ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Specialization Leads to Economies of Scale As labor is divided amongst workers, workers are able to focus on a few or even one task. The more they focus on one task, the more efficient they become at this task, which means that less time and less money is involved in producing a good.

Detailed explanation-2: -Specialisation refers to a worker only performing one task or a narrow range of tasks. In the case of firms, it refers to different firms specialising in producing different goods or services. Division of labour refers to different workers performing different tasks in the course of producing a good or service.

Detailed explanation-3: -Concept 7 explained that specialization creates a need for voluntary exchange. For example, a software programmer will only devote her scarce time to coding if she trusts that someone else is producing food she needs to survive – and she will be able to trade for them.

Detailed explanation-4: -The division of labor allows individuals and firms to specialize and to produce more for several reasons: a) It allows the agents to focus on areas of advantage due to natural factors and skill levels; b) It encourages the agents to learn and invent; c) It allows agents to take advantage of economies of scale.