Division of labor is a process in which the production of a commodity is divided into several stages and skilled workers are employed at each stage. It is an important feature of modern large scale production. It brings several economies to the employers. It increases production, saves time and tools and promotes the skill of the workers. It also uses machinery and latest technology in production. It may be noted that there are several limitations which restrict the introduction of division of labor. For example, there is of no use in employing this method in making shoes. A shoe maker, when the market for his shoes is limited, finds it difficult to adopt division of labor. That is why Adam Smith described that division of labor is limited by the extent of market.
Extent of market do not mean the geographical size. Sometimes even though the geographical size of the market is very wide, there may not be good demand for the goods. For example, India is a vast country (in terms of population) when compared to America. But the demand for goods and services is less in India than that of America. So extent of market really means the volume of sales or demand. Besides the home market, a commodity has also international market.
Besides the home market, a commodity has also international market. Extent of market further depends on several factors. They are mentioned below.
Factors Determining The Extent Of Market
1. Banking system : Extent of market is influenced by the extent of the banking system. When there are several banks at various places in the country, producers can supply their products to those places on easy cash or credit basis.
2. Population : Extent of market is directly related to the size of population. It varies with the site of the population. The larger the size of population, the greater will he extent of the market.
3. Income : People’s income is another determinant of the extent of market. If people receive more income, they demand more goods and services. On the other hand, if their income is low, their demand will be low.
4. Trade Restrictions: The nature and conditions of trade also influence the extent of market. If there exists no trade restrictions, the extent of the market will be high.
Relationship Between Division Of Labor And The Extent Of Market
Extent of the market and division of labor are related to each other. Even though the extent of market is limited, the demand for goods and services can be increased by able and dynamic entrepreneurs. The entrepreneurs by introducing specialization can produce different varieties of goods. They can stimulate the consumers to purchase these goods. As a result the demand increases. This automatically increases the extent of market in course of time. Similarly extent of the market also influences division of labor. Expansion of the market inspires the entrepreneurs to increase production through specialization. Hence extent of the market and division of labor are closely related. Besides the extent of Market, several factors like availability of capital, technological knowledge, continuity of production etc., are some of the limitations of division of labor.