Chains of Analysis

Question 1

advantage of specialisation/division of labour

Answer 1

Tasks are seperated in the production process.
workers then gain more practice in carrying out specific tasks.
this will improve skills and cause productivity levels to increase.
This will lower unit costs for the firm,
allowing them to set lower prices for consumers.
this will improve consumer welfare and allow the firm to make more profit - with a potential for dynamic efficiency

Question 2

disadvantage of specialisation/division of labour

Answer 2

Tasks are seperated in the production process.
workers have to repeat the same task the whole time.
this will make workers bored and feel alienated.
this will cause increased levels of absenteeism and inactivity, with higher turnover rates.
This will cause the firm to have higher unit costs.

Question 3

Conditions of demand

Answer 3

• disposable income ( normal/inferior)
• prices of substitutes/compliements
• changes in taste/fashion
• population
• advertising

E.G. increase Yd - rise in effective demand from D1 to D2. this will cause there to be an excess of demand leading to an extenstion in supply. This will cause firms to raise prices from P1 to P2, with a contraction in demand

Question 4

conditions of supply

Answer 4

• production costs/ technology
• external factors: weather, strikes, lockdown
• producer subsidies /. indirect taxes ( affects AVC)

EG - an increase in production costs will cause a fall in the supply from S1 to S2. This will case there to be an excess in supply, and suppliers have to lower prices to clear stock at P2.

Question 5

Price Mechanism - rise in Price

Answer 5

information about conditions
- signals scarcity to producers
- re-allocate FoP to good

higher profits
- incentivises producers
- re-allocates FoP to good

lowers consumers effective demand
- rations the good to those most willing and able to purchase the good