Section 3 Production and Productivity

Question 1

Production means Manufacturing something in order to Sell it

Answer 1

1. Production involves converting inputs (e.g. raw materials) into outputs (things to sell)
2. The inputs can be any of four factors of production - LLCE. Inputs can be:
   -> tangible - things you can touch, like raw materials or machines
   -> intangible - ‘abstract’ things that can’t be touched - like ideas, talent or knowledge
3. The outputs produced should have an exchangeable value - they need to be something that can be sold.
   Inputs (capital, land, labour, enterprise) -> Production (making parts) -> outputs (finished goods)

Question 2

Productivity is the output per Factor Employed

Answer 2

• Productivity is a way of measuring how efficiently a company or an economy is producing its output
• It’s defined as the output per unit of input employed. So if one company could take the same amount inputs as another company, but produce more stuff, their productivity would be greater.
• You can work out an overall level of productivity (involving all four possible inputs)
• But you can also calculate productivity for any one of the four individual factors of production, e.g. labour. Improving the productivity of any one of these seperate factors should increase overall production

Question 3

Labour productivity is the output per Worker or output per Hour Worked

Answer 3

1. Labour productivity is one example of measuring productivity for one factor. Its the amount of output produced per worker
2. To calculate labour productivity:
   - Take the amount of output produced in a particular time.
   - Divide this by the total number of workers (or total hours worked by all workers)
3. Labour productivity allows workers to be compared against other workers. E.g. labour productivity is calculated for whole economies, so that productivity of the different labour forces can be compared.
4. Improvements in labour productivity can come about as a result of better training, more experience, improved technology, and so on. Specialisation can also improve labour productivity - if each worker performs tasks that they’re good at doing, have practised a lot, then they’ll produce more than if they did lots of different tasks.