A) Specialisation and the division of labour: Adam Smith

Adam Smith was a key economist during the 1700s and was best known for his book The Wealth of Nations. He argued that specialisation and the division of labour could increase production and create additional wealth.

The division of labour involves breaking the production process down into a number of smaller tasks. Workers then specialise in particular parts of the production process.

Smith’s well-known example was a pin factory. Rather than one worker producing the entire pin, different workers could specialise in different stages of production before the completed pin was assembled.

Repetition can increase productivity because workers become more skilled at their particular task. Less time is also spent switching between activities and it may become easier to introduce machinery and automation.

Smith also argued for specialisation between countries. He believed that countries specialising in particular goods and services could lead to higher incomes and standards of living.

B) Advantages and disadvantages of specialisation and the division of labour

Advantages

• Increased output – Repetition allows workers to develop greater skill at their particular task. This can increase the amount they produce in a given period of time.
• Lower unit costs – Higher output may allow a business to benefit from economies of scale. For example, it may be able to buy inputs in bulk and receive greater discounts.

Disadvantage

• Boredom – Repeatedly carrying out the same task can become monotonous and may cause workers to become less productive.

C) Specialisation in the production of goods and services for trade

Specialisation can also take place between countries. Countries may focus on producing particular goods and services and then trade with other countries.

Advantages

• Greater output – Countries that specialise in particular goods and services can become better at producing them, allowing greater quantities to be produced.
• Greater variety – Different countries specialising in different goods can give consumers access to a wider variety of products.

Disadvantage

• Structural unemployment – If a country loses its advantage in an industry in which it has specialised, workers may have a narrow set of skills and find it difficult to gain employment in other sectors.

What the full guide adds

For this topic, the full AS guide also covers:

• Less wastage as an additional advantage of specialisation and the division of labour.
• Economic growth as a benefit of countries specialising and trading with one another.
• Additional disadvantages of international specialisation, including over-reliance on trading partners, changing tastes and fashions, and the depletion of finite resources.
• The four functions of money – a medium of exchange, a measure of value, a store of value and a method of deferred payment – with fuller explanations and examples.