchange?  The Benefits of Voluntary Exchange  This sort of exchange encourages...  Productivity (work is done faster with less mistakes).  Efficiency (work is completed with less resources).  Inventions and Innovations to help increase productivity or efficiency.

Essential Question : What role do incentives play in exchange?  Role of Incentives  An incentive is a reason for something to be done. A businesses' incentive for providing goods/services is profit.  How do they increase their profits?  Increase productivity and efficiency.  Raise prices on their goods and services.

Essential Question : What role do incentives play in exchange?  Productivity  To increase productivity, a company can divide the production of an item into smaller tasks ( Division of Labor )  To increase efficiency, a company can give those tasks to someone that specializes (trained) in that particular part of production.