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Specialization and the Division of Labor, Specialization and International Trade

small jets, small pickup trucks, employment levels, small towns, small cars

Over the past few decades, international trade has led to greater specialization and competition among producers in the United States and throughout the world. By selling worldwide, companies in the United States and in other countries can reach many more customers. Specialization is ultimately limited by the size of the market for a good or service. In other words, larger markets always allow for greater levels of specialization. For example, in small towns with few customers to serve, there is often only one clothing store that carries a small selection of many different kinds of clothing. In large cities with a million or more potential customers, there are much larger clothing stores with many more choices of items and styles, and even some stores that sell only hats, gloves, or some other particular kind of clothing.

International trade is a dramatic way of expanding the size of a firmís market. In markets where transportation costs are low compared with the selling price of a product, it has become possible for producers to compete globally to take full advantage of highly specialized production. But international trade also means that businesses must compete more efficiently against firms from all around the world. That competition also makes them try to take advantage of greater specialization and the division of labor.

In many cases, products are produced and sold by firms from two or more countries that have large production and employment levels in the same industry. Often, however, these firms still specialize in the kinds of products they produce. For example, though many small cars and small pickup trucks are made in Japan and sent to the United States, large pickups and four-wheel drive sport utility vehicles are often exported from the United States to Japan and other nations. Similarly, the United States exports large commercial passenger jets to most countries, but imports many small jets from Canada, Brazil, and other nations. While this may seem strange at first glance, it allows greater specialization in production for particular kinds of products.

Transportation costs can also help to explain the pattern of international production and trade. It often makes sense to produce goods close to the markets where they will be sold, or close to where the resources used in the production process are found or made. In recent years, the availability of a skilled and hard-working labor force has become more important to producers in many different industries, so new factories are often located in areas with large numbers of well-trained workers and good schools that provide a future supply of well-educated workers.

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