EXCHANGE.
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EXCHANGE is the
process of giving out value in order to have something of value in return. In
the olden days Batter was the main system of exchange i.e. good for good, but
nowadays one exchange money for goods. Exchange arises because of excess
production of goods and services.
INTER-RELATIONSHIP
AMONG PRODUCTION, SPECIALIZATION & EXCHANGE.
Exchange is as a result of Specialization
and Production. They are related in the sense that Production is enhanced by
the broken down processes that are performed by different people. Division of
Labor and Specialization creates room for Mass Production.
Since individuals are not capable of producing all his
requirements, the need for exchange arises.
HISTORY
OF DIVISION OF LABOR.
One of the Forefathers of Economics, Adam Smith who further
explained the Theory of Division of Labor in 1776, in his book “The Wealth of
Nations.” Adam Smith visited a place where Pins were made and found out that
Pin-Making involved eighteen different processes at that time.
He also found out that one man was coordinating all the
processes of Pin-Making alone; as a result of this rigorous and slow process he
was producing 20pins per day. Adam Smith came to a conclusion that if these
Eighteen Pin-Making Processes were handled by different people, more pins will be
produced.
The idea of Division of Labor thought out
by Smith was applied as a result, 48,000 Pins were 
