CMA Foundation · Fundamentals of Business Economics and Management · Means of Production
Adam Smith's classic pin factory illustration, used to explain division of labour, suggests that the extent to which labour can be divided is ultimately limited by which factor?
The size of the market limits division of labour. In Adam Smith's argument, specialisation raises output greatly, and this is worthwhile only if a large enough market exists to buy it. Where demand is small, fine division of labour is not economical.
- AThe size of the marketCorrect
- BThe number of trade unions
- CThe rate of interest
- DThe quantity of land available
Explanation
Smith argued that division of labour depends on the extent of the market: a larger market absorbs the greater output specialisation creates, justifying finer division. Trade unions, interest rates and land are not the limiting factor in his principle. A small market cannot absorb mass output, so specialisation stays limited.
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