Specialisation, as championed by Adam Smith (Scotland, 1723-1790) has had a dramatic impact on production possibilities, particularly the use of Division of Labour: a process whereby the production procedure is broken down into a sequence of stages, and workers are assigned to particular stages.

Below is an extract of “Wealth of Nations” in which Adam Smith demonstrates how division of labour can be beneficial.

One man draws out the wire; another straights it; a third cuts it; a fourth points it; a fifth grinds it at the top for receiving the head; to make the head requires two or three distinct operations; to put it on is a peculiar business; to whiten the pins is another; it is even a trade by itself to put them into the paper; and the important business of making a pin is, in this manner, divided into about eighteen distinct operations, which, in some manufactories, are all performed by distinct hands, though in others the same man will sometimes perform two or three of them. I have seen a small manufactory of this kind, where ten men only were employed, and where some of them consequently performed two or three distinct operations. But though they were very poor, and therefore but indifferently accommodated with the necessary machinery, they could, when they exerted themselves, make among them about twelve pounds of pins in a day. There are in a pound upwards of four thousand pins of a middling size. Those ten persons, therefore, could make among them upwards of forty-eight thousand pins in a day. Each person, therefore, making a tenth part of forty-eight thousand pins, might be considered as making four thousand eight hundred pins in a day. But if they had all wrought separately and independently, and without any of them having been educated to this peculiar business, they certainly could not each of them have made twenty, perhaps not one pin in a day.

Division of labour can also have disadvantages, some of which Adam Smith identified in his “Wealth of Nations” (and which Karl Marx used as inspiration for many of his ideas).

Below is what the Oxford textbook for the course classes as 5 key advantages and 5 key disadvantage of division of labour – before reading it let’s get into groups and one group identify 5 key advantages and the other 5 key disadvantages and then we will compare these with the ones that Oxford came up with.

Market

Transactions take place in a market, but this need not be a physical place.

Money, in addition to its primary function as a medium of exchange serves various other functions, being a store of value, providing a unit of account (or measure of value), and working as a standard for deferred payment.

Task: Write a persuasive article on why money is a more effective means of exchange in an economy than bartering.

Below are some of the key characteristics that money should have in order to be effective (be careful to distinguish its characteristics from its function, discussed above:

It is sometimes useful to think about assets held in terms of their liquidity, i.e. how quickly they can be converted into money. We use the term near money to refer to things which fulfil some of the functions of money, but not all of them (e.g. an asset that can be quickly exchanged into money).

Economics as a subject

• Within the topic of economics it is possible to study:
  • microeconomics: the study of economic decisions taken by individual economic agents, including households and firms; and
  • macroeconomics: the study of interrelationships between economic variables at an aggregate (economy-wide) level.

Time period

Economists distinguish between the short run, which is a period in which some factors of production can be changed, typically just labour, and the long run, in which all factors of production can be changed. The impact of events is often different in the short run and in the long run.

Ceteris Paribus is also an important concept in economics. It means “other things being the same” and it emphasises that when we look at a change in one variable (e.g. a country’s GDP), we are assuming that all other variables remain the same (a modelling assumption),.