specialisation and trade

Question 1

specialisation

Answer 1

• occurs when each worker completes a specific task in a production process.
• the concept was famously stated by adam smith, who showed how, through the division of labour, worker productivity can increase. firms can then take advantage of increased efficiency and lower average costs of production

Question 2

advantages of specialisation

Answer 2

• higher output and potentially higher quality, since production focuses on what people and businesses are best at.
• there could be a greater variety of goods and services produced
• there are more opportunities for economies of scale, so the size of the market increases
• there is more competition and this gives an incentive for firms to lower their costs, which helps to keep prices down.

Question 3

disadvantages of specialisation

Answer 3

• work becomes repetitive, which could lower the motivation of workers, potentially affecting quality & productivity. workers could become dissatisfied.
• there could be more structural unemployment , since skills might not be transferable, especially because workers have focussed on one task for so long.
• by producing a lot of one type of good through specialisation, variety could in fact decrease for consumers
• there could be higher worker turnover for firms, which means employees become dissatisfied with their jobs and leave regularly.

Question 4

specialisation in the production of goods & services to trade

Answer 4

• countries can specialise in the production of certain goods. for example, norway is one of the worlds largest oil exporters. countries trade to get the goods and services they are unable to produce.
• countries can exploit their comparative advantage in a good, which means they can produce a good at a lower opportunity cost to another.
• absolute advantage occurs when a country can produce more of a good with the same factor inputs

Question 5

advantages of specialisation in the production of goods and services to trade

Answer 5

• greater world output, so there is a gain in economic welfare
• lower average costs, since the market becomes more competitive.
• there is an increased supply of goods to choose from.
• there is an outward shift in the PPF curve

Question 6

disadvantages of specialisation in the production of goods and services to trade

Answer 6

• less developed countries might use up their non-renewable resources too quickly, so they might run out.
• countries could become over-dependent on the export of one commodity, such as wheat. if there are poor weather conditions, or the price falls, then the economy would suffer

Question 7

the function of money

Answer 7

• a medium of exchange
• a measure of value (unit of account)
• a store of value
• a method of deferred payment

Question 8

labour productivity

Answer 8

total output in a given period of time/ no. of units of labour used