Topic 4.2 Specialisation, division of labour and exchange

Question 1

Specialisation

Answer 1

Specialisation: focussing on a specific task, skill or area of production

Question 2

Division of labour

Answer 2

the separation of tasks within a production process or organisation which shows an increasing returns to scale

Question 3

Advantages to Specialisation and Division of Labour

Answer 3

1. Increases output and potentially quality (so less waste is produced)
2. Increases opportunities for economies of scale
3. Increases competitiveness (as lower ac/u means lower prices)
4. Greater quantity/variety can be sold

Question 4

Disadvantages of Specialisation and Division of Labour

Answer 4

1. Work = repetitive therefore decreases motivation thus decreasing productivity and quality.
2. Too much specialisation may decrease variety
3. Increase in training costs due to structural unemployment
4. Since demotivating, more people may leave which leads to 3

Question 5

Specialisation with countries

Answer 5

Countries can specialise in the production of certain goods e.g Norway is one of the largest oil exporters. Countries trade to get goods/services they are unable to produce

Question 6

Comparative advantage

Answer 6

Countries can exploit their comparative advantage in a good, which means they can produce a good at a lower opportunity cost than another

Question 7

Absolute advantage

Answer 7

when a country can produce more of a good with the same factor inputs

Question 8

Advantages of world trade (specialised countries)

Answer 8

1. Greater world output -> gain in economic welfare
2. Lower average costs since the market becomes more competitive
3. There is an increased supply of goods to choose from
4. There is an outward shift in the PPF

Question 9

Disadvantages of world trade (specialised countries)

Answer 9

1. Less developed countries may run-out of non renewables therefore their biggest export factor is gone and can’t compensate
2. Countries could become over dependent of the export of one commodity.

Question 10

The Functions of Money

Answer 10

1. A medium of exchange
2. A measure of value (unit of account)
3. A store of value
4. A method of deferred payment

Question 11

A medium of exchange

Answer 11

Money provides a method to purchase goods/services.
without money, transactions were conducted through bartering (trading one type of good for another) however the goods weren’t always the same value. Exchange could only take place if there was a double coincidence of wants

Question 12

A measure of value (unit of account)

Answer 12

Money provides a mean to measure the relative value of goods/services. Money also puts a value on labour

Question 13

A store of value

Answer 13

Money has to hold its value to be used as a payment- can be kept for a long time without expiring. However, the quantity of goods/services you can buy with a set amount of money slightly fluctuates with the forces of supply and demand

Question 14

A method of deferred payment

Answer 14

Money can allow for debts to be created. Money can therefore pay for things without having money in the present, and can pay for it later. This relies on money storing it’s value