Markets, specialisation and the division of labour · GCSE Economics

Markets and resource allocation

A market is where buyers and sellers come together to exchange goods and services. Factor markets exchange factors of production, such as the labour market.
Every economy must decide what to produce, how to produce it and for whom.
In a market economy, prices and private firms decide; in a command economy, the government decides; in a mixed economy (like the UK and Guernsey), both play a part.

Specialisation is when people, firms or countries concentrate on what they do best.
The division of labour splits production into separate tasks, each done by a different worker. Adam Smith described how dividing pin-making into tasks greatly increased output.
Advantages: higher productivity, more skilled workers, lower costs, and use of machinery.
Disadvantages: boring, repetitive work; workers dependent on others; less flexible if one part stops; and risks if demand for a specialised product falls.

Specialists must trade to get the other things they need, which is easier with money than with barter.

Market: A place where buyers and sellers exchange goods and services.
Market economy: An economy where prices and private firms allocate resources.
Command economy: An economy where the government allocates resources.
Mixed economy: An economy with both private and public sectors.
Specialisation: Concentrating on producing particular goods or services.
Division of labour: Splitting production into separate tasks done by different workers.
Productivity: Output per worker per hour.