According to economic theory, the division of labour is 'limited by the extent of the market'. Which of the following statements correctly analyses how the introduction of money as a medium of exchange affects the division of labour and exchange within an economy?
Money increases the transaction costs of trade, which limits the geographical size of the market and restricts the division of labour.
The division of labour is independent of the medium of exchange because workers can be compensated directly with a portion of the physical output they produce to barter themselves.
Money overcomes the double coincidence of wants required in barter, expanding the scale of trade and allowing firms to implement a deeper division of labour.
Money acts primarily as a standard for deferred payment, which is the sole function required to initiate the division of labour in primitive economies.
156 exam-style questions on AQA A Level Economics 1.4 Production, costs and revenue, covering 1.4.1 Production and productivity, 1.4.2 Specialisation, division of labour and exchange, 1.4.3 The law of diminishing returns and returns to scale (A-level only), 1.4.4 Costs of production, 1.4.5 Economies and diseconomies of scale, 1.4.6 Marginal, average and total revenue, 1.4.7 Profit, and 1.4.8 Technological change (A-level only). Each one has a worked solution and a mark scheme showing where the marks go.