1.1.5: Specialisation and the division of labour

• Specialisation: Production of a limited range of goods by a company/individual. This makes trade the only way to access everything they need
• Division of labour: When labour becomes specialised in a particular part of the production process
• If a country wants to maximise the amount of goods and services it produces, it must ensure all factors of production, including workers, do the tasks they are best at
• Adam Smith stated the concept of specialisation and how it could increase labour productivity
• Adam Smith visited a factory and observed that the pin making process had been split into 18 different operations, resulting in the company being able to produce 5000 pins per person employed, whereas if each worker made their whole pin it would have been a few dozen
• Advantages of Specialisation:

  Increased labour productivity

  Higher quality of goods

  Less time wasted

  Less training required for workers
• Disadvantages of specialisation

  Work can be repetitive/boring

  If one process is delayed, other processes will be too

  Workforce does not have wide industrial training, leading to potential structural unemployment
• Advantages of countries specialising:

  Theory of comparative advantage: Countries should specialise in producing goods where they have lower opportunity cost which helps boost their economy and global output
• Disadvantages of countries specialising:

  Overdependence on a single export - If it fails their economy may collapse

  High interdependence causes problems during times like war

  Countries specialising in non-renewables will eventually lose a lot as they run out
• Functions of Money

  Medium of Exchange: Used to buy and sell products

  Measure of Value: Compares value of 2 goods

  Store of Value: Keeps value and can be kept a long time

  Method of Deferred Payment: Can pay for things in future (debts)