Editing Economics (section)

=== Specialisation ===
{{Main|Division of labour|Comparative advantage|Gains from trade}}
[[File:Late Medieval Trade Routes.jpg|thumb|upright=1.4|A map showing the main [[trade route]]s for goods within [[Late Middle Ages|late medieval Europe]]]]
Specialisation is considered key to economic efficiency based on theoretical and [[empirical]] considerations. Different individuals or nations may have different real opportunity costs of production, say from differences in [[stock and flow|stocks]] of [[human capital]] per worker or [[capital (economics)|capital]]/[[labor force|labour]] ratios. According to theory, this may give a [[comparative advantage]] in production of goods that make more intensive use of the relatively more abundant, thus ''relatively'' cheaper, input.

Even if one region has an [[absolute advantage]] as to the ratio of its outputs to inputs in every type of output, it may still specialise in the output in which it has a comparative advantage and thereby gain from trading with a region that lacks any absolute advantage but has a comparative advantage in producing something else.

It has been observed that a high volume of trade occurs among regions even with access to a similar technology and mix of factor inputs, including high-income countries. This has led to investigation of economies of [[Returns to scale|scale]] and [[economies of agglomeration|agglomeration]] to explain specialisation in similar but differentiated product lines, to the overall benefit of respective trading parties or regions.<ref>{{cite journal |author-link=Paul Krugman |last=Krugman |first=Paul |date=December 1980 |title=Scale Economies, Product Differentiation, and the Pattern of Trade |journal=[[American Economic Review]] |volume=70 |issue=5 |pages=950–959 |url=http://www.princeton.edu/~pkrugman/scale_econ.pdf |jstor=1805774 |access-date=16 August 2010 |archive-date=18 May 2013 |archive-url=https://web.archive.org/web/20130518075839/http://www.princeton.edu/~pkrugman/scale_econ.pdf |url-status=live }}</ref><ref>{{cite journal |first=William C. |last=Strange |date=2008 |editor-first1=Steven N. |editor-last1=Durlauf |editor-first2=Lawrence E. |editor-last2=Blume |journal=The New Palgrave Dictionary of Economics |publisher=Palgrave Macmillan |edition=2nd |url=http://www.dictionaryofeconomics.com/article?id=pde2008_U000064 |doi=10.1057/9780230226203.1769 |pages=533–536 |isbn=978-0-333-78676-5 |title=Urban agglomeration |access-date=16 August 2010 |archive-date=10 October 2017 |archive-url=https://web.archive.org/web/20171010211747/http://www.dictionaryofeconomics.com/article?id=pde2008_U000064 |url-status=live }}</ref>

The general theory of specialisation applies to trade among individuals, farms, manufacturers, [[Service (economics)|service]] providers, and [[economy|economies]]. Among each of these production systems, there may be a corresponding ''[[division of labour]]'' with different work groups specializing, or correspondingly different types of [[Capital (economics)|capital equipment]] and differentiated [[Land (economics)|land]] uses.<ref>{{unbulleted list citebundle
|1 = {{cite journal|last=Groenewegen |first=Peter |date=2008 |editor-first1=Steven N. |editor-last1=Durlauf |editor-first2=Lawrence E. |editor-last2=Blume |journal=The New Palgrave Dictionary of Economics |edition=2nd |url=http://www.dictionaryofeconomics.com/article?id=pde2008_D000176 |doi=10.1057/9780230226203.0401 |pages=517–526 |isbn=978-0-333-78676-5 |title=Division of labour |access-date=16 August 2010 |archive-date=10 October 2017 |archive-url=https://web.archive.org/web/20171010211714/http://www.dictionaryofeconomics.com/article?id=pde2008_D000176 |url-status=live }}
|2 = {{cite web |last=Johnson |first=Paul M. |date=2005 |url=http://www.auburn.edu/~johnspm/gloss/specialization |title=Specialization |website=A Glossary of Political Economy Terms |publisher=Department of Political Science, [[Auburn University]] |access-date=27 March 2008 |archive-date=29 January 2013 |archive-url=https://web.archive.org/web/20130129085436/http://www.auburn.edu/~johnspm/gloss/specialization |url-status=live }}
|3 = {{cite book|last1=Yang|first1=Xiaokai|last2=Ng|first2=Yew-Kwang|title=Specialization and Economic Organization: A New Classical Microeconomic Framework|url=https://books.google.com/books?id=xuG4AAAAIAAJ&pg=PP1|year=1993|publisher=North-Holland|isbn=978-0-444-88698-9}}
}}</ref>

An example that combines features above is a country that specialises in the production of high-tech knowledge products, as developed countries do, and trades with developing nations for goods produced in factories where labour is relatively cheap and plentiful, resulting in different in opportunity costs of production. More total output and utility thereby results from specializing in production and trading than if each country produced its own high-tech and low-tech products.

Theory and observation set out the conditions such that market [[price]]s of outputs and productive inputs select an allocation of factor inputs by comparative advantage, so that (relatively) [[Production-possibility frontier#Opportunity cost|low-cost]] inputs go to producing low-cost outputs. In the process, aggregate output may increase as a [[invisible hand|by-product]] or by [[mechanism design|design]].<ref>{{cite book|last=Cameron|first=Rondo E.|author-link=Rondo Cameron|title=A Concise Economic History of the World: From Paleolithic Times to the Present|url=https://books.google.com/books?id=aEHX63g1XsYC&pg=PA25|edition=2nd|year=1993|publisher=Oxford University Press|isbn=978-0-19-507445-1|pages=25–25, 32, 276–280|access-date=10 October 2017|archive-date=1 August 2020|archive-url=https://web.archive.org/web/20200801065517/https://books.google.com/books?id=aEHX63g1XsYC&pg=PA25|url-status=live}}</ref> Such specialisation of production creates opportunities for [[gains from trade]] whereby resource owners benefit from [[trade]] in the sale of one type of output for other, more highly valued goods. A measure of gains from trade is the ''increased income levels'' that trade may facilitate.<ref>{{unbulleted list citebundle|{{harvp|Samuelson|Nordhaus|2010|pages=37, 433, 435}}.|{{cite journal|last=Findlay |first=Ronald |date=2008 |editor-first1=Steven N. |editor-last1=Durlauf |editor-first2=Lawrence E. |editor-last2=Blume |journal=The New Palgrave Dictionary of Economics |publisher=Palgrave Macmillan |edition=2nd |url=http://www.dictionaryofeconomics.com/article?id=pde2008_C000254 |doi=10.1057/9780230226203.0274 |pages=28–33 |isbn=978-0-333-78676-5 |title=Comparative advantage |access-date=16 August 2010 |archive-date=11 October 2017 |archive-url=https://web.archive.org/web/20171011021521/http://www.dictionaryofeconomics.com/article?id=pde2008_C000254 |url-status=live }}|{{cite encyclopedia |last=Kemp |first=Murray C. |date=1987 |dictionary=The New Palgrave Dictionary of Economics |publisher=Palgrave Macmillan |editor-first1=John |editor-last1=Eatwell |editor-first2=Murray |editor-last2=Milgate |editor-first3=Peter |editor-last3=Newman |edition= |chapter-url=http://www.dictionaryofeconomics.com/article?id=pde1987_X000902 |doi=10.1057/9780230226203.2613 |pages=1–3 |isbn=978-0-333-78676-5 |chapter=Gains from trade |access-date=10 October 2017 |archive-date=10 October 2017 |archive-url=https://web.archive.org/web/20171010211136/http://www.dictionaryofeconomics.com/article?id=pde1987_X000902 |url-status=live }}}}</ref>