Question

21. Why would division of labor without trade not work?

22. Can you think of any examples of free goods, that is, goods or services that are not scarce?

Answer 1

21.WHY WOULD DIVISION OF LABOR WITHOUT TRADE NOT WORK?

Division of labor means the production technique is divided into a number of tasks,each of these tasks is performed by different workers.The work gets divided among the workers instead one worker doing all the work,Division of labor leads to specialization,which results in increased productivity,due to three important reasons.Firstly specialization leads to hold a comparative advantage so each worker focuses on the task of production where they have an advantage over the others.Secondly specialization increases the quality and quantity of the goods produced.Third,specialization enables the business to enjoy the economies of scale,as the quantity of production increases the average cost of producing per unit decreases and the profit of the business increases.

But specialization is only beneficial in the presence of trade.Workers receive pay for the jobs that they perform,only when they use this pay to purchase other goods and services,so trade is necessary for the existence of specialization or division of labor.Unless a person can trade he cannot specialize.When a person needs food clothing and shelter he cannot specialize at producing just one unless he can trade for the other things which he cannot produce.If trade does not exist people will have to produce all by themselves,even if they are not good at producing them.

22.Can you think of any examples of free goods.that is,goods or services that are not scarce?

Economic goods have utility to the society and because of their scarcity they have an opportunity cost and thus they have a price.

Free goods on the other hand do not have an opportunity cost as they are not scarce,they are available in abundance.These goods cannot be traded.

Some example of free goods are

AIR;oxygen required by humans is easily available and in abundance,we dot need to buy it

Water is a free good for people living by the river as it is available freely and in abundance,it becomes an economic good gor people living in desert areas who do not have access to clean water easily.

Sunlight is another free good which is easily and abundantly available to everyone,use of one person does not affect the other.

Intellectual ideas that are not patented are free goods because of their easy access to everyone.