to do everything. How do we use our limited resources the best way possible, that is, to obtain the most goods

and services we can? There are a couple of options. First, we could each produce everything we each consume.

Alternatively, we could each produce some of what we want to consume, and “trade” for the rest of what we

want. Let’s explore these options. Why do we not each just produce all of the things we consume? Think back to

pioneer days, when individuals knew how to do so much more than we do today, from building their homes, to

growing their crops, to hunting for food, to repairing their equipment. Most of us do not know how to do all—or

any—of those things, but it is not because we could not learn. Rather, we do not have to. The reason why is

something called the division and specialization of labor, a production innovation first put forth by Adam

Smith (Figure 1.3) in his book, The Wealth of Nations.
12 1 • Welcome to Economics!
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