Specialisation & Trade – AS/A LEVELS/IB/IAL

Specialisation & Trade – AS/A LEVELS/IB/IAL

Courses Info

Level: AS Levels, A Level, GCSE – Exam Boards: Edexcel, AQA, OCR, WJEC, IB, Eduqas – Economics Revision Notes 

Specialisation and Division of Labour

Division of labour – the work is split into smaller tasks due to workers specialising in a specific skill

Adam Smith’s Theory – ‘The wealth of Nations’

  • proposed that economic growth could be achieved by increasing the division of labour
  • this saved time and encouraged each worker to become an expert in a specific task, thus increasing their productivity

Advantages of Specialisation and Division of Labour

  • Less training costs – each worker only has to be trained in one task 
  • Economies of scale – lower average costs with increased output
  • Each worker specialises in the task they are best suited in
  • Workers do not have to move from one task to another, resulting in less time wasted
  • Encourages an increased use of machinery and enables production line methods, increasing productivity and reducing average costs of production

Disadvantages of Specialisation and Division of Labour

  • Possible loss of productivity as workers may face boredom and monotony
  • Deterioration of skills – workers are only trained to perform one specific task which means they have a limited skill set. If they are made redundant, they may be at a disadvantage
  • The entire production line may come to a halt if the firm is faced with a strike by one group of workers
  • Less variety as all products produced on a production line are identical

Factors limiting Division of Labour 

  • Market Size – it may be difficult to specialise in smaller markets
  • Type of product 
  • Transport costs – division of labour and high-scale production may not be possible if there are high transport costs

Specialisation to Trade

  • Countries can produce certain goods they are best at producing and then exchange these with other countries
  • Comparative Advantage – countries specialise in producing goods which offer a lower opportunity cost

Advantages of Specialisation to Trade

  • Specialisation requires trade – this helps to reduce the problem of scarcity and encourages a country’s PPF to shift outwards
  • As trade increases, so does competition – monopolies will now face competition from abroad, incentivising them to reduce their prices and be more efficient

Disadvantages of Specialisation to Trade

  • Over specialisation may result in a country becoming over dependent on one particular good/service

       e.g. the income of a developing country specialising in the production of crops/agriculture may be negatively impacted due to                   bad weather conditions.

  • Poor countries may have to sell a large amount of their non-renewable resources to developing countries. This may mean they run out of non-renewable resources in the future
  • There may be greater competition to cut costs, reducing wages 

       However, firms can utilise better technology to produce capital-intensive goods

OCR Spec – Additional Content

Barter Systems

A Barter System involves the exchange of goods / services for other goods / services, without the use of money.

Barter was the earliest form of exchange and requires a common measure of value to ensure fairness.

Barter can lead to inefficiencies because it is difficult to find two parties who want what the other has to offer.

Money as a Means of Exchange has now replaced the Barter System

The Double Coincidence of Wants

This problem occurs when both parties have goods that other wants but neither party wants the other’s goods


Quick Fire Questions – Knowledge Check

  1. Define ‘Division of Labour’ (2 marks)
  2. Explain Adam Smith’s theory for Division of Labour (4 marks)
  3. Discuss the advantages and disadvantages for Specialisation and Division of Labour (10 marks)
  4. Identify and explain the Factors limiting the extent to which Division of Labour can be applied (4 marks)
  5. Explain what Specialisation to Trade is (4 marks)
  6. Discuss the advantages and disadvantages of Specialisation to Trade (8 marks)


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