Money encourages specialization by decreasing the

• A. number of available resources
• B. production possibilities frontier
• C. need for barter transactions
• D. opportunity cost of all goods

Answer: (C)

Verified step by step guidance

1. Step 1: Understand the concept of specialization in microeconomics, which refers to individuals or firms focusing on the production of a limited range of goods or services to increase efficiency and output.
2. Step 2: Recognize that specialization is often limited by the need to exchange goods and services, which historically required barter transactions—directly trading one good for another without a common medium.
3. Step 3: Identify the role of money as a medium of exchange that reduces the need for barter by providing a common measure of value, making transactions simpler and more efficient.
4. Step 4: Analyze how money lowers transaction costs and the complexity of trading, thereby encouraging greater specialization because individuals and firms can easily trade their specialized products for a variety of other goods and services.
5. Step 5: Conclude that money encourages specialization primarily by reducing the need for barter transactions, rather than by decreasing resources, shifting the production possibilities frontier, or changing opportunity costs directly.