Specialization and Exchange

Human wants are unlimited. No matter how many goods and services we obtain, there is generally something else we would like to have. For the individual or family, income available to obtain goods and services is usually limited. Specialization is the process of limiting the scope of an economic unit's productive efforts instead of trying to produce everything it needs. Exchange is the process of trading surplus quantities of specialized products to others for other goods or services. Productivity determines output, output determines income, and income deter¬mines a society’s standard of living. Therefore, each individual or nation should try to increase its productivity. One way of doing this is through specialization and exchange. Specialization occurs when an economic unit limits the scope of its productive efforts instead of try¬ing to produce everything it needs. In this way, the economic unit can become very proficient at producing a few goods or services. Exchange is the process of trading surplus quantities of the specialized products to others for other goods or services. Overall, society can produce more through such cooperation than indi¬viduals can by each producing some of everything.

In the U.S. economy, individuals, firms, geographic areas, and the nation as a whole specialize. Individuals usually concentrate on a particular occupation or profession. Most firms produce a limited range and number of items. Many parts of the United States concentrate on the production of certain products— cotton in the South, autos in the Midwest, and electro¬nics in the Silicon Valley of California. Internationally, Brazil concentrates on coffee, Argentina on beef, Cuba on sugar, and Britain on industrial products. An economy using specialization and exchange yields higher individual and total incomes than docs an economy characterized by self-sufficiency. Specialization gives individuals the opportunity to become experts in a particular skill. As a result, total