Economics of Specialisation Edcxcel 1.1.5

What is Specialisation? Specialisation is when we concentrate on a product or task Specialisation happens at all levels of economic activity: Specialization of tasks within extended families in many of the world’s poorest countries Within businesses and organizations e.g. in mass-manufacturing of vehicles or in the building industry In a country – Bangladesh is a major producer and exporter of textiles; the USA is a leading shale oil and gas supplier. And Ghana is one of the biggest producers of cocoa in the world. In a region of a country – for many years the West Midlands has been a centre for motor car assembly, there has been huge investment in recent years in the Mini plant at Oxford. Specialisation in localities / regions can lead to the benefits of agglomeration

The Division of Labour The division of labour occurs where production is broken down into many separate tasks. Division of labour can raise output per person as people become proficient through constant repetition of a task This is called “learning by doing”. This gain in productivity helps to lower the supply cost per unit Reduced supply costs in theory lead to lower prices for consumers of goods and services causing gains in economic welfare Specialisation of task in the production process…………… Can lead to higher output per person / per hour worked

Some of the Key Advantages from Specialisation Higher labour productivity and business profits Learning by doing increases output per hour worked Higher productivity lowers the unit cost of supply Increased productivity leads to higher profits for businesses Specialisation creates surplus output that can then be traded internationally The theory of comparative advantage is key to this Businesses / countries specialize in areas of relative advantage Lower prices, higher real incomes an GDP growth Lower prices gives consumers greater real purchasing power Higher productivity allows businesses to pay increases wages Successful specialization is one of the key causes of growth

Disadvantages of Specialisation and Division of Labour Unrewarding, repetitive work that requires little skill can lower motivation and eventually causes lower productivity. Workers may take less pride in their work and quality suffers. Dissatisfied workers become less punctual at work and the rate of absenteeism increases. Many people may choose to move to less boring jobs creating a problem of high worker turnover for businesses. The highest labour turnover is in retailing, hotels, catering and leisure, call centres and other lower-paid private sector services groups. Some workers receive little training and may not be able to find alternative jobs if they find themselves out of work - they may then suffer structural unemployment / occupational immobility Mass-produced standardized goods lack variety for consumers.

Short Run and Long Run in Economics At least one factor input is fixed Long Run All factors of production are variable

Factors of Production (Factor Inputs) Factors of production are the inputs available to supply goods and services in an economy. Land Labour Enterprise Capital Natural resources available for production The human input into the production process Entrepreneurs organise factors of production and take risks Goods used in the supply of other products e.g. tech

Capital and Consumer Goods Capital goods Goods that are used to make consumer goods and services Capital inputs include fixed plant and machinery, hardware, software, new factories and other buildings Consumer goods and services Goods and services which satisfy our needs and wants directly There is a sub-division between: i) Consumer durables: Products that provide a steady flow of satisfaction / utility over their working life (e.g. a washing machine or using a smartphone). ii) Consumer non-durables: Products that are used up in the act of consumption e.g. drinking a coffee or turning on the heating) iii) Consumer services: E.g. a hair cut or ticket to a show

The Difference between Production & Productivity Exam reports confirm that it is important for students to make clear the distinction between production and productivity Production Production is a measure of the value of the output of goods and services e.g. measured by national GDP or an index of production in specific industry such as car manufacturing Productivity A measure of the efficiency of factors of production Measured by output per person employed Or by output per person hour An increase in production DOES NOT automatically mean an increase in productivity – it depends on how many factor inputs have been employed to supply the extra output

Factor Inputs (land, labour and capital) Output of goods and services Productivity Productivity measures the efficiency of the production process Factor Inputs (land, labour and capital) Factor Productivity (efficiency) Output of goods and services In the long run, productivity is a major determinant of economic growth and of inflation. A fall in labour productivity leads to a rise in firms’ (unit) costs of production (assuming that the level of wages remains the same) Higher productivity allows businesses to pay higher wages and achieve increased profits at the same time.

Some Factors Affecting Labour Productivity Many demand and supply-side factors affect labour productivity Degree of competition in a market / industry Advances in production technology Investment in apprenticeships / training to boost labour skills Quality of the management in a business Specialisation (division of labour) within a businesses Higher business investment in new capital inputs Having a high quality national infrastructure including transport Level of demand for a product in a market – using up spare capacity

Economics of Specialisation EdExcel 1.1.5