Course: Economics (YAN) DNC CAL_TF

Lesson: What Is Economics and Why It Is Important 

The Division and Specialization of Labor

The formal study of economics began when Adam Smith (1723–1790) published his famous book The Wealth of Nations in 1776. Many authors had written on economics prior to Smith, but he was the first to address the subject in a comprehensive way. In the first chapter, Smith introduced the concept of division of labor, which means that the way one produces a good or service is divided into a number of tasks that different workers would perform, instead of one person doing all the tasks.

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Main Ideas

Resources are limited.
People cannot have all the goods and services they want.
People must decide what they must have and what they will give up.
The study of American economics begins when Adam Smith, a Scottish economist and philosopher, writes his book, The Wealth of Nations in 1776. Smith is also known as the "Father of Economics" and the "Father of Capitalism".
Smith describes the concept of division of labor. He says that when a producer of a good or service divides up tasks, this is division of labor.
Smith describes all the tasks that go into making a product. He calls each of these "job tasks".

To illustrate division of labor, Smith counted how many tasks went into making a pin: drawing out a piece of wire, cutting it to the right length, straightening it, putting a head on one end and a point on the other, and packaging pins for sale, to name just a few. Smith counted 18 distinct tasks that different people performed—all for a pin, believe it or not!

Modern businesses divide tasks as well. Even a relatively simple business like a restaurant divides the task of serving meals into a range of jobs like top chef, sous chefs, less-skilled kitchen help, servers to wait on tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—not to mention jobs related to other aspects of restaurant operation like the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where it is located. A complex business like a large manufacturing factory, such as a shoe factory or a hospital, where you can have hundreds of job classifications.