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.
How is money valuable ?
It generally holds value over time and is not destroyed by the effects of rapid / hyper-inflation.
Which countries have the highest inflation rates ?
- Venezuela
- Sudan
- Turkiye.
What is digital money ?
A form of currency that exists solely in digital or electronic form.
What is digital money used for ?
- Various types of transactions (e.g. online purchases, electronic fund transfers, digital payments, peer-to-peer transactions.
What sectors has digital money become increasingly prevalent in ?
- Commerce
- digital banking
- development of new financial technologies.
Examples of digital money
- Digital wallets : mobile payment apps and wallets (e.g. pay-pal, apple pay). Allows users to store digital money balances and secure online payments.
- Cryptocurrencies : e.g. Bitcoin, Ethereum
- Central Bank Digital Currencies : Some central banks exploring the idea of issuing digital versions of their national currency
- Prepaid cards : prepaid debit or gift cards issued by financial institutions.
What three factors explain the growth of digital money ?
- Convenience
- Globalization
- Security
- COVID-19 Pandemic.
How does convenience explain the growth of digital money ?
Eliminated the need for physical cash or in person visits to banks. Money money technology has accelerated.
How does globalization explain the growth of digital money ?
Digital money facilitates rapid cross-border payments.
How does security explain the growth of digital money ?
Many digital money facilities incorporate robust security measures, including encryption and authentication, to protect users financial information. These security features reduce the risk of fraud, theft and counterfeiting.
How does the COVID-19 pandemic explain the growth of digital money ?
The pandemic prompted more people to embrace contactless payment methods to reduce the risk of virus transmission.
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