Ch.3 Production, Costs And Revenue Flashcards
What is production?
Production is the total output of goods and services produced by an individual, firm or country. It also describes the process of converting inputs (raw materials) and the services of the various factors of production into outputs.
What is productivity?
Productivity is a measurement of the rate of production by one, or all, of the factors of production. It is thus a measure of the efficiency of a worker, firm or country.
How do you measure productivity?
The formula for productivity is the total output per period of time divided by the number of units of factor of production.
What is usually the most significant part of total costs for many firms?
Labour costs tend to be the most significant cost for firms and so labour productivity is an important determinant of how competitive firms and individual countries are.
What can lead to improvements in the labour productivity?
Improvements to make the labour force more productive are:
Improvements in education and training from increased motivation,
Advances in technology, leading to workers being equipped with the latest capital equipment, which can lead to increases in productivity.
The specialisation and division of labour, also facilitates a more effective use of specialist capital equipment, which can lead to increases in productivity.
What does specialisation involve?
An individual worker, firm or country producing a limited range of goods and services. Examples included:
An individual specialising as a tax accountant.
An individual firm specialising in accountancy.
An individual region specialising in investment banking (London).
An individual country specialising in the provision of financial services (UK).
What does the division of labour involve?
Specialisation at the level of the individual is known as the division of labour.
Adam Smith (author of “The wealth of nations” argued that, without specialisation, one worker making pins from start to finish might make 20 pins a day, while ten workers specialising in the individual tasks involved might be able to make 48000 pins per day.
What is the importance of exchange?
Specialisation and the division of labour are only viable if there is an efficient system of exchange exists so that, for example, a tax accountant is able to exchange his services for payment so that he can buy food and pay his rent.
Similarly, a country (such as the UK) can only specialise in financial services if it is able to exchange this output for other goods and services that it is less able to produce efficiently.
What is exchange?
This is when one good or service is exchanged or traded for something else.
What is bartering and the impact of money?
Bartering involves the exchange of goods and services for other goods and services. A system of exchange involving money as a medium of exchange avoids the need for bartering; money also has the benefit of being easily divisible, unlike a particular good.
What are the benefits of specialisation and division of labour?
The repetition of a limited range of activities increases skill and leads to a worker being an expert.
Reduces time spent moving between take or workstations - increased productivity.
As tasks are broken up into smaller ones, it becomes efficient to use specialist machinery.
Division of labour allows people to work to their natural strengths, e.g. Physical strengths, technical skill or the ability to communicate.
