Loading the player...

What is 'Specialization'

Specialization is a method of production where a business, area or economy focuses on the production of a limited scope of products or services to gain greater degrees of productive efficiency within an overall system. Many countries, for example, specialize in producing the goods and services that are native to their part of the world, and they trade for other goods and services. This specialization is therefore the basis of global trade, as few countries have enough production capacity to be completely self-sustaining.

BREAKING DOWN 'Specialization'

Specialization essentially an agreement within a community, an organization or a larger group where each of the members best suited for a specific activity assume responsibility for its successful execution. Specialization can occur on both the microeconomic level and the macroeconomic level.

Microeconomic Specialization

At the individual level, specialization usually comes in the form of career or labor specialization. Each individual member of an organization or economy, for example, has a unique set of talents, abilities, skills and interests that makes her uniquely able to perform a set of tasks. Labor specialization exploits these unique talents and places people in areas where they perform the best, helping both the individual as well as the overall economy.

If, for example, a single individual excels at math but is not a proficient writer, it benefits both the individual and the community if she pursues a field that relies heavily on mathematics.

Using another example, specialization can even refer to the production capacity of an individual firm. When setting up a factory, an assembly line is organized to increase efficiency rather than producing the entire product at one production station.

Macroeconomic Specialization

Economies that realize specialization have a comparative advantage in the production of a good or service. A comparative advantage refers to the ability to produce a good or service at a lower marginal cost and opportunity cost than another good or service.

When an economy can specialize in production, it benefits from international trade. If, for example, a country can produce bananas at a lower cost than oranges, it can choose to specialize and dedicate all of its resources to the production of bananas, using some of them to trade for oranges.

Specialization also occurs within a country's borders, as is the case with the United States. For example, citrus goods grow better in the warmer climate of the South and West, many grain products come from the farms of the Midwest, and maple syrup comes from the maple trees of New England. All of these areas focus on the production of these specific goods, and they trade or purchase other goods.

RELATED TERMS
  1. Special Situation

    A special situation is a circumstance involving a security that ...
  2. Economies of Scope

    Economies of scope are economic factors that make it cheaper ...
  3. Special Assessment Tax

    A special assessments tax is a tax paid by residents of a special ...
  4. Comparative Advantage

    The ability of a firm or individual to produce goods and/or services ...
  5. Macroeconomics

    Macroeconomics is the study of how the aggregate economy behaves. ...
  6. Economic Growth

    Economic growth is an increase in an economy's ability to produce ...
Related Articles
  1. Insights

    What's the Economy?

    The economy is the production and consumption activities that determine how scarce resources are allocated in an area.
  2. Managing Wealth

    Microeconomics vs. Macroeconomics: Which Is More Useful for Investment?

    Find out why investors are better off ignoring macroeconomic forecasts, and should instead focus on the lessons that microeconomics can teach them.
  3. Insights

    Microeconomics

    This tutorial teaches the basics of one of the most important economic topics. A must for all investors.
  4. Insights

    Macroeconomics

    Find out everything you need to know about macroeconomics.
  5. Investing

    Understanding Marginal Cost of Production

    Marginal cost of production is an economics term that refers to the change in production costs resulting from producing one more unit.
  6. Personal Finance

    How Microeconomics Affects Everyday Life

    Microeconomics is the study of how individuals and businesses make decisions to maximize satisfaction. To illustrate, we use the example of renting a New York City apartment.
  7. Personal Finance

    Financial Planning for a Special Needs Child

    There are unique financial challenges involved in planning for the future of a special needs child.
  8. Financial Advisor

    Earn Big Bucks With A Specialized Financial Career

    Choosing to specialize may be easier for you and more beneficial to your clients.
  9. Financial Advisor

    How to Create a New Financial Product in 10 Steps

    The 10 steps outlined here are essential to the creation of a new financial product.
RELATED FAQS
  1. How do economies of scale work with globalization?

    Discover how globalization can lead to unprecedented economies of scale for firms across the world, leading to higher global ... Read Answer >>
  2. How do "factor endowments" impact a country's comparative advantage?

    Find out how factor endowments – namely labor, land and capital – affect a country's comparative advantage and how that advantage ... Read Answer >>
  3. What are some advantages of a market economy over other types of economies?

    Learn what a market economy is, the main assumption behind a market economy and some important advantages it has over other ... Read Answer >>
  4. What kinds of topics does microeconomics cover?

    Read about the purpose, derivations and uses of microeconomics, and see how the interaction of scarcity and choice drives ... Read Answer >>
  5. How does the United States government measure economic growth?

    Find out how the Bureau of Labor Statistics and the Bureau of Economic Analysis measure economic growth in the United States ... Read Answer >>
  6. What math skills do I need to study microeconomics?

    Find out how and why mathematics are used in microeconomics, what its limitations are and the kinds of math skills that economics ... Read Answer >>
Hot Definitions
  1. Inflation

    Inflation is the rate at which prices for goods and services is rising and the worth of currency is dropping.
  2. Discount Rate

    Discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from ...
  3. Economies of Scale

    Economies of scale refer to reduced costs per unit that arise from increased total output of a product. For example, a larger ...
  4. Quick Ratio

    The quick ratio measures a company’s ability to meet its short-term obligations with its most liquid assets.
  5. Leverage

    Leverage results from using borrowed capital as a source of funding when investing to expand the firm's asset base and generate ...
  6. Financial Risk

    Financial risk is the possibility that shareholders will lose money when investing in a company if its cash flow fails to ...
Trading Center