1.1.5 Specialisation and the division of labour Quiz: Pearson Edexcel Economics A, Unit 1

The 20 questions

1. What is specialisation?

   • Producing a wide range of different goods so that no single product dominates the output mix.
   • The sharing of profits between owners and workers in a firm at the end of each financial year.
   • The process by which governments set prices for goods so that all producers earn equal profits.
   • Concentrating production on a narrow range of goods or tasks in which an agent has an advantage.

2. Who is most closely associated with the idea of the division of labour?

   • Karl Marx, who argued that workers should own the means of production in every economy.
   • John Maynard Keynes, who argued that governments should balance their budgets over the business cycle.
   • Adam Smith, who used the pin factory as an example of dividing production into separate tasks.
   • Friedrich Hayek, who argued that central planners should allocate all resources in the economy.

3. Which of these is an advantage of the division of labour?

   • Output falls because each worker performs many tasks and loses time moving between them.
   • Workers become more skilled at repetitive tasks, which can raise output per worker.
   • Firms can avoid all trade with other countries because each worker makes every product alone.
   • Workers become bored with repetitive tasks, which raises absenteeism across the whole workforce.

4. Which is a disadvantage of specialisation?

   • Firms can reduce the time lost in switching between tasks during the production process.
   • Workers may become bored or alienated by repetitive tasks, which can reduce motivation and quality.
   • Workers gain skill in a narrow task, which raises the average output of each worker.
   • Firms can use machinery more efficiently when production is broken into separate stages.

5. What is the function of money as a medium of exchange?

   • It measures the relative value of goods so that prices can be compared across markets.
   • It is accepted as payment for goods and services, avoiding the need for barter.
   • It stores value over long periods without ever losing purchasing power in the economy.
   • It provides a standard unit for deferring payment on loans and contracts over time.

6. Which function of money allows goods to be priced and compared?

   • A medium of exchange that is accepted for payment in trade.
   • A store of value that can be saved for future purchases.
   • A measure of value, also called a unit of account.
   • A method of deferred payment for loans and contracts.

7. A loan is agreed now and repaid in instalments over several years. Which function of money does this illustrate?

   • A store of value held for future spending.
   • A medium of exchange used in everyday purchases.
   • A measure of value used to compare prices.
   • A method of deferred payment.

8. A country specialises in producing oil and imports all of its food. What is the main risk of this specialisation?

   • A fall in the world price of oil or a disruption to its supply could reduce its income and its ability to buy food.
   • The country becomes self-sufficient in food, so it no longer needs to trade with others in the world.
   • The country cannot trade with other countries, so it will have no income from exports at all.
   • The country's food production rises sharply, which lowers the prices of all goods in its market.

9. Two countries each have a comparative advantage in different goods. What does specialisation and trade allow them to do?

   • Each can consume beyond its own production possibilities by exchanging goods at a mutually agreed price.
   • Each can produce every good at the lowest possible cost without any need for trade.
   • Each can ignore the opportunity cost of production because trade removes the scarcity of goods.
   • Each can avoid the need for money, since specialisation eliminates the role of exchange.

10. A factory splits car assembly into 20 separate tasks, each done by a different worker. Which advantage does this illustrate?

    • Workers become faster at a particular task, reducing the time lost switching between activities.
    • Workers are able to design the whole car without any training in engineering or assembly work.
    • The factory avoids using any machinery, so all production is carried out by hand in every stage.
    • Each worker is paid the same wage regardless of the task, which lowers the total wage bill.

11. Which of these is a disadvantage of specialising in the production of a single good for trade?

    • The economy's exports rise without any change in the prices of the goods it sells abroad.
    • The economy becomes vulnerable to a fall in demand or a rise in costs for that good.
    • The economy gains the benefits of economies of scale in every other industry it operates.
    • The economy can import all other goods at lower prices than it could produce them.

12. A hotel lists all its room prices in pounds on its website so that guests can compare rates. Which function of money is this?

    • A method of deferred payment for bookings made many months in advance.
    • A measure of value, providing a common unit to compare prices.
    • A medium of exchange, used to pay the hotel for each stay.
    • A store of value, used to save money for holidays in the future.

13. Money is used as a store of value. Which of these best illustrates this function?

    • A shop accepts cash in exchange for a loaf of bread at the till for immediate use.
    • A buyer agrees to pay for a car in twelve monthly instalments starting next year.
    • A firm lists the price of each product on its shelves for customers to compare with others.
    • A household saves £500 each month in a bank account to fund a future purchase.

14. A small island economy has no money and relies on barter. Which problem would most likely arise?

    • Prices are easy to compare because all goods are measured in a single unit of value.
    • Savings are easy to store because goods do not lose value over time in any economy.
    • Trade is difficult because two people must each want what the other offers, which limits exchange and specialisation.
    • Specialisation is encouraged because every worker can easily buy whatever they need.

15. Which of these would be a benefit of specialising in the production of goods to trade internationally?

    • Countries can obtain a wider variety of goods at a lower opportunity cost than producing everything themselves.
    • Countries can eliminate the opportunity cost of production by importing every good they need.
    • Countries can reduce the need for any money, since goods are exchanged directly without pricing.
    • Countries avoid all exposure to changes in world prices because they produce only for domestic use.

16. Evaluate whether specialisation always raises living standards.

    • Yes, because specialisation always raises productivity and therefore living standards for all groups in every economy.
    • No, because specialisation reduces output per worker in all cases, lowering living standards across the economy.
    • Yes, because specialisation removes scarcity, so no one faces any trade-off in consumption at all.
    • Not always, since specialisation can create dependence on trade and vulnerability to shocks, though it often raises output.

17. Adam Smith argued that the division of labour increases output for several reasons. Which of the following is one of them?

    • Workers are paid higher wages because the division of labour reduces the supply of labour in the economy.
    • Governments can plan output more accurately because the division of labour reduces the number of goods made.
    • Workers gain dexterity in a single task, saving time that would otherwise be lost switching between tasks.
    • Firms are forced to adopt command structures, which removes the need for markets to allocate labour.

18. Why might specialisation require a large market to be worthwhile?

    • Specialised production needs large volumes of demand to cover fixed costs and gain economies of scale.
    • Specialised firms need small markets, since only a few customers can be served efficiently by them.
    • Specialisation removes the need for any demand, since firms produce only for their own use.
    • Specialisation reduces fixed costs, so firms need no large market to be profitable in any sector.

19. Smith linked specialisation to the extent of the market. Which conclusion does this suggest for an economy with a small domestic market?

    • Trade has no effect on specialisation, since market size is determined only by domestic income levels.
    • A small economy should avoid all trade, because specialisation is impossible when markets are open.
    • A small domestic market may limit specialisation, so trade with wider markets can allow greater specialisation and productivity.
    • A small domestic market always increases specialisation, since every firm supplies the whole economy directly.

20. Which of the following best evaluates the claim that money is essential for specialisation to work?

    • Money is essential, because specialisation cannot occur in any economy that uses barter at any scale.
    • Money is unnecessary, because specialisation always works perfectly under barter without any problem of matching wants.
    • Money lowers exchange costs compared with barter, enabling wide specialisation, though some specialisation can occur without it.
    • Money makes specialisation impossible, since prices fall to zero when all goods are traded through money.

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