<P> The general theory of specialization applies to trade among individuals, farms, manufacturers, service providers, and economies . Among each of these production systems, there may be a corresponding division of labour with different work groups specializing, or correspondingly different types of capital equipment and differentiated land uses . </P> <P> An example that combines features above is a country that specializes in the production of high - tech knowledge products, as developed countries do, and trades with developing nations for goods produced in factories where labour is relatively cheap and plentiful, resulting in different in opportunity costs of production . More total output and utility thereby results from specializing in production and trading than if each country produced its own high - tech and low - tech products . </P> <P> Theory and observation set out the conditions such that market prices of outputs and productive inputs select an allocation of factor inputs by comparative advantage, so that (relatively) low - cost inputs go to producing low - cost outputs . In the process, aggregate output may increase as a by - product or by design . Such specialization of production creates opportunities for gains from trade whereby resource owners benefit from trade in the sale of one type of output for other, more highly valued goods . A measure of gains from trade is the increased income levels that trade may facilitate . </P> <P> Prices and quantities have been described as the most directly observable attributes of goods produced and exchanged in a market economy . The theory of supply and demand is an organizing principle for explaining how prices coordinate the amounts produced and consumed . In microeconomics, it applies to price and output determination for a market with perfect competition, which includes the condition of no buyers or sellers large enough to have price - setting power . </P>

One of the major themes in economics is that trade created