1. Economics of Specialisation
Edcxcel 1.1.5

2. 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

3. 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

4. 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

5. 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.

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

7. 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

8. 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

9. 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

10. 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.

11. 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

12. Economics of Specialisation
EdExcel 1.1.5