→ He was even a Scottish economist! 🏴󠁧󠁢󠁳󠁣󠁴󠁿

1. Increased Efficiency: Each worker becomes highly skilled at their specific task.
2. Time-Saving: Workers don't waste time switching between tasks.
3. Use of Machines: Specialised tasks allow the use of machines, making production faster and easier.

😨 Smith observed that one worker, working alone, might make only 20 pins a day. But when workers specialised in different tasks, they could produce about 48,000 pins a day!!!!

Here’s an example breakdown of the tasks and their contributions to productivity:

👉 Specialisation: When you specialise, you focus on one specific task or subject. For example, instead of doing your math, history, and science homework all at once, you dedicate a block of time just to math. By doing this, you become more efficient and productive because you're not constantly switching between different tasks.

👉 Division of labour: Imagine you're part of a group project at school. Instead of everyone doing a bit of everything, each person takes on a specific role. One person might handle the research, another the writing, and another the presentation. By dividing the tasks, each person can focus on their part and become very good at it, leading to better overall results.

Specialisation allows countries and businesses to concentrate resources on producing goods and services that they are good at, maximising efficiency and output.

• 🤝 Mutually Beneficial Trades: For specialisation to succeed, countries must engage in trades where they import goods they cannot efficiently produce and export those they excel at. This approach boosts export revenue, enhances trade, and stimulates economic growth.

• 🇰🇷 Example: South Korea has increased its export revenue significantly by specialising in high-tech products such as electronics and automobiles, while importing raw materials and other less efficiently produced goods. This strategy has propelled South Korea's economic growth and global competitiveness.
• Statista South Korea: technology export value by destination 2022 | Statista

You might be wondering, "Isn't specialisation about focusing on one thing? How does it lead to a wider range of products?" Well, specialisation can actually result in a diverse product lineup. Take Nike, for example:

• 👟 Nike specialises in designing and selling sportswear, including shoes, clothing, and accessories.

• 🏃‍♀️ By collaborating with specialised production partners, Nike ensures high-quality standards across its range of products, meeting the preferences and needs of customers effectively.

Allocative efficiency means using resources where they are most effective. Specialisation helps address scarcity by allocating resources to companies, countries, or regions that are most efficient in production. This shift from inefficient to efficient production maximises output and optimises the use of scarce resources, facilitated further by imports and exports.

• 🇳🇬 Example: Nigeria specialises in exporting crude oil, efficiently utilising its natural resources and skilled workforce. This specialisation allows Nigeria to trade oil for goods it may not produce as effectively, promoting optimal resource use and driving economic growth.

Specialisation allows workers to focus on tasks they excel in, which increases their productivity. When workers perform tasks they are skilled at, they can produce goods and services more efficiently. This efficiency reduces the overall costs of production for companies.

• 🧍‍♂️As a result, companies can offer lower prices for consumers, making products more affordable and enhance the overall productivity of firms and contributes to the economic growth of countries.

Sometimes, companies and countries can become too specialised.

• 🛢️For instance, consider Nigeria, which heavily relies on oil. If oil reserves run out, or if global demand shifts away from oil, Nigeria may face challenges. Businesses and the country itself might not be prepared to transition to other industries, potentially impacting their economy.

Is the decline of oil in sight?

The International Energy Agency thinks peak oil use is in sight this decade as the world switches to renewables. What is driving this shift – and what is still standing in the way?



www.bbc.com

🏋️‍♀️ If companies like Nike focus too much on making sportswear that goes out of style, they might struggle to offer different things. This can make their business riskier.

De-industrialisation

De-industrialisation happens when a country or place sees less and less manufacturing and industry. It can happen if a country focuses too much on just a few industries or relies too much on things like natural resources or cheap workers.

• 📉 For example, if a country only exports oil and doesn't pay attention to making other things, it could have problems if oil prices go down or if people want less oil.

Specialisation can also mean that countries are lead to heavy reliant on imports from countries with plentiful natural resources. This dependency relies on mutually beneficial trades, but if these trades are disrupted, specialisation loses its advantages.

National Interdependence means that countries need each other for goods and services. For instance, the UK gets a lot of its natural gas from Russia. When there are issues like geopolitical tensions, such as the Russia-Ukraine conflict, it can cause less supply or higher prices for energy resources.

👉 Read more about the the global economic impact of Russia’s invasion:

Ukraine: what’s the global economic impact of Russia’s invasion? - Economics Observatory

Russia’s brutal invasion has driven millions into poverty and debilitated – but not quite destroyed – Ukraine’s economy. Meanwhile, sanctions are straining the Russian economy, but they are yet to end a war that has sown financial turmoil and personal hardship in the region and across the globe.

www.economicsobservatory.com

⚒️ Workers become highly productive when they specialise in specific tasks day in and day out. This continuous practice improves their skills, leading to higher productivity:

Workers benefit from specialised machines tailored to their tasks, such as robotic arms for welding in car manufacturing. These machines are equipped with advanced technology to ensure precise and high-quality output.

• 🤖 By using specialised equipment, workers can focus on overseeing production, maintaining smooth operations, and resolving technical issues.
• ✈️ Example: In the UK, automotive and aerospace industries utilise robotic welding technology to boost productivity, improve product quality, and stay competitive globally.

Division of labour increases production efficiency, as illustrated by Adam Smith's example with pin manufacturing.

• 🧷 Smith demonstrated that specialisation among workers dramatically increased daily pin production from a single worker's capability to thousands.
• 🦺 This surplus production not only expands consumer choice and quantity but also drives down prices due to increased supply. Furthermore, repetitive tasks enhance product quality, as workers become more skilled through practice and experience.

🥱 Imagine doing the same task over and over and over and over and over and over again!!!!! you would feel so demotivated.

• Division of labour can lead to demotivation and boredom. Repetitive work may cause workers to lose interest, slack off, or become disengaged due to the monotony.

😑 Repetitive tasks can lead to burnout and dissatisfaction among workers, increasing turnover rates. Workers may seek new opportunities that offer more variety and challenges, impacting productivity and continuity in the workforce.

Over-specialisation in division of labour can lead to increased efficiency through automation and technological advancements. This reduces the demand for human workers, potentially causing long-term unemployment. Workers may lack training or alternative job opportunities, exacerbating the problem.

• 🛩️ Example: During the COVID-19 pandemic, many workers in British Airways, specialised in aviation operations, faced challenges finding new jobs within or outside the industry due to limited training opportunities.

British Airways: 'I felt forced to take redundancy'

The airline's cabin crew who are not made redundant on Friday will still face steep pay cuts.



www.bbc.co.uk

😞 In highly specialised tasks, goods and services may become overly standardised. This limits innovation and customisation, resulting in less variety and differentiation in the market. As a result, consumer preferences and diverse needs may not be fully met.

The Foundations of Wealth is a nice video to understand specialisation and the division of labour in more detail as well as other cool economics concepts 😊

We all use the words “productivity” or “productive” in everyday life to sort of describe how efficiently we use our time and resources to get things done - but what does productivity actually mean?

• Higher Efficiency: When workers are more productive, they can produce more in less time.
• Bonuses and Higher Wages: This efficiency may lead to bonuses and higher wages for workers.
• Result: More money in workers' pockets means they can afford better things, improving their living standards.

• More Tax Revenue: Higher wages mean workers pay more in taxes.
• Government Investment: The government can use this tax money to improve public services like education and healthcare.
• Result: Better education and healthcare lead to higher living standards for everyone.

• Lower Costs: Increased efficiency can reduce the cost of making products.
• Lower Prices: These savings can be passed on to consumers as lower prices.
• Result: Lower prices mean people's money can buy more, increasing their real income and improving living standards.

• More Output: Firms can produce and sell more when productivity is high.
• Reinvestment: Profits can be reinvested to improve working conditions and technology.
• Result: Better working conditions and new technologies can further boost productivity and living standards.

For your exams, you may encounter a graph illustrating UK productivity trends similar to the one below. Explore the details below to better understand how UK productivity has evolved over time 👇

👨‍💻 For example: A tech startup focuses on innovation to increase its returns to entrepreneurship i.e profits.

• By developing cutting-edge software and investing in research and development, the company creates unique products that attract a large customer base.
• This leads to higher profits, rewarding the entrepreneur for their risk-taking and innovative efforts.

👉 Remember the law of diminishing marginal utility states that as more of a good is consumed, the marginal utility gained from the consumption of an additional unit decreases.

In the same way:

🥔 Hypothetical Scenario: Potato Farm

The farmer employs an increasing number of workers and tracks the total output of potatoes.

• For the potato farm, capital (the farming equipment), land (the farmland), and entrepreneurship (the farmer's management and expertise) are considered fixed factors because they remain constant regardless of how many potatoes are being produced in the short run.

• However, labour (the workers who plant, tend, and harvest the potatoes) is a variable factor, as the farm can hire more workers or reduce the number of workers depending on the level of potato production needed in the short run.

The scenario will demonstrate the concepts of total output, average output, and marginal output.

Total Output of Potatoes as Number of Workers Increases:

1. 🥔 Total Output:
• Total output is the total amount of potatoes produced by the workers. As more workers are employed, the total output increases but at a varying rate.
2. 🆙 Marginal Output:
• Marginal output is the additional output produced by adding one more worker. Initially, marginal output increases, then it starts to decrease, and eventually, it can even become zero or negative.
• In our table, the marginal output increases from 10 kg to 20 kg, then starts decreasing and becomes zero when the 7th worker is added.
• When marginal output is increasing, the returns to extra labour is rising, when marginal output is decreasing, the returns to extra labour is diminishing

3. 📧 Average Output:
• Average output is the total output divided by the number of workers. It gives an idea of how productive each worker is on average.
• If there is a total output of 60kg and there are 4 workers then the average output is 60/4 = 15
• In our table, the average output initially increases as workers are added, peaks when there are 3 workers, and then starts to decline as more workers are added.

Why This Happens

1. 📈 Increasing Returns:
• When you start adding more workers, each additional workers might contribute significantly to increasing the farm’s output because they can help each other, specialise in tasks, and work more efficiently together.
• For example, with just one farmer, the farms make 10kg of potatoes a day. Adding a second farmer increases total output to 25kg of potatoes a day because they can share tasks and work more efficiently together - a benefit of specialisation
2. 📉 Diminishing Returns:
• However, if you keep adding more workers without increasing the number of other factors of productions like land and capital (machinery), at some point, each additional worker will contribute less to total output
• This is because they start to get in each other’s way, and there are not enough machines for everyone to use at the same time. For example, adding a 6th worker might only increase output to 75kg of potatoes a day from 70kg of potatoes a day, as they wait around for machines to be free.
• After a certain point, adding more workers results in a less than proportional increase in total output. This happens because the additional workers have less land and tools to work with, leading to inefficiencies. This is reflected in the declining marginal output.
3. 🔴 Zero or Negative Returns:
• Eventually, adding more workers may not increase total output at all and might even decrease it if the workers get in each other's way. This is when marginal output becomes zero or negative.
• When the 8th worker is added, the total output decreases from 75 kg to 70 kg, resulting in a negative marginal output of −5 kg. This illustrates the concept of diminishing returns where adding more workers beyond a certain point leads to a decrease in productivity.

After reaching a certain point, the advantages of specialisation start to disappear because the workers might get in each other's way or have to share tools, making them less efficient as the other factors to productions are fixed (like machines for the workers to use).