Final answer:
According to Adam Smith, a larger extent of the market leads to a greater division of labor, which increases productivity and efficiency in production.
Step-by-step explanation:
The relationship between the extent of the market and the division of labor, according to Adam Smith, is that a larger extent of the market leads to a greater division of labor, which in turn increases productivity and efficiency in production. Smith observed that when tasks involved in producing a good or service are divided and specialized among workers, they are able to produce more than if they were each responsible for the entire production process. With a larger market, there is a greater demand for goods and services, which allows for a greater division of labor and specialization.
Smith provided an example of pin factories, where he noted that a single worker making pins alone could produce a limited number, but a small business with several workers, each specializing in different tasks, could produce a much larger quantity of pins in a day. This is because each worker becomes highly skilled at their specific task, improving efficiency and increasing output.
In summary, the extent of the market affects the division of labor, and a larger market leads to a greater division of labor. This division of labor, where workers specialize in specific tasks, improves productivity and allows for higher levels of production.