1.1 - Specialisation and the division of labour

Question 1

Specialisation

Answer 1

When an individual, firm or country concentrates on producing a limited range of goods/services

Question 2

Division of labour

Answer 2

Production of a complex good or service is broken down into many smaller and simpler tasks for different workers or machines

Question 3

Adam Smith

Answer 3

• Adam Smith, the father of economics, emphasised the benefits of specialisation in his book “The Wealth of Nations” (1776).
• He argued that specialisation leads to increased productivity and economic growth.

Question 4

Advantages of specialisation and division of labour

Answer 4

• Higher labour productivity lowers cost/unit for firms
• Lower cost/unit can be passed on to consumers in the form of lower prices
• Lower cost/unit can mean higher profits for the firms. This may lead to higher wages for workers
• Increased productivity allows some firms to sell beyond their local market into international markets
• It creates many low skilled jobs
• Economies of Scale: Larger quantities of identical goods can be produced more efficiently.

Question 5

disadvantages of specialisation and division of labour

Answer 5

• Monotony: Workers may find repetitive tasks monotonous/boring, leading to job dissatisfaction and a decrease in productivity
• A decrease in motivation may lead to less productivity and/or poorer manufacturing quality
• It may increase worker turnover rates as workers look to move on to a role that is more stimulating
• Mass produced products often lack variety and do not take different consumer preferences into account
• If workers lose their jobs, then it may be hard for them to find work as they are only trained in one skill
• Dependency: An economy heavily dependent on a single industry or export can be vulnerable to economic shocks.

Question 6

Advantages of Specialising for Trade

Answer 6

• Higher labour productivity lowers cost/unit for firms, which makes their goods more competitive internationally (exports)
• Increased exports can result in economic growth for the nation
  > Economic growth usually leads to higher income and a better standard of living
• Income gained from exports can be used to purchase other goods from around the world (imports). This increases the variety of goods available in a country
• Comparative Advantage: Nations can focus on producing goods and services where they have a comparative advantage, leading to higher efficiency.

Question 7

Disadvantages of Specialising for Trade

Answer 7

• some industries will be unable to compete internationally and will go out of business
  > Many firms in an entire industry may close, leading to structural unemployment
• Vulnerability to External Shocks: Reliance on trade exposes nations to risks, such as changes in global demand or supply disruptions.
• Specialisation using a country’s own resources will lead to resource depletion over time. Specialisation will increase the rate of resource depletion
• Income Inequality: Specialisation may benefit certain industries or regions more than others, leading to income inequality.

Question 8

What are the functions of money?

Answer 8

• medium of exchange,
• measure of value
• store of value
• method of deferred
  payment

Question 9

Money as a medium of exchange

Answer 9

• Money facilitates the exchange of goods and services, eliminating the need for barter.
  > Bartering is problematic as it requires two people to want each other’s good (double co-incidence of wants)

Question 10

Money as a measure of value

Answer 10

• Money serves as a unit of account, providing a common measure of the value of goods and services
  > Knowing the price of a good/service in terms of money allows both consumers and producers to make decisions in their best interests

Question 11

Money as a store of value

Answer 11

• Money can be saved or stored for future use, preserving its value over time. (inflation means this is not always true)
  > It remains valuable in exchange over long periods of time

Question 12

Money as a method of deferred payment

Answer 12

• Money allows for transactions where payment occurs at a later date.
  (way to arrange terms of credit (loans) and to settle any future debts)
  > This allows producers and consumers to acquire goods now and pay for them in the future