2.1 Specialisation And Trade Flashcards
What is specialisation
Specialisation occurs when each worker competed a specific task in a production process
How can firms benefit from specialisation
Through the division of labour, worker productivity can increase. Firms can then take advantage of increased efficiency and lower average costs of production
How does specialisation help the problem of scarcity
Each worker specialises and output increases. This can help address the problem of scarcity, since resources are used more efficiently
Advantages of specialisation
Higher output and potential higher quality
Greater variety of goods and services produced
More opportunities for economies of scale, so the size of the market increases
Disadvantages of specialisation
Work becomes repetitive which could lower motivation potentially affecting quality and productivity
More structural unemployment since skills might not be transferable
Variety could in fact decrease for consumers
Higher worker turnover for firms
How can specialisation affect the production of goods and services to trade
Countries can specialise in the production of certain goods.
Countries can exploit their comparative advantage in a good, which means they can produce a good at lower opportunity cost to another
What is absolute advantage
This occurs when a country can produce more of a good with the same factor inputs
Advantages of specialisation to trade
Greater world output, so a gain in economic welfare
Lower average costs as markets become more competitive
Increased supply of goods to choose from
Outward shift in the PPF curve
Disadvantages of specialisation to trade
Less developed countries might use non-renewable energy too quickly and run out
Countries could be too dependent of the export of one commodity and if the price of that commodity fell, then the economy would suffer
What is a medium of exchange
Without money, goods and services were traded with other goods and services so people did not always get what the wanted of needed
Exchange could only take place if there was a double coincidence of wants
Using money eliminates this problem
What is a measure of value (unit of account)
Money provides a means to measure the relative values of different goods and services.
It also puts a value on labour
What is a store of value
Money has to hold its value to be used for payment. It can be kept a long time without expiring
However, quantity of goods and services that can be bought fluctuate with the forces of supply and demand
What is a method of deferred payment
Money can allow for debts to be created
People can pay for things without having money present
This relies on money storing its value
