4.2 Specialisation, Division Of Labour And Exchange

Question 1

When does Specialisation occur?

Answer 1

• when each worker completes a specific task in a production process.

Question 2

Who developed the concept of Specialisation?

Answer 2

• Adam Smith

-he showed how, through the division of labour, worker productivity can increase.

-Firms can then take advantage of increased efficiency and lower average costs of production.

Question 3

What are the advantages of specialisation?

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Answer 3

• Higher output and potentially higher quality, since production focusses on
  what people and businesses are best at.
• greater variety of goods and services produced.
• more opportunities for economies of scale, so the size of the market increases.
• Competition increases which gives an incentive for firms to lower their costs- helps to keep prices down.

Question 4

What are the disadvantages of specialisation?

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Answer 4

• Repetitive work, which could lower the motivation of workers, potentially affecting quality and productivity
• Disatisfied workers which lowers motivation
• structural unemployment might increase-since skills might not be transferable, especially because workers have focussed on one task for so long.
• By producing a lot of one type of good through specialisation, variety could in fact decrease for consumers.
• There could be higher worker turnover for firms, which means employees become dissatisfied with their jobs and leave regularly.

Question 5

Specialisation in the production of goods and services to trade…

Answer 5

• Countries can specialise in the production of certain goods. For example, Norway is one of the world’s largest oil exporters.
• Countries trade to get the goods and services they are unable to produce.

Question 6

What is meant by comparative advantage?

Answer 6

• Countries can exploit their comparative advantage in a good.
• which means they can produce a good at a lower opportunity cost to another.

Question 7

What is meant by absolute advantage?

Answer 7

• Absolute advantage occurs when a country can produce more of a good with the same factor inputs

Question 8

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

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Answer 8

• Greater world output, so there is a gain in economic welfare.
• Lower average costs, since the market becomes more competitive.
• Increased supply of goods to choose from.
• Outward shift in the PPF curve.

Question 9

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

Answer 9

• Less developed countries might use up their non-renewable resources too
  quickly, so they might run out.
• Countries could become over-dependent on the export of one commodity,
  such as wheat.
  -If there are poor weather conditions, or the price falls, then
  the economy would suffer.

Question 10

What are the functions of money?

Answer 10

• A medium of exchange
• A measure of value (unit of account)
• A store of value
• A method of deferred payment