Opportunity Cost and the Division of Labor

The invisible hand was first coined by Adam Smith in 1776. In his book ‘The Wealth of Nations’, he explained how the self-interest of the individual benefits the rest of society. In other words, by pursuing the profit motive, people provide goods that others want at a price they are willing to pay. Therefore, society benefits because those goods would not be produced otherwise.

The division of labor refers to the segmentation of tasks, so each person focuses on a specific part of the production process.

Opportunity cost is the cost of taking one decision over another. That can come in the form of time, money, effort, or ‘utility’.