AQA GCSE Economics: Resource allocation: markets, sectors and specialisation (8136) – Revision Notes

These notes condense section 3.1.2, Resource allocation, in the AQA GCSE Economics specification (code 8136), which began first teaching in September 2017: markets (3.1.2.1), the sectors (3.1.2.2) and specialisation with division of labour (3.1.2.3). The study guide has the full explanations; the practice questions let you test yourself. Also useful: the subject hub, the printable checklist, the broader Paper 1 guide and the free 10-minute diagnostics for spotting weak areas. There are no tiers. All figures are invented.

Key definitions

Term	Meaning
Market	An opportunity for buyers and sellers to interact in order to establish a price
Allocation of resources	How scarce resources are shared between different uses; in a market, price signals do much of the work
Product market	Where finished goods and services are bought and sold
Factor market	Where the factors of production (land, labour, capital, enterprise) are bought and sold
Primary sector	Extracts or grows natural resources
Secondary sector	Makes and builds, turning materials into products
Tertiary sector	Provides services
Good	A physical, tangible item
Service	An activity done for someone, not a physical item
Specialisation	Concentrating on a limited range of tasks or products
Division of labour	Breaking a production process into separate tasks, one per worker
Exchange	Trading what you make for what others make

3.1.2.1 Markets: the essentials

• Buyers and sellers do not have to meet in one place. Online and phone deals count.
• Price is a signal and a rationing device. A rise in price tells sellers to supply more and buyers to buy less. A fall does the reverse.
• Resources move towards uses that buyers will pay for. Chain: demand rises, price rises, profits rise, firms and owners of factors move resources into that product, supply grows.
• Scarce means limited relative to wants, so someone must decide who gets what. In a market, the decision is made by willingness and ability to pay.

Product market or factor market?

	Product market	Factor market
Sold	Goods and services	Land, labour, capital, enterprise
Buyer	Household	Firm
Seller	Firm	Household
Price paid	Price of the item	Rent, wage, interest, profit

Method to decide: ask what is being bought. A finished item for use points to a product market. The services of land, workers, machines or an owner point to a factor market. A nurse selling labour to a hospital is in a factor market. The same nurse buying shoes is in a product market.

3.1.2.2 Sectors: the essentials

Sector	Test	Examples
Primary	Is it taken from the ground, sea or land?	Wheat farm, quarry, fishing boat
Secondary	Is something made or built?	Brewery, shipyard, bakery ovens
Tertiary	Is it a service?	Bank, school, shop, taxi

• A firm can span sectors. Judge the activity. A baker mixing and baking is secondary; the same baker selling over the counter is tertiary.
• UK relative sizes: the tertiary sector is by far the largest, the secondary sector is smaller, and the primary sector is the smallest. This is true for both output and jobs.

Worked reminder: sector shares

Country E (fictional) has total output of 80bn, split 2% primary, 25% secondary and 73% tertiary.

Primary:   2% of 80   =  1.6bn
Secondary: 25% of 80  = 20.0bn
Tertiary:  73% of 80  = 58.4bn     Total = 80.0bn  (shares add to 100%)

Percentage points versus per cent. If a sector’s share of jobs falls from 10% to 6%, the change is 4 percentage points. If total jobs have not changed, the number of jobs has fallen by (6 - 10) / 10 = 40%. If total jobs have grown, the fall in number is smaller than 40%. State which one you mean.

Good or service?

Good	Service
Tangible; can be stored	Intangible; provided and used at the time
Buyer owns it	Buyer receives a benefit
Bicycle, shirt, loaf	Haircut, bus ride, tuition

Mixed purchase (a meal out): decide what the buyer mainly pays for.

3.1.2.3 Specialisation and division of labour

Why people and producers specialise

• Individuals develop skills through training and practice, and earn more doing what they do best.
• Producers use the resources, skills and equipment they have to make the products they make well and cheaply.
• Specialisation raises output from the same inputs. Exchange then lets everyone enjoy a wider range than they could make.

Worked reminder: the division of labour in a firm

A small bakery has 3 workers on a 6-hour shift, paid 216 in total. Working alone, each makes 10 buns an hour. After splitting the work (mixing, shaping, baking and packing), each worker averages 16 buns an hour.

Before: 3 x 6 x 10 = 180 buns   Labour cost per bun = 216 / 180 = 1.20
After:  3 x 6 x 16 = 288 buns   Labour cost per bun = 216 / 288 = 0.75
Output change = (288 - 180) / 180 = +60%
Labour cost per bun change = (0.75 - 1.20) / 1.20 = -37.5%

Worked reminder: quicker training

A workshop trains 5 new staff at a daily wage of 80. Learning every task takes 10 days. Learning one task takes 3 days.

All tasks:   5 x 10 x 80 = 4,000
One task:    5 x  3 x 80 = 1,200     Saving = 4,000 - 1,200 = 2,800

This is a benefit to the firm. The matching cost is that each trained worker can do only one task, so a single absence leaves that task uncovered.

Reading a sector table: method

1. Check whether the figures are shares (percentages) or amounts.
2. Find the total, and check that the shares add to 100%.
3. Convert a share to an amount: share x total. Country D (fictional) employs 2.0 million and 3% work in the primary sector, so 0.03 x 2,000,000 = 60,000 jobs.
4. Compare years by amounts if the total has changed.
5. Say what the change means: a shrinking primary share means fewer people are needed to extract or grow materials, or that other sectors have grown faster.

Costs and benefits

	Benefits	Costs
Worker	Quick to learn; skill and speed rise; possible higher pay	Repetitive and dull; narrow skills; harder to switch jobs; may feel little pride
Firm	Higher output per worker; lower unit cost; steadier quality; fast training; machines can do simple tasks	Boredom raises absence and leaving; one absence can stop the line; inflexible; errors pass on
Wider (specialisation and exchange)	Greater total output and choice	Dependence on others; area or country exposed if demand for its product falls

Evaluation method in steps

1. State the benefit or cost.
2. Explain the chain: for example, repetition makes workers faster, so output per hour rises, so unit cost falls.
3. Say who gains or loses: the worker or the firm.
4. Add a condition: it holds if demand is strong, if staff stay motivated, if tasks are not easily automated.
5. Judge which side is stronger in the case you were given.

Must-know distinctions

• Specialisation is the general idea; division of labour is the splitting of a production process into tasks.
• Product market (goods) and factor market (inputs); households switch roles between them.
• Good (physical) and service (activity); tertiary sector (services) includes retail.
• Percentage points (change in a share) and per cent (change in a quantity).
• Benefits to the worker and benefits to the firm are separate answers.

Quick self-test

1. Define a market.
2. Is a farm hiring a picker part of a product market or a factor market?
3. Classify each by sector: a tin mine, a factory making tin cans, a supermarket.
4. In Country E above, what is the secondary sector’s output?
5. A sector’s share of jobs falls from 10% to 6%. State the change in percentage points.
6. In the bakery example, what is the percentage rise in output?
7. In the bakery example, what is the new labour cost per bun?
8. Is a haircut a good or a service? Give one reason.
9. Name a gain and a drawback of the division of labour for a worker.
10. Explain why specialisation leads to exchange.
11. State the order of the three sectors by size in the UK.

Answers

1. An opportunity for buyers and sellers to interact in order to establish a price.
2. Factor market (labour is a factor of production).
3. Primary, secondary, tertiary.
4. 20.0bn (25% of 80).
5. Down by 4 percentage points.
6. +60%.
7. 0.75.
8. A service: it is an activity done for the customer, not a physical item.
9. Gain: skill and speed grow through repetition. Drawback: the work is repetitive and skills stay narrow.
10. Each person or firm makes only part of what they need, so they must trade with others for the rest.
11. Tertiary largest, then secondary, then primary smallest.

Where marks are usually lost

• Describing a factor market as a market for finished goods.
• Placing retail in the secondary sector.
• Treating “sector share fell” as “number of jobs fell”.
• Mixing up percentage points and per cent in a data question.
• Giving benefits of the division of labour with no link to output or cost.
• Answering about the firm when the question asks about the worker, or the reverse.
• Making no use of the figures in the question.
• Leaving out a conclusion on evaluation questions.

Official syllabus

AQA, GCSE Economics (code 8136): sections 3.1.2.1 to 3.1.2.3 of the specification, first teaching September 2017.