Specialization, Voluntary Exchange and Division of Labor

SSEF2 The student will give examples of how rational decision making entails comparing the marginal benefits and the marginal costs of an action. a. Illustrate by means of a production possibilities curve the trade offs between two options. b. Explain that rational decisions occur when the marginal benefits of an action equal or exceed the marginal costs.

Specialization and Voluntary Exchange Before the 1800’s most families grew their own food and made what they needed at home. Today, most American’s specialize by just doing one kind of job. When you specialize, you focus on producing one kind of product or service and become efficient at that job. Then you buy the things you need from companies that specialize in other kinds of products and services. The process of buying and selling is called voluntary exchange.

Division of Labor Another kind of specialization is called division of labor, which means that different workers do different parts of the total job. An example is an assembly line that makes cars. One worker might put in the car’s engine, while another puts on the tires or windows. Each worker does a small part of the job, and then the product rolls down the assembly line. Division of labor increases a company’s total production, as well as its productivity. It can produce things more efficiently.