2.1 Specialisation and Trade

Division of Labour, Specialisation

Division of Labour - production process broken down into stages and workers assigned different tasks

Specialisation - when an individual worker / firm / region / country produces a limited range of g+s

Reason for specialising?

allows workers to produce what they’re relatively most efficient at producing, minimising the (relative) opportunity cost of producing those g/s overall and maximises total output

(Different PPCs for different workers can be used to illustrate/reflect their relative oppo costs / individual skills and so how labour should be allocated to overall maximise total output (in notes)) in a given period of time.

eg:

Susan has a lower oppo cost of laying bricks: can forgo fewer window fittings to lay 1 more tonne of bricks than Fred. (Vice versa for Fred - Fred has lower oppo cost of fitting windows)

Susan: relatively more efficient at laying bricks

Fred: relatively more efficient at fitting windows

Terms to describe relative productivities / efficiencies between workers?

Who has lower oppo costs (when producing the particular good) — comparative advantage (can’t obvs have comparative advantage in both goods)

Who can produce more — absolute advantage

Division of Labour + Specialisation pros + cons + evals? listed

• Reduced movement between tasks saves time + increases efficiency BUT may lead to boredom —> reduced productivity

• Repetition increases skill —> higher productivity BUT loss of range of skills (deskilling) —> eg. Less flexible (labour mobility down)

• Production being broken down allows more efficiency when allocating tasks: allocate to specialist workers + capital BUT labour strikes / breakdown of specialist machinery —> all production stopped (over-reliance on every single group of workers/capital

• Workers allocated to their strengths/expertise/happiness? BUT can lead to overuse of scarce resources + could limit choice of what can be produced

• Leads to greater use of underutilised scarce resources BUT maybe then too dependant on these specialist resources which are if were previously underutilised were probably short in supply

Specialisation necessitates trade (cos once individuals / firms / countries specialise in one g/s they need to trade to obtain goods they no longer produce). Ways of trading?

1) Bartering - the direct exchange of one g/s for another

• An immediate reciprocal exchange

• Requires double coincidence of wants (but is a major inefficiency of this)

+ issues with the comparative value of the g/s being traded. May not seem like a fair trade

2) using a Medium of Exchange - any item that is widely accepted in exchange for g/s

Money is a Medium of Exchange because notes/coins are widely accepted in exchange for g+s 

• Good cos (everyone) both parties in a transaction usually happy to exchange g+s for a common medium of exchange (money) —> significantly increases the level of economic activity

• Makes it easier to attempt to quantify the value of g/s as to be able to arrange a “fairer” deal that both parties are happy with

Rarely see bartering in most developed countries (exception might be when there’s hyperinflation and money rapidly loses value, or maybe when a currency is unavailable for transactions)