Specialisation And The Division Of Labour Flashcards
Who is Adam Smith?
- often referred to as the ‘father of Economics’
- 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
What did Adam Smith propose?
He developed the ideas of specialisation and division of labour
What is division of labour?
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
What is specialisation?
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
How can specialisation occur?
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 of the division of labour and specialisation in production
Higher labour productivity lowers cost/unit for firms
Lower costs can be passed on to consumers in the form of lower prices Lower costs can mean higher profits for the firms. This may lead to higher wages for workers Increased productivity allows some firms to sell beyond their local market into international markets It creates many low skilled jobs
Disadvantages of division of labour and specialisation in production
Task repetition often leads to boredom and a decrease in worker motivation A decrease in motivation may lead to less productivity and/or poorer manufacturing quality It may increase worker turnover rates as workers look to move on to a role that is more stimulating Mass produced products often lack variety and do not take different consumer preferences into account If workers lose their jobs, then it may be hard for them to find work as they are only trained in one skill
Advantages of division of labour and specialisation in trade
Higher labour productivity lowers cost / unit for firms, which makes their goods more competitive internationally (exports)
Increased exports can result in economic growth for the nation Economic growth usually leads to higher income and a better standard of living Income gained from exports can be used to purchase other goods from around the world (imports). This increases the variety of goods available in a country
Disadvantages of division of labour and specialisation in trade
International trade is beneficial for the firms that can compete globally. However, some industries will be unable to compete and will go out of business Many firms in an entire industry may close leading to structural unemployment Specialisation may create over-dependency on other countries’ resources. This may cause problems if conflict arises (For example, Europe’s reliance on Russian natural gas during the Ukraine crisis) Specialisation using a country’s own resources will lead to resource depletion over time. Specialisation will increase the rate of resource depletion
What is the function of money?
money functions as a medium of exchange, a measure of value, a store of value, and a method of deferred payment
How is money used as 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
How is money used as 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
How is money used 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
How is money used 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 in the present and pay for them in the future
