The series this is from (Free to Choose) is a great introduction to economics for people of any age. I highly recommend it.

This particular example can be misinterpreted though. It's true that no single person knows how to make that exact pencil that he is holding. But it's not true that no single individual exists who can make a pencil by themselves. If the criteria is just that it works as a pencil, then many people could make or find something that fills that criteria.

This is an important distinction because there are things like microprocessors, which no single person knows how to make. But also: no single person could alone build something that has anywhere near the same capability. It's conceivable that a civilization could forget how to do something like that because it requires so many people with non-overlapping knowledge to create anything close. We aren't going to forget how to make pencils because it is such a simple problem, that many individuals are capable of figuring out workable solutions alone.

That's false, I know exactly how to make a pencil. I know because I look it up in case I'm mysteriously transported back to the Roman Empire times.

The hard part is finding graphite (somewhere in Wales? looks like lead, but softer and leaves traces on sheep's wool). Then suitable clay to make the lead. Then some kind of glue to glue the two parts of the pencil (boil some bones and cartilages?).

Also, no one knows how to make a Pizza! (great book for kids)