Unit 4

• Productivity measures how much OUTPUT is produced by a FoP in a given period of time
• The division of labour is when the production process is split up into separate tasks for different people
• An increase in productivity reduces the cost of production. Each worker is producing more but being paid the same amount, so the cost per unit decreases.
• To barter, you would need to find someone who has what you want and who wants what you have. This is called a double coincidence of wants and is very difficult to find!
• To barter is when one good is swapped for another
• Specialising becomes an issue with bartering, if no one wants the item you are proposing
• Issues with bartering encouraged the use of money as a MEDIUM OF EXCHANGE instead to buy what you actually want
• In order to specialise, firms and economies need the existence of a medium of exchange (i.e. MONEY)
• What are the PROS of specialisation in LABOUR?

  • increased output, increased quality, reduce unit costs, reduced training costs
• what are the CONS of specialisation in labour?

  • demotivation (=poor quality+productivity), increased absenteeism, increased employee turnover, increased unemployment (lack of skills)
• The division of labour is only within...

  firms (but specialisation happens within countries too - specialisation of TRADE)
• PROS of specialisation in TRADE?

  More variety of goods, more output produced, more trade (good for economy)
• CONS of specialisation in TRADE?

  Over-specialisation (i.e. deindustrialisation=mass unemployment=limited skills), natural resource depletion impacts oil providers (etc), dependency on others = vulnerable
• Money makes specialisation...


  possible!
• Production


  Converts inputs, such as the services of factors of production from capital and labour, into a final output to satisfy consumer needs and wants
• Productivity


  Calculated by output per worker per period of time
• Being more productive


  • The same input, such as the number of workers, produces more output, over the same period of time
• Being less productive


  • Requires a larger input to produce the same quantity of output
• Increasing productivity


  1. Training workers

  2. Using more advanced capital machinery
• Being more productive


  Lowers average costs per unit of output
• Specialisation


  Each worker completes a specific task in a production process
• Adam Smith: 'Through the division of labour, worker productivity can increase'
• Firms can take advantage of increased efficiency and lower average costs of production through specialisation
• By dividing the production of pins into 18 different tasks, the output of pins could increase significantly
• Specialisation


  • Can be achieved by individuals, businesses, regions of countries or countries themselves
• Advantages of specialisation


  • Higher output and potentially higher quality
  • Greater variety of goods and services produced
  • More opportunities for economies of scale
  • More competition and lower costs
• Disadvantages of specialisation

  • Work becomes repetitive, lowering motivation and potentially affecting quality and productivity
  • More structural unemployment as skills may not be transferable
  • Decreased variety for consumers
  • Higher worker turnover
• Comparative advantage


  A country can produce a good at a lower opportunity cost than another country
• Absolute advantage


  A country can produce more of a good with the same factor inputs
• Advantages of international specialisation and trade

  • Greater world output and economic welfare
  • Lower average costs due to increased competition
  • Increased supply of goods to choose from
  • Outward shift in the PPF curve
• Disadvantages of international specialisation and trade

  • Less developed countries might use up non-renewable resources too quickly
  • Countries could become over-dependent on the export of one commodity
• Medium of exchange


  Money eliminates the need for a double coincidence of wants in transactions
• Measure of value (unit of account)

  Money provides a means to measure the relative values of different goods and services
• Store of value


  Money can be kept for a long time without expiring, though its purchasing power may fluctuate
• Method of deferred payment


  Money can allow for debts to be created and paid for later
• Short run


  The scale of production is fixed (there is at least one fixed cost). For firms, the quantity of labour might be flexible, whilst the quantity of capital is fixed.
• Long run


  The scale of production is flexible and can be changed. All costs are variable.
• Marginal return


  The extra output derived per extra unit of the factor employed. For labour, it is the extra output per unit of labour employed.
• Average return


  The output per unit of input. This is output per worker over a period of time.
• Total return


  The total output produced by a number of units of factors (e.g. labour) over a period of time. The amount of capital is fixed.