Scarcity in Economics and Division of Labor – 7 advantages of division of labor


Scarcity is the basic economic issue that all societies face equally. In economics, the term “Scarcity” refers to the situation that “the available resources in an economy are not sufficient to fulfill all the human wants completely”. This is a theoretical concept that is based on the insatiable nature of the human mind. Once the existing wants are satisfied, another set of wants will be generated and it will continue in the same way creating a demand for resources. The economists the situation that in every economy the resources are scarce or limited when compared with unlimited human want. Hence, the term “Scarcity” is a comparative concept.

In economies, all the resources consumed by the people are not scarce. The most essential resources that the people cannot do without such as the clean air for breathing, natural water resources, natural forest, etc. are available in abundance. But with industrialization, with some limitations, they too have become scarce resources.
The concept of scarcity can further be illustrated with the help of the production possibility frontier as below.

As per the above diagram, the economy possesses the resources to produce goods and services in different combinations at the points either A, B, or C. but the production combination at point “D” is unattainable due to lack of resources or “Scarcity” of resources.

The term “scarcity” does not imply that the wants of the people cannot be satisfied, but it gives way to the basic economic problem of “Choice”. Choice means that certain economic decisions have to be taken to allocate the available limited resources more efficiently among economic sectors. This poses common basic economic problems in all the economies as mentioned below.

  1. What goods are to be produced?
  2. How to produce?
  3. For whom are the goods produced?

The scarcity of resources is common to the consumers as well as producers. Since the money or the resource available for consumption is scarce, the consumer has to decide the most pressing needs to be fulfilled first. As far as the businesses are concerned, it is necessary to decide the most profitable mode of investment.

Scarce resources are owned by the people and maintained by incurring a cost. Therefore scarcity creates a price for the resource at which they are sold in the factor market. When utilizing scarce resources, always generates a cost to the producer. On contrary, the scarcity adds more value to the consumer market.

It can be concluded that the term “Scarcity” is an important concept on which the whole economy depends.

Division of labor

Even in ancient economies, there had been a kind of profession-based division of labor. The profession was passed from generation to generation and they acquired the necessary skills from the elders in the same family or community. For example, Carpenters, Farmers, Potters, etc.

The modern concept of division of labor was popularized by the great economist Adam Smith (1776) in his famous book “An Inquiry into Nature and the Causes of the Wealth of Nations”.

The concept of division of labor can be defined as “dividing the process of producing a product into small stages and employing workers stage-wise”.  The same set of workers contribute to a small portion of the product repetitively and thereby increase the efficiency acquiring special ability of the task. The improvement in efficiency or the special ability to do the task quickly and accurately is called “Specialization”.

Specialization based on the division of labor is much more important in modern industries in which cutting edge technology is used to produce a large scale production to the global market where there is great competition. Quality, quantity, and cost-effectiveness are the main concern of the producers of the international market. Division of labor and specialization is one of the strategies to reach the goal.

Advantages of division of Labour

  1. Improve the quality and the quantity of the product.
  2. Need of less training to do a small task
  3. Better use of tools and machinery
  4. Avoid the waste of time
  5. There is no need of moving around
  6. Better concentration on the job that suits them well
  7. Possibility of gaining economies of scale      

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