What are the merits and demerits of specialization in an economy?

Answer 1

Merits include being able to produce more of the goods a nation has a comparative advantage in and import goods from other nations (usually for a lower cost and at a higher quality) that they have an advantage in producing. This will mean the world output will increase and nations will be able to consume more at a lower price. The demerits are that nations can face prospects of unemployment in industries that don't have a comparative advantage. For example, the EU can import agricultural goods at a cheaper price from other nations but it subsidizes its agricultural sector. Otherwise there will be huge amounts of socially unacceptable unemployment. There is also a chance that strategic industries will face a threat (same reason why some nations impose high taxes on imports). Thus the demerit is unemployment which will cause income levels to fall and ruin the entire economy. The advantage is to be allowed to consume more at a lower price.