An economy transitioning from subsistence-level production to a system of advanced specialisation and division of labour will find its progress severely constrained unless it develops a highly efficient system of exchange. Which of the following best explains why this transition requires an effective medium of exchange, such as money?
Specialisation inevitably causes structural unemployment unless the state guarantees equal consumption of all surplus output.
The division of labour can only improve economic welfare if every individual producer is capable of achieving an absolute advantage in their chosen task.
A reliable medium of exchange is required to overcome the double coincidence of wants, which would otherwise make the exchange of specialized surpluses highly inefficient.
An economy must eliminate all forms of indirect taxation to allow specialized producers to trade their surplus output at true marginal cost.
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.