2.1 SPECIALISATION AND TRADE

Question 1

What is the division of labour?

Answer 1

Where the production process is broken down into stages and workers are assigned different tasks

Question 2

What is specialisation?

Answer 2

Where an individual worker, firm, region or country produces a limited range of goods and services (usually what they are best at)

Question 3

What is the definition of money as a medium of exchange?

Answer 3

Money is accepted as return for provision of goods and services and performs a function to help avoid inefficiencies in the barter system (double coincidence of wants)

Question 4

What is barter?

Answer 4

Barter - trade/exchange of goods or services for other goods or services without using a medium of exchange (money)

Question 5

What is the role of money due to barter?

Answer 5

• Money is used instead because barter relies on the double coincidence of wants (each party wants the good or service the other party has)
• This is how money significantly increases the level of economic activity in an economy
• Barter is only used in times of monetary crisis such as hyperinflation

Question 6

What is a TPC

Answer 6

Trade Possibility Curve - curve shown for a specific trade ratio

Question 7

What are 5 benefits of specialisation and (divsion of labour)?

Answer 7

1. Reduces movement between tasks which saves time and increases efficiency
2. Repetition increases skill which increases productivity and workers will be more productive
3. When tasks are broken down it can become more efficient to use specialist workers and capital (labour may also be substituted for capital as the task is repetitive which is cheaper)
4. Workers can be designated according to expertise and natural strength (leads to increases in productivity)
5. Specialisation and Division of Labour lead to greater use of underutilised scarce resources

Question 8

What are 7 costs of specialisation (and division of labour)?

Answer 8

1. Same task each time may lead to worker boredom which may mean reduced productivity and high turnover
2. Workers will suffer a loss of a range of skills (which means if their industry moves abroad or becomes defunct they have a loss of applicable skills)
3. Breakdown of specialist machinery can mean all production is stopped (as each stage is dependent on each other)
4. Worker strikes can mean all production is stopped (as each stage is dependent on each other)
5. Specialisation and Division of Labour can mean less choice for consumers (as these firms may dominate market due to lower costs and reduce competition and form oligopolies)
6. It can also mean the overuse of scarce resources as when firms specialise they will focus on one good or service so will consume larger numbers of resources for just this good or service
7. Costs may rise depending on the extent of workers wage increases due to specialisation and increased productivity EVAL