Production and productivity Flashcards
Production and productivity
In economics time periods are defined with reference to costs
- Market period
> All FOPs are fixed (and their costs are therefore fixed)
- Short run
> At least one FOP is fixed
- Long run
> All FOP are variable
- Very long run
> As same with LR but with changing technology
Factors of production (Factor inputs)
- Land
> Natural resources available for production - Labour
> The human input into the production process - Enterprise
> Entrepreneurs organise factors of production and take risk - Capital
> Goods used in the supply of other products e.g. tech
Capital goods
- Goods that are used to make consumer goods and services
- Capital inputs include fixed plant and machinery, hardware, software, new factories and other buildings
Consumer goods and services
- Goods and services which satisfy our needs and wants directly
- There is a sub division between them:
- Consumer durables
> Product that provide a steady flow of satisfaction/ utility over their working life e.g. washing machine or smartphone - Consumer non-durables
> Products that are used up in the act of consumption e.g. drinking coffee - Consumer services
> E.g. hair cut
Difference between production and productivity
Production
- Production is a measure of the value of the output of goods and services e.g. measured by national GDP or an index of production in specific industry such as car manufacturing
Productivity
- A measure of the efficiency of factors of production
- Measured by output per person employed
- Or by output per person hour
- An increase in production DOES NOT automatically mean an increase in productivity - it depends on how many factor inputs have been employed to supply the extra output
Productivity
Productivity measures the efficiency of the production process
- Factor inputs (land labour and capital) + Factor productivity (efficiency) = Output of goods and services
- In the long run, productivity is a major determinate of economic growth and of inflation
- A fall in labour productivity leads to a rise in firms (unit) costs of production (assuming that the level of wages remains the same)
- Higher productivity allows businesses to pay higher wages and achieve increased profits at the same time
Factors affecting labour productivity
Many demand and supply-side factors affect labour productivity
- Degree of competition in a market/ industry
- Advances in production technology
- Specialisation
- Higher business investment in new capital inputs
- Investments in apprenticeships/ training to boost labour skills
- Quality of the management in a business
- Having a high quality national infrastructure including transport
- Level of demand for a product in a market - using up spare capacity
