Productive people benefit others

When Robinson Crusoe becomes more productive, he benefits alone. However, in a division-of-labor economy, others benefit too. Interestingly, others benefit even if they do not increase their own productivity.

Since the person with increased production does not want to consume his own product, he has to trade his extra product for good produced by others. If those others have not produced anything more than normal, how can they give him more in trade? They will only do so if they find the additional trade beneficial to themselves. They will only increase their trade with him if they find themsves better off.

Example: Consider an example of a 2-person economy. Ann and Bob produce 10 units of product A and B, respectively. They each trade half of their product for half of the other person's product. We can depict this scenario as follows:

Now, imagine that Ann figures out a way to be more productive. Imagine she can produce 13 units of A, instead of 10 units. If she consumes all the additional produce, we have a situation like this. We see that she is better off , while Bob's situation is unchanged.

Finally, suppose Ann would rather exchange 1 of the additional units of A for one unit of B. Suppose Bob is willing to make the exchange. Then, we have the following situation.

Notice that Ann is clearly better off than the time she was producing just 10 units. However, if Bob traded willingly, it is reasonable to assume that he is btter off as well. We could explore this further and by asking: what if Bob insists on getting 2 units of A for the additional unit of B that Ann wants, and suppoose she agrees. Once again, we see that they're both better off.

So, even though Bob has not improved his production at all, he is still better off because of Ann's improved production.

Consider an inventor who creates a new computer, or vacuum cleaner or a better home. Others benefit from his invention even if they do not produce any more than they always did.