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Edexcel B A Level Economics > 2.3 Productive efficiency > Flashcards

2.3 Productive efficiency Flashcards

1
Q

Productivity

A

Measures the efficiency with which resources are used.
Most common measure of labour productivity is output per person per hour

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2
Q

Labour productivity equation

A

Output per time period / Number of employees

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3
Q

Production vs Productivity

A

An increase in productivity will mean an increase in output but an increase in production may not always mean an increase in productivity

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4
Q

Physical capital

A

Tools and machines
Make labour more effective
Investment in new technologies is important; most modern production and distribution systems need sophisticated computer systems
Improvements in technology yield improvements in productivity

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5
Q

Human capital

A

Skills of the workforce
Education provides general skills, then improved and refined by specialist training
Increases with relevant experience

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6
Q

Organising resources more efficiently

A

Delays cause employees’ time to be wastes - improving way they are organised = increased productivity

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7
Q

Linking productivity and competitiveness

A

When successful businesses increase productivity, more can be produced using same amount of resources
Average costs fall - competitive advantage
Opens up opportunities to reduce prices, make quality improvements or simply increase profitability
Effective R&D projects can enhance productivity
Important for international competition

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8
Q

Productivity and wages

A

Improving productivity = can raise wages
Each employee can add more value
Bonuses
Productive employees = higher wages in new positions

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9
Q

Productivity and economic growth

A

Businesses become more productive, supply of consumer good increases, costs and prices may fall, standards of living rise and real incomes increase

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10
Q

Capital intensive production

A

Uses large amounts of capital and relatively little labour
More advanced an economy is = more capital intensive
eg: power stations - massive investment in plant and equipment and only a few people needed to operate plant

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11
Q

Labour intensive production

A

Uses large amounts of labour and relatively little capital
Developing economies with cheap labour + service sector
eg: healthcare

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12
Q

Capital and dynamic market

A

Tools and machinery may become obsolete
Failure to upgrade may mean losing competitive advantage
New investment in capital needed

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13
Q

Labour and dynamic market

A

Skills may no longer be needed
Retraining is often necessary
In general, new investment in human capital is needed

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14
Q

Capacity

A

The output a firm can produce with a given amount of resources

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15
Q

Full capacity

A

All the resources available to the firm are being used to the fullest extent all of the time

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16
Q

Spare capacity

A

Some of the time some resources are not being used and therefore there is a loss of potential output

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17
Q

Capacity utilisation

A

Measures what proportion or percentage of the theoretical maximum possible output is actually produced

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18
Q

Capacity utilisation calculation

A

(Current output / Maximum possible output) * 100

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19
Q

Under-utilisation of capacity

A

Capital equipment is lying idle some of the time = wasteful + productivity lower than it could be
Business producing less rhan it actually could: average costs rise because fixed costs are spread across a lower level of output
Business not as competitive as it could be

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20
Q

Over-utilisation of capacity

A

Business is trying to produce more than its capital equipment was designed for
Average costs higher than necessary - breakdowns + overcorwding etc reduces efficiency
Business not as competitive as it could be

21
Q

Ways to reduce under-utilisation of capacity

A

Extend product range and promote new products vigorously
Focus on marketing effort to generate increased demand
Rent excess capacity to other businesses
LR close excess capacity - sell some machines + redundancy

22
Q

Ways to reduce over-utilisation of capacity

A

Recruit more employees
Identify shortages
Sub-contract some production to other businesses
Training schemes to increase labour productivity
LR invest in increased capacity

23
Q

Efficiency

A

Organising production so that waste is minimised and costs are the lowest possible

24
Q

Lean production

A

General term given to any system of production that tries to minimise waste and cut costs at every stage of production and distribution

25
Q

Components of lean production

A

Just in time - a way of managing stocks
Kaizen - continuous improvement
TQM - total quality management
Cell production - setting up teams that work flexibly
Job enrichment and empowerment - giving everyone more responsibility
Time based management - careful sequencing of tasks to reduce delays

26
Q

Principle lean production works on

A

Continuous improvement

27
Q

Quality

A

Can be an important source of competitive advantage
Business may be able to charge a higher price and gain increased profits
Improved quality = less wastage and reduced costs, improved profitability

28
Q

Quality control

A

The traditional method of checking that products are of an adequate standard.

29
Q

Drawbacks of traditional quality control

A

Does not identify the cause of the defect or find every faulty product
Expensive in terms of implementation and wastage of stock
Does not add value

30
Q

Quality assurance

A

Ensuring that quality standards are agreed and met throughout the organisation

31
Q

Reasons for quality assurance success

A

Putting in place systems that require high standards at each stage of production
Organising employees in teams that can collaborate and take responsibility for quality issues
Changing the corporate culture of the business, so that all employees see quality as a high priority
Focussing on preventing defects
Developing Kaizen and total quality management

32
Q

Total Quality Management

A

Employees are all involved in quality control and take responsibility for the quality of their and their team’s work
Helps reduce costly wastage and reinforce employee motivation

33
Q

Components for TQM

A

Committed leadership - management must be wholeheartedly behind the scheme
Employee empowerment - everyone must be involved and responsible for maintaining quality
Increased training - it takes time and effort to make employees aware of TQM
Kaizen and quality circles are important elements in TQM
Closer relationships with customers - determination to meet their needs
Closer relationships withs upplier -raising the quality of inputs

34
Q

Benefits of TQM

A

Improved products and services
Reduced costs
Increased customer satisfaction
Brand loyalty + repeat purchases
Improved profitability
Competitive advantage
Motivated workforce

35
Q

Drawbacks of TQM

A

Implementation costs
Takes time to set up
Retraining of employees
Increased pressure on managers
Does not suit all businesses
May be difficult to involve staff

36
Q

Kaizen

A

Continuous improvement
Summarises whole company approach to quality and cost control
Everyone involved in search for improvements to product and production
Requires good teamwork

37
Q

Kaizen means?

A

Everyone in business takes it upon themselves to monitor and improve qualit wherever possible
Improvements are small but spread throughout business add up to continually improving product or service
Customers benefit from better quality product

38
Q

Kaizen trade off

A

Trade-off between price and quality
However, quality assurance, TQM and continuous improvement all may help to give business competitive advantage and add value

39
Q

JIT

A

A stock control system that does away with the need to hold large quantities of stocks or raw materials

40
Q

JIT in practice

A

Frequent deliveries of small quantities of supplies are made to the producer as and when they are needed
Involves building close relationships between suppliers and producer to ensure supplies do arrive on time and quality of components is reliable
No longer necessary to hold large reserve stocks which are experience to store and require finance
AC reduced = increased competitiveness

41
Q

Advantages of JIT

A

Reduced costs in terms of buffer stocks and handling
Less need for storage space, can be converted to production
Greater flexibility in responding to changes in demand

42
Q

Disadvantages of JIT

A

Will not benefit from reduced unit costs for bulk purchases
Break in supply = production will be lost
Heavy reliance on reliability of supplier

43
Q

Competitive advantage from lean production

A

Improved quality = more satisfied consumers + reduced costs of production leads to possibility of reduced prices or increased profit margins
Producing only to order = reduces cost of storing unsold goods + cuts costs and waste by ensuring that the business is not left with unwanted stock

44
Q

Advantages of lean production

A

Reduces wastage + related costs
Reduce costs of storage + handling
Improves quality
Fewer reject costs
Customers more satisfied with quality
Greater flexibility
Shorter lead times
More motivated staff, less staff turnover
No waste caused by unsold output

45
Q

Disadvantages of lean production

A

Does not suit all production processes
Failure by one small supplier may halt entire production process
Some employees may not want more responsibility
Managers may not be flexible enough
May not be able to meet unexpected orders

46
Q

Time based management

A

Aims to save time wherever possible, ensuring that no one is delayed by having to wait for other employees to finish their work

47
Q

Product development lead time

A

Starts from the first idea about the product, through the design and development period, to being ready to start selling the final product

48
Q

Benefits of short product development lead times

A

Reduces development time in product life cycle
Reduces costs
Improves cash flow
Can respond rapidly to changes in consumer tastes and demand
Can enter market before competitors do

GIVES BUSINESS COMPETITIVE ADVANTAGE

49
Q

Drawbacks of short product development lead times

A

Requires that capital equipment, labour and management are flexible enough to do this

Edexcel B A Level Economics (11 decks)

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