Question from Past Microeconomics Qualifying Exam[]

Fall 2004 - Section I, Question four, George Mason University

T, F, U. State first whether the following statements are true, false or uncertain. Then briefly explain your reasoning in four or five sentences. You may use a graph if it helps clarify your answer.

"The division of labor is limited by the extent of the market."


True. George Stigler points out in his 1951 article with this titel in the Journal of Political Economy, that this statement does not imply, as might be suggested, that most industries should be monopolistic. Stigler goes on to elaborate that this statement, which was originally used in Adam Smith's Wealth of Nations, merely suggests that as industries grow the division of labor increases and that declining industries will be characterized by vertical integration of previously seperate production processes.

Other Questions[]


  • Stigler, "The Division of Labor is Limited by the Extent of the Market," JPE, (June 1951), pp. 185-193.