1.1.5 Division of Labour and Specialisation + Money

• What is comparative advantage?


  When individuals/businesses/countries should focus on producing good or services in which they are relatively more efficient or have lower opportunity costs compared to others.
• What is Adam Smith's contribution? (DoL)

  Adam Smith stated the concept of specialisation and the division of labour and showed how it can increase labour productivity (output per worker), allowing firms to increase efficiency and lower their costs of production.

  He visited a factory and observed that the pin making process had been split into 18 different operations. As a result, the company were able to produce 5,000 pins per person employed. If the work had been carried out by workers making the whole pin from start to finish, it would have been less a few dozen.
• +'s of Specialisation and DoL in organising production

  + Increased productivity - workers are more skilled in specific tasks, leading to higher efficiency and higher quality

  + Economies of scale - larger quantities of identical goods can be produced more efficiently

  + Lower costs - employees only need to be trained for one job and less waste is produced
• -'s of Specialisation and DoL in organising production



  -

  -Monotony - tasks may become boring, leading to job dissatisfaction and poorer quality

  -If one person delays the rest of the workforce has to wait until they are done

  -Dependancy - an economy heavily dependant on a single industry or export can be vulnerable to economic shocks

  -Structural unemployment - employees will only be trained to do one thing, so there may be a mismatch in the employees skills and what the economy needs
• +'s of Specialising in production for Trade

  + Comparative advantage - higher efficiency

  + Increased standard of living - trade allows access to a wider variety of goods and services, enhancing overall living standards
• -'s of Specialising in production for Trade


  -

  -Vulnerability to external shocks - reliance on trade exposes nations to risks, such as changes in global demand or supply disruptions

  -Income inequality - specialisation may benefit certain industries or regions more than others

  -High interdependence - if trade is prevented it can cause problems, like war
• What are the functions of money?


  -

  -A medium of exchange - facilitates the exchange of goods and services, eliminating the need for barter (trade)

  -Measure of value - serves as a unit of account, providing a common measure of the value of goods and services

  -Store of value - it can be saved or stored for future use, preserving its value over time

  -Method of deferred payment - allows for transactions where payment occurs at a later date