5. specialisation & the role of money and financial markets

Question 1

Division of labour

Answer 1

involves dividing the workforce and allocating specific individuals to specific tasks. It allows labour to specialise in a task.

Question 2

specialisation

Answer 2

Workers become more efficient at their task, improving the productivity of the entire production process.

Question 3

Benefits of specialisation

Answer 3

increase in productivity –> higher output —> exploit economies of scale –> average unit cost decreases —> increase in profits

Question 4

money

Answer 4

Money solves the problems created by the barter system. Instead of having to find someone who had the goods you wanted and wanted your goods, money could be used instead.

Question 5

4 functions of money

Answer 5

1. a medium of exchange
2. a measure of value
3. a store of value
4. a method of deferred payment

Question 6

MARKETS

Answer 6

any convenient set of arrangements by which buyers and sellers communicate to exchange goods and services.

Question 7

Forms of money

Answer 7

• cash
• money in current accounts
• near monies
• non-money financial assets
• money substitutes

Question 8

cash

Answer 8

symbolic money. It has no actual value.

Question 9

money in current accounts

Answer 9

cash can be withdrawn on demand from the account if it is in credit.

account holders are provided with a debit card and chequebook. Cheques and debit cards can be used to purchase goods and services.

Question 10

near monies

Answer 10

assets that fulfil some but not all of the functions of money. they act as measures of value and stores of value but cannot be used as mediums of exchange. However, they are convertible (changeable) into a medium of exchange quickly and at little cost.

Question 11

non-money financial assets

Answer 11

can be a long waiting time for withdrawal and there can be considerable loss of money from converting it. This damages their functions as measures of value and stores of value.

e.g. shares

Question 12

money substitutes

Answer 12

credit cards

Question 13

financial markets

Answer 13

is any convenient set of arrangements where buyers and sellers can buy or trade a range of services or assets that are monetary in nature.

Question 14

why do financial markets exist?

Answer 14

1. is to provide services demanded by households, firms and the government.
2. allow participants to speculate and realise financial gains.