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

Specialisation & the Division of Labour

• Scotsman 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 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 & Disadvantages of the Division of Labour & Specialisation

Evaluating Division of Labour and Specialisation in Production

Pros & Cons of the Division of Labour & 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 that 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