Specialisation & the Division of Labour (Edexcel A Level Economics A)

Specialisation and the Division of Labour

• Scottish economist Adam Smith is often referred to as the 'father of Economics'

• He published 'The Wealth of Nations' in March 1776 and explained many fundamental economic principles that we still use today

  • The premise of the book was to discuss how to increase productivity and wealth

• Based on observations made during a visit to a pin factory, he developed the ideas of specialisation and the division of labour

  • He noted that a single worker could not make more than 20 pins a day as it involved around 18 different processes, such as cutting the wire, sharpening the end, stamping the head etc.

  • However, if the labour was divided up into different tasks and workers specialised in just that one task, Adam Smith estimated that just 10 workers could produce 48,000 pins per day

• 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 over a measured time period and so increases productivity

• Specialisation occurs on several different levels

  • 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

Advantages and Disadvantages of the Division of Labour and Specialisation

Evaluating Division of Labour and Specialisation in Production

Pros and Cons of the Division of Labour and Specialisation in Trade

Evaluating the Division of Labour and Specialisation in Trade

The Functions of Money

• 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 and money functions as a medium of exchange, a measure of value, a store of value, and a method of deferred payment

Money 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 good (double co-incidence of wants)

• Money easily facilitates the exchange of goods, as no double co-incidence of wants is necessary

Money is a measure of value

• Money provides a means of ascribing 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

Money as a store of value

• Money holds its value over time (of course inflation means this is not always true!)

• This means that money can be saved

• It remains valuable in exchange over long periods of time

Money as a method of deferred payment

• Money is an acceptable way to arrange terms of credit (loans) and to settle any future debts

• This allows producers and consumers to acquire goods now and pay for them in the future