Analyze the role of specialization and exchange in the economic process.

In the above discussion about supply, demand, prices, and profits, you have already read about individual economic specialization and exchange. A few brief additions and clarifications, however, are in order. While the health of a democratic society is most directly benefited by a broadly educated citzenry, a well-functioning, free market economy is benefited more directly by individuals with highly specialized skills. One way that we strike the balance between democratic and economic imperatives is public education. By requiring all children to attend school through at least the eighth grade, society is assured that every individual learns and understands basic math, science, language, and other essential skills.

As children progress from grade school to junior high to high school, they continue to learn basic skills and concepts. Even the first one or two years of college are usually spent in general education courses. Again, political society benefits greatly from this broad-based approach to education because a generally educated, well-informed citizenry is essential to a healthy democratic system. Additionally, individuals who enter the economic workplace with significant, broad educational experiences are more prepared to deal with a wider variety of situations. However, what employers really want are individuals who have particular skills and abilities. If they can hire a highly skilled individual who is also well-rounded, so much the better.

In a free market economy, some jobs require highly specialized skills. Some jobs require individuals who can think well and apply a wide range of abilities and skills to ever-changing circumstances. Whatever the case, employers pay their employees what the market indicates they are worth. For example, the owner of a professional sports team earns millions of dollars a year because people pay for the tickets and watch the games on television, which brings in advertising revenue. Star athletes have very rare talents and abilities that other employers (teams) will compete for by offering to pay them increasingly higher salaries. Other job skills that are less rare bring lower salaries. Whatever job you choose to specialize in, the market dictates how much you will be paid based on the value it provides to others and the uniqueness of the skills required to do it well.