Microeconomics Test 3 Flashcards
Define Specialisation.
Specialisation is the production of a limited range of goods or services by an individual or firm or country in co-operation with others, so that together a complete range of goods is produced.
Define Specialisation.
Specialisation is the production of a limited range of goods or services by an individual or firm or country in co-operation with others, so that together a complete range of goods is produced.
Using an example explain how specialisation can occur between countries.
Specialisation can occur between countries, for example a country like Honduras specialises in bananas and trades them for cars with the USA.
Using an example explain how specialisation can occur within countries.
Specialisation can occur between different regions within the same country, for example in the UK, Cornwall specialises in tourism while London specialises in financial services.
What is the concept of the division of labour? Reference Adam Smith
The division of labour is specialisation of tasks by individuals. Adam Smith explained that one pin worker might be able to make 20 pins a day, if he were to carry out all the processes himself, but ten workers together each specialising in a smaller number of processes could, he estimated make 48,000 pins.
Give five disadvantages of specialisation.
1) Unrewarding, repetitive work that requires little skill can lower motivation and eventually causes lower productivity.
2) Workers may take less pride in their work and the quality suffers.
3) Dissatisfied workers become less punctual at work and the rate of absenteeism rises.
4) There is high worker turnover.
5) Some workers receive little training and may not be able to find alternative jobs, they may suffer structural unemployment or occupational immobility.
Using an example explain how specialisation can occur between countries.
Specialisation can occur between countries, for example a country like Honduras specialises in bananas and trades them for cars with the USA.
Using an example explain how specialisation can occur within countries.
Specialisation can occur between different regions within the same country, for example in the UK, Cornwall specialises in tourism while London specialises in financial services.
What is the concept of the division of labour? Reference Adam Smith
The division of labour is specialisation of tasks by individuals. Adam Smith explained that one pin worker might be able to make 20 pins a day, if he were to carry out all the processes himself, but ten workers together each specialising in a smaller number of processes could, he estimated make 48,000 pins.
Give three advantages of the division of labour.
1) Division of labour allows workers to specialise in a narrow range of tasks, this means that workers become very skilled at their particular tasks, and so they are far more productive than if they had to complete many different tasks.
2) The division of labour makes it cost effective to provide workers with specialist tools. So that individual workers have only the tools they need to complete their particular task, rather than every worker having a full set of tools.
3) Division of labour saves time because a worker doesn’t have to change tasks, move around from place to place or use different machinery and tools.
Explain using an example the possible disadvantage of over-specialisation.
If there is over-specialisation, a breakdown in part of the chain of production can cause chaos within the system. For example specialisation led to high unemployment in some areas of the north of England due to the outsourcing of heavy industries, that were not replaced.
Give three advantages of Specialisation.
1) Higher labour productivity and business profits.
2) Specialisation creates surplus output that can then be traded internationally.
3) Lower prices, higher real incomes and GDP growth.
What is real income?
Real income is the quantity of goods and services you can buy with money income taking into account inflation.
What is money income?
Money income is wage/salary before or after tax.
Give the four functions of money.
1) A medium of exchange
2) A measure of value
3) A store of value
4) A method of deferred payment
Explain how money performs its function as a store of value.
How does high inflation affect this and why?
Money acts as a store of value, a worker who receives wages may defer spending because it is more convenient to spend the money later, and under normal circumstance the money will be worth the same in the future.
High inflation destroys this function because money in the future has lower value than money in the present.
Explain the problems with a barter economy.
There is no money in a barter economy, exchange is conducted directly by swapping one good with another. This requires a double coincidence of wants, each party to the transaction must want what the other has to trade. This is costly and difficult so trade is discouraged, without trade there can be no specialisation, without specialisation there is little or no increase in living standards.
Explain how money performs its function as a measure of value.
How does high inflation affect this and why?
Money acts as a unit of account, for example if a dress costs £30 and a skirt £15, we know that the value of one dress is equal to the value of two skirts.
High inflation destroys the ability of money to perform this function, as in times of price rise it is difficult for consumers to know the value of goods and services.
Why is it difficult to establish an agreed unit of account in a barter system?
It is very difficult under a barter system to establish an agreed unit of account, as people’s opinions of the value of certain items differ greatly.
Explain how money performs its function as a method of deferred payment.
Money has the ability to link different time periods when it comes to borrowed as well as saved money. If people lend money today, they will only decide to do so, if they think that they will be able to buy roughly the same amount of goods and services when it is paid back.
What is demand?
Demand is the quantity of goods or services that will be bought over a given time period at any given price.
How is a change in price shown on the demand curve?
How is a change in any other variable affecting demand shown on the demand curve?
A change in price is shown by a movement along the demand curve.
A change in any other variable affecting demand, such as income is shown by a shift in the demand curve.
What is consumer surplus?
Consumer surplus is the difference between how much buyers are prepared to pay for a good and what they actually pay.
What is a contraction of demand?
A contraction of demand occurs when the quantity demanded of a good falls because its price rises, it is shown by a movement up the demand curve.
