MICRO: Specialisation and Division of Labour

Question 1

What is specialisation?

Answer 1

Specialisation is the process wherein a company or individual decides to focus their labor on a specific type of production.

Question 2

What is division of labour and give an example?

Answer 2

A type of specialisation where production is split into different tasks and specific people are allocated to each task, e.g. in making a stool - one person can make the legs and the other makes the seats.

Question 3

How did Adam Smith explain the increase in productivity achieved through the division of labour?

Answer 3

One untrained worker wouldn’t even make 20 pins per day, but 10 workers, specialising in different tasks, could make 48,000

Question 4

What are advantages of specialisation in the production of goods?

Answer 4

• People can specialise in the thing they’re best at.
• Leads to better quality and higher quantity of products with the same effort - higher labour productivity
• Can help achieve economies of scale, e.g. a production line is a form of specialisation
• Leads to more efficient production - helping to tackle scarcity, as if resources are used more efficiently, more output can be produced per unit of input.
• Training costs are reduced if workers are only trained to perform certain limited tasks.

Question 5

What are disadvantages of specialisation in the production of goods?

Answer 5

• Tasks become repetitive, leading to boredom.
• Countries become less self-sufficient - a problem if trade is disrupted (war or dispute). E.g a country specialising in manufacturing, and imports all its fuel, the country could be in trouble if there’s a falling out with their fuel supplier.
• Lack of flexibility - if companies move elsewhere, workforce can struggle to adapt.

Question 6

What happens to trade as a result of specialisation?

Answer 6

It becomes vital as economies (and individual people and firms) have to be able to obtain the things they’re no longer making for themselves. Meaning it’s necessary to have a *way** of exchanging goods and services between countries.

Question 7

What is a barter system?

Answer 7

Where goods are swapped with other countries is one way a country can get what it needs. E.g. a country which mines diamonds may want oil, while another country producing oil may want diamonds.

Question 8

How is bartering inefficient?

Answer 8

Takes a lot of time and effort to find barters to trade with.

Question 9

What is the most efficient way of trade between countries?

Answer 9

Using Money.

Question 10

Explain the 4 functions of money

Answer 10

• Medium of exchange - something both buyers and sellers, meaning countries can buy goods, even if sellers don’t want the things the buying country produces
• A measure of value - e.g the value given to a good (such as a barrel of oil) can be measured in dollars
• A store of value - an individual receiving a wage before buying if they know that the money will be of a similar value in the future.
• A method of deferred payment - money can be paid later for something consumed now, e.g borrowing money for uni.