Economics  of  Specialisa/on  

EdExcel  1.1.5  

What  is  Specialisa/on?  

•  Specialisa/on  is  when  we  concentrate  on  a  product  or  task    •  Specialisa3on  happens  at  all  levels  of  economic  ac3vity:  

1.  Specializa3on  of  tasks  within  extended  families  in  many  of  the  world’s  poorest  countries  

2.  Within  businesses  and  organiza3ons  e.g.  in  mass-­‐manufacturing  of  vehicles  or  in  the  building  industry  

3.  In  a  country  –  Bangladesh  is  a  major  producer  and  exporter  of  tex3les;  the  USA  is  a  leading  shale  oil  and  gas  supplier.  And  Ghana  is  one  of  the  biggest  producers  of  cocoa  in  the  world.  

4.  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.  Specialisa3on  in  locali3es  /  regions  can  lead  to  the  benefits  of  agglomera/on  

The  Division  of  Labour  

•  The  division  of  labour  occurs  where  produc3on  is  broken  down  into  many  separate  tasks.    

•  Division  of  labour  can  raise  output  per  person  as  people  become  proficient  through  constant  repe33on  of  a  task  

•  This  is  called  “learning  by  doing”.    •  This  gain  in  produc3vity  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  

Specialisa3on  of  task  in  the  produc3on  process……………  

Can  lead  to  higher  output  per  person  /  per  hour  worked  

Some  of  the  Key  Advantages  from  Specialisa/on  

Higher  labour  produc3vity  and  business  profits  • Learning  by  doing  increases  output  per  hour  worked  • Higher  produc3vity  lowers  the  unit  cost  of  supply  • Increased  produc3vity  leads  to  higher  profits  for  businesses  

Specialisa3on  creates  surplus  output  that  can  then  be  traded  interna3onally  • The  theory  of  compara3ve  advantage  is  key  to  this  • Businesses  /  countries  specialize  in  areas  of  rela3ve  advantage  

Lower  prices,  higher  real  incomes  an  GDP  growth  • Lower  prices  gives  consumers  greater  real  purchasing  power  • Higher  produc3vity  allows  businesses  to  pay  increases  wages  • Successful  specializa3on  is  one  of  the  key  causes  of  growth  

Disadvantages  of  Specialisa/on  and  Division  of  Labour  

1.  Unrewarding,  repe33ve  work  that  requires  li^le  skill  can  lower  mo/va/on  and  eventually  causes  lower  produc/vity.    

2.  Workers  may  take  less  pride  in  their  work  and  quality  suffers.  3.  Dissa3sfied  workers  become  less  punctual  at  work  and  the  rate  

of  absenteeism  increases.  4.  Many  people  may  choose  to  move  to  less  boring  jobs  crea3ng  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.  

5.  Some  workers  receive  li^le  training  and  may  not  be  able  to  find  alterna3ve  jobs  if  they  find  themselves  out  of  work  -­‐  they  may  then  suffer  structural  unemployment  /  occupa/onal  immobility    

6.  Mass-­‐produced  standardized  goods  lack  variety  for  consumers.  

Short  Run  and  Long  Run  in  Economics  

Short  Run  • At  least  one  factor  input  is  fixed  

Long  Run  • All  factors  of  produc3on  are  variable  

Factors  of  Produc/on  (Factor  Inputs)  

Factors  of  produc3on  are  the  inputs  available  to  supply  goods  and  services  in  an  economy.  

Land   Labour  

Enterprise   Capital  

Natural  resources  available  for  produc3on  

The  human  input  into  the  produc3on  process  

Goods  used  in  the  supply  of  other  products  e.g.  tech  

Entrepreneurs  organise  factors  of  produc3on  and  take  risks  

Capital  and  Consumer  Goods  

•  Capital  goods  –  Goods  that  are  used  to  make  consumer  goods  and  services  –  Capital  inputs  include  fixed  plant  and  machinery,  hardware,  socware,  new  factories  and  other  buildings  

•  Consumer  goods  and  services  –  Goods  and  services  which  sa3sfy  our  needs  and  wants  directly  –  There  is  a  sub-­‐division  between:  –  i)  Consumer  durables:  Products  that  provide  a  steady  flow  of  sa3sfac3on  /  u3lity  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  consump3on  e.g.  drinking  a  coffee  or  turning  on  the  hea3ng)  

–  iii)  Consumer  services:  E.g.  a  hair  cut  or  3cket  to  a  show  

The  Difference  between  Produc/on  &  Produc/vity  

Exam  reports  confirm  that  it  is  important  for  students  to  make  clear  the  dis3nc3on  between  produc/on  and  produc/vity  

•  Produc/on  •  Produc3on  is  a  measure  of  the  value  of  the  output  of  goods  

and  services  e.g.  measured  by  na3onal  GDP  or  an  index  of  produc3on  in  specific  industry  such  as  car  manufacturing  

•  Produc/vity  •  A  measure  of  the  efficiency  of  factors  of  produc3on  •  Measured  by  output  per  person  employed  

•  Or  by  output  per  person  hour  •  An  increase  in  produc3on  DOES  NOT  automa3cally  mean  an  

increase  in  produc3vity  –  it  depends  on  how  many  factor  inputs  have  been  employed  to  supply  the  extra  output  

Produc/vity  

Produc3vity  measures  the  efficiency  of  the  produc3on  process  

•  In  the  long  run,  produc3vity  is  a  major  determinant  of    economic  growth  and  of  infla3on.  

•  A  fall  in  labour  produc3vity  leads  to  a  rise  in  firms’  (unit)  costs  of  produc3on  (assuming  that  the  level  of  wages  remains  the  same)  

•  Higher  produc3vity  allows  businesses  to  pay  higher  wages  and  achieve  increased  profits  at  the  same  3me.  

Factor  Inputs  (land,  

labour  and  capital)  

Factor  Produc/vity  (efficiency)  

Output  of  goods  and  services  

Degree  of  compe33on  in  a  market  /  industry  

Advances  in  produc3on  technology  

Investment  in  appren3ceships  /  training  to  boost  labour  skills  

Quality  of  the  management  in  a  

business  

Some  Factors  Affec/ng  Labour  Produc/vity  

Many  demand  and  supply-­‐side  factors  affect  labour  produc3vity  

Specialisa3on  (division  of  labour)  within  a  businesses  

Higher  business  investment  in  new  

capital  inputs  

Having  a  high  quality  na3onal  infrastructure  

including  transport  

Level  of  demand  for  a  product  in  a  market  –  using  up  spare  capacity  

Economics  of  Specialisa/on  

EdExcel  1.1.5