1.1.5 - specialisation and division of labour

Question 1

What is specialisation?

Answer 1

Focusing on a specific skill, activity, production process or the production of a limited range of commodities.

Question 2

How does specialisation increase the volume of output?

Answer 2

Highly specialised workers become more efficient speeding up production and minimising waste. This reduces production costs and increases output volume.

Question 3

What are the advantages of specialisation for consumers, firms, workers and the government?

Answer 3

• Consumers = Better quality, cheaper stuff, more choice = utility
• Workers = gain skills and receive higher wages so they are more productive and their job is easier and less stressful
• Firms = Increased labour productivity , higher profit, reduced training and equipment costs, surplus output can be exported, lower unit costs - higher efficiency
• Government = higher corporation tax due to profitable firms. Higher income tax, job creation and higher wages. Reduced burden on the state, less subsidies and support for firms.

Question 4

What are the disadvantages of specialisation for consumers, workers and firms?

Answer 4

• Consumers = disruption leads to shortages and increased prices, less domestic choice, uncertainty and price fluctuations, low quality products due to workers’ boredom
• Workers = tedious, monotonous and repetitive, less enjoyment and fulfilment, job dissatisfaction, may suffer from structural unemployment due to lack of industry-wide training
• Firms = lower labour productivity due to boredom so higher costs, narrow focus makes firms vulnerable to demand fluctuations, lack of diversification.

Question 5

What is the division of labour?

Answer 5

When labour is divided in the sense that the production process is split into lots of individual operations. Each operation is the special task of one worker.

Question 6

What are the functions of money?

Answer 6

-a medium of exchange
-a measure of value
-a store of value
-a method of deferred payment

Question 7

What does it mean for money to be a medium of exchange?

Answer 7

It facilitates transactions between buyer and seller, allows exchange of goods and services

Question 8

What does it mean for money to be a measure of value?

Answer 8

A nominal unit of measure used to value/price products, assets, debt, income and spending, etc.

Question 9

What does it mean for money to be a store of value?

Answer 9

An asset that holds value over time

Question 10

What does it mean for money to be a method of deferred payment?

Answer 10

The accepted way in each market to settle debt

Question 11

What are the advantages of specialisation in the production of goods/services to trade?

Answer 11

• theory of comparative advantage says that countries should specialise in producing goods where they have a lower opportunity cost, this leads to greater output globally
• workers are more skilled and labour productivity is increased leading to better quality g/s which are more price competitive (exports) due to lower unit costs for firms

Question 12

What are the disadvantages of specialisation in the production of goods/services to trade?

Answer 12

• countries may become overly dependent on exports, it this fails, the economy may collapse.
• if countries specialise in non-renewable resources, these may run out, resulting in a huge loss of income for the country
• high interdependence and problems arise if trade is prevented eg. due to war
• workers may become bored due to monotonous jobs, high staff turnover, higher employment and training costs for firms

Question 13

What did Adam Smith say about specialisation?

Answer 13

Specialisation and division of labour can increase labour productivity (output per worker), allowing firms to increase efficiency and lower their production costs