Diminishing marginal utility

• What occurs when the production process is broken down into small tasks?

  Division of labour
• What did Adam Smith argue about specialisation and division of labour?

  They increase production and create wealth
• Why does specialisation increase productivity?

  Due to repetition and less task switching
• What example did Adam Smith use to illustrate division of labour?

  A pin factory
• What did Smith argue about countries specialising in certain goods/services?

  It leads to higher incomes and living standards
• What are the advantages of specialisation and division of labour in production?

  • Increased output due to greater skill
  • Less wastage from fewer mistakes
  • Lower unit costs from economies of scale
• What are the disadvantages of specialisation and division of labour?

  • Boredom leading to reduced productivity
  • Higher wages needed for monotonous work
• What are the advantages of countries specialising in goods/services for trade?

  • Greater output and lower unit costs
  • Greater variety of goods available
  • Economic growth from increased trade
• What are the disadvantages of countries specialising in goods/services for trade?

  • Structural unemployment from narrow skill sets
  • Over reliance on trading partners
  • Difficulty adapting to changing tastes
  • Risk of resource depletion
• What is structural unemployment in the context of specialisation?

  Unemployment due to narrow skill sets
• How can over reliance on trading partners be problematic?

  It can lead to supply shortages
• Why is it difficult for countries to adapt to changing tastes when specialised?

  Firms may struggle to adjust their production
• What issue arises from finite resources in specialisation?

  Depletion of resources over time
• What are the functions of money?

  • Medium of exchange
  • Measure of value
  • Store of value
  • Method of deferred payment
• What is the role of money as a medium of exchange?

  It allows buying goods instead of bartering
• What problem did bartering cause before money was used?

  Mismatch of wants between traders