1.1.5 Specialisation and the division of labour

SPECIALISATION

• specialisation is when we concentrate our scarce resources on a specific product or task

• the production of a limited range of goods by a company/individual/country which means that trade is essential as it is the only way they are able to access all they need

DIVISION OF LABOUR

• when labour becomes specialised in a particular part of the production process 

SPECIALISATION OF FOPs

• whilst some resources have many different uses, some may only have one use

• labour can differ greatly in terms of what they can do and what they are good at: some may be good at building things, whilst others may be good at designing computers

• so if a country wants to maximise the amount of goods and services it can produce they need to ensure that all factors of production, including workers, undertake the tasks that they are best at

ADAM SMITH- STATE

• He stated the concept of specialisation and the division of labour and showed how it can increase labour productivity (output per worker), allowing firms to increase efficiency and lower costs of production 

ADAM SMITH- DO

• he visited a factory and observed that the pin making process had been split into 18 different operations

• as a result, the company were able to produce 5,000 pins per person employed

• if the work had been carried out by workers making the whole pin from start to finish, it would have been less a few dozen

SPECIALISATION AND DOL IN ORGANISING PRODUCTION: ADVANTAGES

• The division of labour enables labour productivity to be increased- Workers will be quicker, better and more efficient as they are concentrating on one thing and so can quickly develop their skills. It also is likely they will have natural abilities or talents in their task

• This may also lead to a higher quality of goods and services, since workers are more skilled at their jobs

• It is more cost effective to develop specialist tools, improving speed or quality

• time is not wasted moving between jobs and getting out tools etc.

• workers only need to be trained to do one specific task, rather than many, saving time and money

SPECIALISATION AND DOL IN ORGANISING PRODUCTION: DISADVANTAGES

• unrewarding, repetitive work can lower people’s motivation causing lower labour productivity

• workers may take less pride in their work and therefore quality of good and services suffers

• if production in one process is delayed, every other task has to stop until that problem is solved

• dissatisfied workers cause absenteeism rates to rise- increases costs for businesses- leads to high worker turnover

• mass produced standardised- goods lack variety for consumers

SPECIALISING IN THE PRODUCTION OF GOODS AND SERVICES TO TRADE

• if countries specialise, its essential that they trade in order to obtain all the goods and services that consumers demand

• trade has some disadvantages and advantages

SPECIALISING IN THE PRODUCTION OF GOODS AND SERVICES TO TRADE- ADVANTAGES

• the theory of comparative advantage states countries should specialise in producing those goods where they have a lower opportunity cost

• allows for increased productivity in a specific good/service and therefore increased profits

• can reduce unit costs

COMPARATIVE ADVANTAGE

• means that a country should focus on producing goods or services that it can produce more efficiently than others, even if it’s not the best in the world at making them

• what matters is that it has a lower opportunity cost, meaning it gives up less in producing those goods compared to other countries

• this way, each country focuses on what it does relatively best

COMPARATIVE ADVANTAGE- EXAMPLE

• if Country A is better at making both cars and computers than Country B, but Country A is especially better at making cars, it should focus on cars and trade for computers from Country B, which should focus on computers. This way, both countries benefit

• country A has the comparative advantage in cars because, even though it’s better at making both cars and computers, its advantage in making cars is greater. It gives up less to make cars compared to computers

• Country B has the comparative advantage in computers because, while it’s not as good as Country A at making either product, it’s relatively better at making computers (it has a lower opportunity cost when making computers)

• so, Country A should specialise in cars, and Country B should specialise in computers, and then they can trade to benefit both

SPECIALISING IN THE PRODUCTION OF GOODS AND SERVICES TO TRADE- DISADVANTAGES

• countries may become over dependent on one particular export and if this fails their economy may collapse- e.g. many developing countries specialise in farming and if crops fail due to weather they will have no income

• countries specialise in non-renewable resources and these could run out, which will result in a huge loss of income for that country- will also mean the loss of these resources

• high interdependence- will cause problems if trade is prevented, e.g. bc of war

• Some say that increased specialisation means there will be more competition to cut costs and therefore wages will fall- not necessarily true

OUTPUT

• refers to the total amount of goods or services produced by a business, industry, or economy over a certain period of time- the final result of combining inputs (land, labour, capital, and entrepreneurship) in the production process

• An economy’s output might be measured by its GDP, which reflects the value of all goods and services produced in the country

FUNCTIONS OF MONEY

• the introduction of specialisation in production means that a form of exchange is necessary to allow everyone to access what they need

• The earliest method of exchange was barter but this had many problems- these problems led to the development of money which has four key functions- a medium of exchange, a measure of value, a store of value and a method for deferred payment

A MEDIUM OF EXCHANGE

• can be used to buy and sell goods and services and is acceptable everywhere

• problem with barter was that people could only trade if there was a double coincidence of wants: where both parties want the good the other party offers

• since money can be used to buy all goods and services, everyone will accept money as they know they can use it to buy what they want

A MEASURE OF VALUE

• can compare the value of two goods, such as a table and a skirt.

• also able to put a value on labour

A STORE OF VALUE

• able to keep its value and can be kept for a long time

• with barter, goods such as fruits often went out of date and so could not keep their value

A METHOD FOR DEFERRED PAYMENT

• Money can allow for debts to be created

• people can therefore pay for things without having money in the present, and can pay for it later (e.g. credit)

• this relies on money storing its value

CHARACTERISTICS OF MONEY

• valuable

• durable

• portable

• divisible

• accepted

• difficult to counterfeit

• uniform