What are 3 advantages of specialization?

Specialization is a method of production whereby an entity focuses on the production of a limited scope of goods to gain a greater degree of efficiency. Many countries, for example, specialize in producing the goods and services that are native to their part of the world, and they trade them for other goods and services.

This specialization is thus the basis of global trade, as few countries have enough production capacity to be completely self-sustaining.

• Specialization in business involves focusing on one product or a limited scope of products so as to become more efficient.
• Specialization can increase productivity and provide a comparative advantage for a firm or economy.
• Microeconomic specialization involves the individual actors and economic components, and macroeconomic specialization involves the broad advantage an economy holds in production.

Specialization is an agreement within a community, organization, or larger group in which each of the members best suited for a specific activity assumes responsibility for its successful execution.

Specialization can occur on both the microeconomic level and the macroeconomic levels. At the individual level, specialization usually comes in the form of career or labor specialization. Each member of an organization or economy, for example, has a unique set of talents, abilities, skills, and interests that make her uniquely able to perform a set of tasks.

Labor specialization exploits these unique talents and places people in areas where they perform the best, helping both the individual, as well as the overall economy.

If, for example, a single individual excels at math but is not a proficient writer, it benefits both the individual and the community if she pursues a field that relies heavily on mathematics.

Using another example, specialization can even refer to the production capacity of an individual firm. When setting up a factory, an assembly line is organized to increase efficiency rather than producing the entire product at one production station.

Specialization involves focusing on a specific skill, activity, or production process, such as a South American company harvesting bananas, to become the leader or expert.

Economies that realize specialization have a comparative advantage in the production of a good or service. Comparative advantage refers to the ability to produce a good or service at a lower marginal cost and opportunity cost than another good or service.

When an economy can specialize in production, it benefits from international trade. If, for example, a country can produce bananas at a lower cost than oranges, it can choose to specialize and dedicate all its resources to the production of bananas, using some of them to trade for oranges.

Specialization also occurs within a country's borders, as is the case with the United States. For example, citrus goods grow better in the warmer climate of the South and West, many grain products come from the farms of the Midwest, and maple syrup comes from the maple trees of New England. All these areas focus on the production of these specific goods, and they trade or purchase other goods.

Imagine going to school and learning the same subject every single day. Would you get bored? Do you think you would become an expert on the subject? This article is all about specialisation and division of labour. These concepts are similar to doing a repetitive task in the work environment. Read on to learn about these concepts in more detail and why firms may opt for specialisation and the division of labour.

Meaning of specialisation and division of labour

Specialisation and division of labour have two different meanings. They are closely related but they are not interchangeable words. Let’s see their differences.

Specialisation happens when a worker only performs one task or a narrow range of tasks. In the case of firms, specialisation refers to different firms specialising in producing different goods or services.

Division of labour refers to different workers performing different tasks in the course of producing a good or service.

Advantages and disadvantages of specialisation and division of labour

Specialisation and division of labour play a really important role in the economy and their benefits represent also one of the most fundamental of all economic principles.

Advantages

Some advantages of specialisation and the division of labour are:

• Increased output. Workers who specialise in a field can be more efficient during the production process. Specialised workers can produce more output than other not specialised workers. That's because these workers have gained much more technical skills through experience and knowledge. For example, someone who studied computer science and has ten years of experience in the industry can create more and more sophisticated software than someone who recently graduated or someone who has no idea about computer programming.

• Less wastage. As workers become more specialised in performing a task during the production process, their errors are significantly reduced. This reduces the waste that occurs during production processes.

• Lower unit costs. Specialised workers can produce more output than other workers, and it takes them fewer hours. This contributes to bringing down the cost of input for the firms, as these specialised workers produce more in a shorter time.

Disadvantages

Some disadvantages of specialisation and the division of labour are:

• Over relying on other countries. When some countries have accumulated a significant number of workers pertaining to a particular skill such as artificial intelligence, it will make other countries more dependent on that country. This makes some countries over-reliant on other countries, and it could cause damages to balances of trade.

Country A may sell vegetables to the surrounding countries as they are the best in that region. However, a draught has hit Country A and has impacted its ability to produce vegetables. This will not only impact the surrounding nations but also greatly impact Country A as it is reliant on the revenue generated from the supply of vegetables.

• Changes in fashion and tastes. Specialising in a certain industry is beneficial, but it doesn't mean that it can't go wrong. If a country’s workforce specialises in producing something that is in style now, it could end up in trouble if the tastes change. For example, right now it is very popular to eat quinoa and more and more countries are trying to produce it. However, what would happen in a few years if a country's economy relied too much on producing quinoa and it stopped being popular or considered a healthier alternative to rice? That is why countries should consider having the ability of specialised labour to adapt to new economic trends.

• Limited resources. Having too specialised labour in industries that require extensive use of limited resources might be a problem in the long term. The reason for that is that those limited resources will be consumed, and there will come the point when there's not more of them to be used in production.

For specialisation to be economically worthwhile for those taking part in the division of labour, a system of trade and exchange is necessary. This is because workers who completely specialise can’t enjoy a reasonable standard of living if forced to consume only what they produce.

The obvious solution is to produce more than what the worker actually needs, and then to trade the surplus.

Trade refers to the buying and selling of goods and/or services.

Some reasons in favour of trade in terms of specialisation are:

• Greater variety. Having labour specialisation on certain goods or services from different countries provides greater variety consumers can choose from, making trade more efficient. A country may specialise in the production of hoovers. Although the main good is hoovers, there will be a range of different types of hoovers produced thus giving customers more choice.

• Economic growth. Having specialised labour not only makes a country’s production more efficient and able to produce more, but the quality of the product also increases, which makes the products more attractive. This provides a country with the ability to export more of its goods or services, which is one of the main sources of economic growth.

The trade and exchange of goods and services also highlight the importance of the use of money.

Money has four functions:

1. A medium of exchange.
2. A measure of value.
3. Storage of value.
4. A method of deferred payment.

These four functions are discussed in detail in the Money Market explanation. In this explanation, we will look at how money serves as a medium of exchange in relation to specialisation.

Buying items without money would be very difficult. That is why it provides a medium of exchange.

A medium of exchange is an intermediate instrument/system used to assist the transaction of a sale, purchase, or trade.

Without money, trading specialised goods and services would be very difficult. Consumers and producers wouldn't get what they really need or want, as goods and services wouldn’t be exchanged for the right value. However, money eliminates this problem completely.

Examples of specialisation and division of labour

Now that you understand what specialisation and the division of labour mean, let's take a look at a few real-life examples.

Adam Smith first popularized the concept of the division of labour in his famous example of the pin factory. He explained that the production of pins would become more efficient when workers were split up and had different roles in making a pin.

From his example, many others implemented the division of labour in their own companies.

1. Henry Ford in his Ford Motor factories.

   Henry Ford divided up his workers and had different roles in the production of motor cars in the 1920s. Many workers were able to concentrate and master small specific tasks, productivity increased, and this ultimately led to the increased production of motor cars.

2. Apple products.

   The process of producing Apple products is divided into smaller, different parts along the assembly and production lines. Workers are able to work more efficiently and this benefits Apple as they can make more products and benefit from the gains of economies of scale.

Specialisation and division of labour - Key takeaways

• Specialisation refers to a worker only performing one task or a narrow range of tasks. In the case of firms, it refers to different firms specialising in producing different goods or services.
• Division of labour refers to different workers performing different tasks in the course of producing a good or service.
• The advantages of specialisation and division of labour include increased output, less wastage, and lower unit costs.
• The disadvantages of specialisation and division of labour include increased boredom, overreliance, finite resources, and changing tastes.
• For specialisation to be economically worthwhile for those taking part in the division of labour, a system of trade and exchange is necessary.
• Adam Smith popularized the concept of division of labour which was used by Henry Ford in the 1920s and is now used by companies like Apple.

Specialisation refers to a worker only performing one task or a narrow range of tasks. In case of firms, specialisation refers to different firms specialising in producing different goods or services. Division of labour refers to different workers performing different tasks in the course of producing a good or service.

The main difference is that the division of labour occurs when labour becomes specialised in a particular part of the production process.

A country that specialises in a particular good or service would find it difficult to trade without money. Consumers and producers wouldn't get what they really need or want, as goods and services wouldn’t be exchanged for the right value. However, money eliminates this problem completely as it provides a medium of exchange.

Someone who studied computer science and has ten years of experience in the industry can create more and more sophisticated software than someone who recently graduated or someone who has no idea about computer programming.

Question

Answer

Specialisation refers to a worker only performing one task or a narrow range of tasks. In case of firms, specialisation refers to different firms specialising in producing different goods or services.

Question

Define division of labour.

Answer

Division of labour refers to different workers performing different tasks in the course of producing a good or service.

Question

Explain the difference between specialisation and division of labour.

Answer

Division of labour is a type of specialisation. 

Question

What are some advantages of specialisation and the division of labour?

Answer

Some advantages of specialisation and the division of labour are:

- Increased output. 

- Less wastage. 

- Lower unit costs.

Question

What are some disadvantages of specialisation and division of labour?

Answer

Some disadvantages of specialisation and the division of labour are:

- Over reliance.

- Changing tastes/fashions. 

- depletion of finite resources. 

Question

Answer

Trade refers to the buying and selling of goods and/or services.

Question

Give some reasons in favour for trading goods and services in terms of specialisation. 

Answer

- Greater variety.

- Economic growth. 

Question

How many functions does money have?

Question

What are the four functions of money?

Answer

- Medium of exchange

- Measure of value 

- Store of value

- Method of deferred payment 

Question

Explain how money provides a medium of exchange.

Answer

Without money, trading specialised goods and services would be very difficult. Consumers and producers wouldn't get what they really need or want, as goods and services wouldn’t be exchanged for the right value. However, money eliminates this problem completely.

Question

Explain how specialisation and the division of labour reduce wastage.

Answer

Specialisation allows for workers to become more skilled at a particular task, so they make fewer mistakes and can produce more goods in the same amount of time or less. Therefore efficiency is increased and wastage is reduced.

Question

Explain how a change in tastes and fashions is a disadvantage of specialisation and the division of labour.

Answer

It is a disadvantage because many firms may find it difficult to adapt to the changes if they’re over-specialised.

Question

Explain how specialisation and the division of labour allow for an increase in output.

Answer

The repetitive nature of specialisation means that workers develop greater skills in performing their particular tasks. As a result of this, workers can produce more goods in the same amount of time when specialisation and the division of labour take place.

Question

Who popularised the idea of the division of labour?

Answer

Question

Give two examples of the division of labour in real life.

Answer

1. Ford Motor factories

2. Apple's assembly and production lines