3.4.2 - Specialisation, Division of Labour and Exchange

Question 1

What is specialisation?

Answer 1

A worker only performing one task or a narrow range of tasks.

Different firms specialising in producing different goods or services.

Question 2

What is the division of labour?

Answer 2

Different workers perform different tasks in the course of producing a good or service.

Question 3

What did Smith establish?

Answer 3

The benefits of specialisation or the division of labour.

Question 4

According to Adam Smith, what are the three main reasons why a factory’s total output can be increased if there is specialised workers?

Answer 4

A worker will not need to switch between tasks.
More and better capital will be employed.
‘Practice makes perfect’ as workers do more of the same task.

Question 5

What is capital widening?

Answer 5

Employing more of the same capital.

Question 6

What is capital deepening?

Answer 6

Investing in state of the art new technology.

Question 7

What is trade?

Answer 7

The buying and selling of goods and/or services.

Question 8

What is exchange?

Answer 8

To give something in return for something else received. Money is a medium of exchange.

Question 9

What does specialisation need to be economically viable?

Answer 9

Those taking part in the division of labour, a system of trade and exchange is required.

Question 10

Why is specialisation not economically viable without trade and exchange?

Answer 10

Workers who completely specialise cannot enjoy a reasonable standard of living if they are forced to consume only what they produce.

Question 11

What do workers do to allow for specialisation along with trade / exchange?

Answer 11

They produce more than they need, and then trade the surplus in exchange for other goods produced by others.

Question 12

What did farmers do several hundred years ago to specialise and also have a good standard of living?

Answer 12

People living in rural communities within the UK could specialise and then trade whatever they produced through barter.

Question 13

What is the ‘double coincidence of wants’?

Answer 13

Both parties must want what the other party has, and a rate of exchange must be met for this.

Question 14

Why is barter such an inefficient method of exchange in large-scale economies?

Answer 14

A vast number of goods are produced and traded, so it would be incredibly inefficient to barter for all goods / services.

Question 15

Why does money eliminate the inefficiency of barter?

Answer 15

The money you use to buy an item can then be used to buy another good, rather than hopefully finding a ‘double coincidence of wants’.

Question 16

What did Adam Smith use to back up his point of specialisation being more efficient?

Answer 16

A pin factory.

Question 17

Why did Adam Smith use a pin factory to back up his point of specialisation?

Answer 17

One person who was not skilled at making pins would likely make less than one in a day.

The one person carries out about 18 distinct tasks and as a result makes less than 1.

However, if each of the 18 tasks were given to one person each, each person would be able to specialise in each task. (i.e. drawing the wire, straightening it, cutting it, pointing it etc.)

The specialisation would allow them to make upwards of 48,000 pins in a day as each person would be able to develop their skills in that one area, finding efficiencies and generally becoming faster.