Division Of Labor Externalities

1. Identify the person(s) who came up with the idea “gains from division of labor.”

Adam Smith (1723-1790) who was born in Kirkcaldy, Scotland.

2. Define “division of labor.”

Division of labor is the term used when complex production process is broken down into a number simple task, each of which is assigned to different individual. Each individual specializes on this task on a more or less permanent basis.

3. Identify the person(s) who came up with the concept of “externalities”

Arthur C. Pigou (1877-1959) and Henry Sidgwick (1838-1900)

4. Define “externalities.”

An externality is an effect of a purchase or use decision by one set of parties on others who did not have a choice and whose interests were not taken into account. Classic example of a negative externality: pollution, generated by some productive enterprise, and affecting others who had no choice and were probably not taken nto account. Example of a positive externality: Purchase a car of a certain model increases demand and thus availability for mechanics who know that kind of car, which improves the situation for others owning that model

5. Indicate what happens to the value of the dollar if the US imports more.

If US imports more, the value of US dollar will fall.

6. Explain why this is true using Supply and Demand analysis.

This is true because if US imports more, US pays dollar to international market in exchange for the imported products. The supply of dollar in the international market will increase and the demand will decrease consequently. This decrease in demand would cause dollar to depreciate.

7. Explain what happens to the value of the dollar if Japan imports more.

If Japan, imports more, then the value of dollar will increase.

8. Explain why this is true using Supply and Demand Analysis.

This is true because in order to buy goods in the international market,  it must sell yen in exchange for dollars to purchase foreign goods. Therefore the demand of dollars in the international market will increase thus increasing the value of dollar.

References:

4. MacConnell, S. Brue (2005). Economics: Principles, Problems, and Policies, 16/e. Origins of Idea (Chapter 4.2). Retrieved January 7, 2006 from http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter4/origin_of_the_idea.html
5. MacConnell, S. Brue (2005). Economics: Principles, Problems, and Policies, 16/e. Origins of Idea (Chapter 5.2). Retrieved January 7, 2006 from http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter5/origin_of_the_idea.html
6. MacConnell, S. Brue (2005). Economics: Principles, Problems, and Policies, 16/e. Origins of Idea (Chapter 6.1). Retrieved January 7, 2006 from http://highered.mcgraw-hill.com/sites/0072819359/student_view0/chapter6/origin_of_the_idea.html