Hey there fellow steemians. As promised here is episode 2 in our course on economics. You can check out the first episode. As always kick back ,grab your cup of coffee and relax
Just a quick refresher...
So last time we ended up talking about Opportunity Cost and how every decision we take comes at a cost. Today We are going to follow that up with discussing Specialization and Trade.
What is Specialization?!
Well to understand what specialization is and how is affects our world, we'll have to take a walk down history to a time where specialization wasn't a thing....
Let's talk about the progress of humanity as a whole. Using measurements like life expectancy, income per capital, and child mortality, we can say that for most of humanity life was quite terrible. It wasn't until the industrial revolution that people saw a significant boost in standards of living in what the first modern economist Adam Smith described as the division of labor which made countries wealthy.
When I imagine specialization, I think of a pizza assembly line where each person has a specific job like preparing the ingredients, putting the pizza in and out of the oven and putting it in a box. This division of labor makes each worker more productive since they can each focus on the thing they do best ,but specialization goes beyond that. To produce the cheese, a farmer had to specialize in raising cows. The same goes to the oven the cook uses and the box the pizza is put in.
Imagine what it would be like to make a pizza completely on your own from scratch. You would have to grow the wheat and tomatoes and raise the cow, you'd make the flour, the cheese, the oven, the pan, and then make the box. Without specialization, if you want something, you have to make it yourself.
Trade + Specialization= ?!
I want you to imagine this. On one hand we have Freddy and he can produce either pizza or tech gadgets but he is way better at creating pizza so he should specialize in create pizza and trade with someone like Bob who on the other hand is specialized at creating tech gadgets. Trade allows both parties to benefit from each other. Together they would have more pizza and tech gadgets than if they were to do it on their own. To better understand what is happening we'll have to take a look at an economic model.
So this model might look intimidating at first but once you understand it you're going to realize how simple it is. This graph shows the production of a country. Let's say France. The curve shows what is know as The Production Possibility Frontier or The PPP for short. In this example, if France only focused on making computers, it can make only 9 per day but no textbooks. On the opposite side if France only made textbooks it can produce 70 textbooks but no computers. Now due to the France's limited resources it can't produce any combination of textbooks and computers outside that of The Production Possibility Frontier so there will never be a combination of both 70 textbooks and 9 computers. Think of The Production Possibility Frontier as the maximum ability of the factory in producing products as fast and efficient as possible. so what's the real world value of the production possibilities frontier?
Alot in fact and it all has to do with Trade. Remember how in any Trade, both parties benefit equally. So in this example if France trades with China. A country that is far superior in creating computer but a one that is so bad at creating textbooks. Now both countries can have textbooks and computers and everyone wins. Okay, I know things in real life are much more complex but once you understand these simple examples scaling up to more products and countries is much easier.
That it for today. If you like this course don't forget leave an upvote and if you would like to get notified just leave #notify in the comments. Have A Great Day and Steem ON
