Specialisation

How specialisation & division of labour can boost productivity

Definition: Specialisation is a process of concentrating on and becoming an expert in a particular subject or skill.

An economy full of specialists essentially means that we don't have to spend all day making everything we want ourselves. When we want something, we go to a specific person or place and trade (e.g. spend money).

The thing is, people can't be good at everything. Sure, you could grow your own food, knit your own clothes, build your own desk. But would you do a good job at making those things? Secondly, how would you produce more complex products such as your smartphone, TV and computers?

The truth is you wouldn't be able to and that's why specialisation yields benefits for an economy. It boosts the productivity of an economy - the economy can get more done in the same amount of time, with the same amount of labour.

Firms benefit from specialisation by dividing up their labour force. They allocate specific jobs to specific people. In a car factory, one group of people would be responsible for production of alloy wheels, another group of people would be responsible for engine components etc.

This is called specialisation and division of labour.

One of the most famous economists in history, Adam Smith, once explained that through specalisation and division of labour 48,000 pins could be made by 10 skilled and trained workers - whereas only 20 could be made by 1 unskilled worker doing everything on their own.

 READ BELOW FOR BENEFITS/COSTS OF SPECIALISATION.

Benefits of Specialisation

• People specialise in what they're good at - better for productivity

• Better quality and more products being made

• Lowers average costs for firms - economies of scale can be achieved by firms

• Better allocation of resources - remember resources are scarce!

So basically, specialisation is a good thing overall but there are some downsides. That's why people and countries generally specialise in what they're good at and that allows them to be most productive. For the UK, we specialise in services - most of our economic output comes from tertiary and quaternary sectors (see page on economic structure).

As mentioned earlier, because people specialise, it means we don't make everything ourselves. So we need to trade with others in order to get what we want. Now how do we trade with people - we trade today using money. But it wasn't always like that. Once upon a time people traded cattle and other raw materials for things they wanted - later we used coins like gold and silver.

The point is, for specialisation to work we need a medium of exchange. We need a way to trade for things. Today we use money. Money is a medium of exchange. It has a value that buyers and sellers can relate to - everybody understands money! It's a universal language!

Money has 4 functions:

1. Medium of exchange - we can trade using it

2. Measure of value - we can measure how much something is worth

3. Store of value - we can store it and buy things in the future with it

4. Method of deferred payment - we can buy now and agree to pay at a later date e.g. credit

We hope you enjoyed reading this content. Want to pass your Economics exams? Hire a specialist economics tutor today. At mrbanks.co.uk, we supply online Economics tuition to support you through your exams.

Online tuition provides so many benefits.

It’s cheaper. It’s less time-consuming. It’s effective.

Want to try before you buy? Contact us to book a trial lesson. You can see if online tuition is right for you.

Contact us today and book a trial lesson with an online Economics tutor.