Final answer:
The division of labor allows for increased production, as workers specializing in particular tasks can operate more efficiently than if they produced an entire good or service by themselves. Adam Smith outlined this concept in 'The Wealth of Nations,' demonstrating how specialization in a larger market leads to massive gains in productivity.
Step-by-step explanation:
The relationship between the extent of the market and the division of labor is such that the larger the market size, the greater the opportunity for specialization within labor. Adam Smith's famous book 'The Wealth of Nations' describes how the process of dividing and subdividing labor among different workers leads to a significant increase in production output. For instance, in a pin factory, the subdivision of labor allowed 10 workers to collectively produce 48,000 pins in a day compared to a single worker making only 20 pins. The efficiency comes from workers specializing in certain tasks, which minimizes downtime, improves skill through repetition, and promotes innovation in the use of tools. Smith outlines three primary reasons for increased production due to the division of labor: First, it increases dexterity in every particular workman; second, it saves time that is commonly lost in passing from one species of work to another; and third, it makes the invention of a great number of machines that facilitate and abridge labor more likely. The larger the market, the more demand for goods, and thus, the better the conditions for division of labor to thrive. This concept has profound implications for businesses as they scale operations to meet market demand.