specialisation and division of labour

• what is the division of labour?

  • The division of labour is when a task is broken up into several component tasks
  • This allows workers to specialise by focusing on one (or a few) of the components that make up the production process and thereby gain significant skill in doing it
  • This results in higher output per worker and so increases productivity
• what is specialisation?

  A worker then specialises in each process and is more productive
• specialisation occurs on many levels such as?

  • On an individual level
  • On a business level. For example, one firm may only specialise in manufacturing drill bits for concrete work
  • On a regional level. For example, Silicon Valley has specialised in the tech industry
  • On a global level as countries seek to trade. For example, Bangladesh specialises in textiles and exports them to the world
• what are the benefits of specialisation and division of labour to consumers?

  • Lower costs can be passed on to consumers in the form of lower prices
  • Increased variety of goods available due to international trade
• what are the benefits of specialisation and division of labour to firms?

  • Lower costs can mean higher profits for firms. This may lead to higher wages for workers
  • Higher labour productivity lowers cost / unit for firms, which makes their goods more competitive internationally (exports)
• what are the benefits of specialisation and division of labour to society?

  • Increased exports can result in economic growth for the nation
  • It creates many low skilled jobs
  • Income gained from exports can be used to purchase other goods from around the world (imports). This increases the variety of goods available in a country
• prior to the creation of money individuals and firms had to be?

  • Prior to the creation of money, individuals and firms had to accept other goods or services as payment, or be self-sufficient by producing everything required
• since firms and individuals lacked self suffiency, what did they use as a solution?

  • Often lacking self-sufficiency or driven by the desire for a wider range of goods/services, bartering became the norm but it too had problems
• what is bartering?

  the act of trading one good or service for another without using a medium of exchange such as money.
• what do individuals and firms require when they trade with each other?

  • As individuals and firms trade with each other in order to acquire goods or raw materials, they require a means of exchange that is acceptable and easy to use
  • Modern currency fulfils this purpose, & money functions as a medium of exchange, a measure of value, a store of value, and a method of deferred payment
• what are the 4 functions of money?

  • a medium of exchange
  • a measure of value
  • a store of value
  • a method of deferred payment
• what is a medium of exchange?

  • Without money, it becomes necessary for buyers and sellers to barter (exchange goods)
  • Bartering is problematic as it requires two people to want each other's goods (double co-incidence of wants)
  • Money easily facilitates the exchange of goods, as no double co-incidence of wants is necessary
• what is a measure of value?

  • Money provides a means of assigning value to different goods and services
  • Knowing the price of a good in terms of money allows both consumers and producers to make decisions in their best interests
  • Without this measure, it is difficult for buyers and sellers to arrange an agreeable exchange
• what is a store of value?

  • Money holds its value over time (of course inflation means that is not always true!)
  • This means that money can be saved
  • It remains valuable in exchange over long periods of time
• what is a method of deferred payment?

  • Money is an acceptable way to arrange terms of credit (loans) & to settle any future debts
  • This allows producers & consumers to acquire goods in the present & pay for them in the future