2.1- Specialisation and Trade

• When does specialisation occur?

  When economic units (firms, individuals, regions, countries) concentrate on producing specific goods or services
• Definition of division of labour

  Specialised use of workers within an organisation
• What does specialisation lead to?

  Increased output per worker as the workforce has a better understanding of their job role
• What does specialisation help address?

  Problem of scarcity as there will be a greater supply of goods and services to meet unlimited wants
• How do economic units become more efficient ?

  -greater understanding of the requirements of production

  -each economic unit can specialise in what they are best at

  -efficient use of time as there is no switching between tasks

  -technical economies of scale as capital equipment is used to produce goods and services
• What does specialisation allow for?

  Exchange of goods and services between economic units
• What can increased output be exchanged for?

  Other goods and services that the economic unit is not as good at producing
• What is the barter system

  Goods and services are exchanged for other goods and services between two parties
• Why is money more efficient than barter?

  • Medium of exchange (intermediary)
  • Store of value (can be kept for future use
  • Unit of account (allows us to measure value of goods and services)
  • Standard of deferred payment (pay for goods at later date)