Specialisation And The Division Of Labour - Functions Of Money Flashcards
Definition Of Specialisation
Focusing on a specific task or area of production.
Explain who Adam Smith was and the concept he founded
Argued that through specialisation and the division of labour production could be increased and extra wealth could be created.
Define comparative advantage
- Specialisation also leads to comparative advantage
- Comparative advantage - when a business or a nation can produce something at a lower opportunity cost compared to other nations.
What does specialisation mean for trade ?
It becomes vital.
What’s the most efficient way of exchanging goods and services between countries?
Using money.
What are the main functions of money ?
- A medium of exchange
- A store of value
- A unit of account
- A standard of deferred payment
How does money function as a medium of exchange ?
- Facilitates any transaction between the buyer and seller
- Specialisation and the division of labour require a mean of exchanging goods and services; money promotes this.
How does money function as a store of value ?
An asset that holds value over time.
How does money function as a unit of account ?
A nominal unit of measure used to value/cost products, assets (including property), debts, incomes and spending.
How does money function as a standard of deferred payment ?
The accepted way, in each market, to settle a debt.
What are the key characteristics of money ?
- Hard to counterfeit
- Divisible
- Durable and portable
- Holds value over time
- Accepted when making transactions.
Definition of durability
It needs to last
Definition of portable
Easy to carry around, convenient, easy to use.
How is money hard to counterfeit ?
Cannot be easily faked or copied by fraudsters.
How is money accepted ?
Money must be accepted as legal tender by a population - there must be sufficient trust in money.
