Productivity
Efficiency and Production
Productivity: How much we produce with a given
quantity of resources per unit of time.
Production: How much a firm, industry, or economy
makes.(Total output)
An increase in productivity can be defined as an
increase in output per factor of production, per unit of time. Increased
productivity allows a firm to satisfy a greater amounts of wants using the same
level of resource.
To increase productivity, we need more than just an
increase in production, we need to increase the production proportionate more
than the increase in inputs of resources.
Increase in productivity: 1 sack of potatoes/day
-> 5 sacks of potatoes/day
Production: 5 sacks of potatoes/5 days.
Productivity contributes to living standards by:
·
A lower
inflation rate- lower production cost passed on as lower prices
·
Lower wastage of
scarce resources - resources used more efficiently
·
Higher incomes -
as labour is more productive, firms can pay workers more.
·
Improved
international competitiveness- cheaper on overseas markets.
One of the major ways businesses firms can increase
their productivity is specialisation, where FOP are used more intensely for a
smaller production process. Examples include:
·
Division of labour
- production process broken into smaller processes - labour specialises in one
task becoming more efficient. e.g. assembly lines.
·
Location of
industry - members of an industry group together so they ca share
infrastructure costs.
·
Large scale
production - when businesses grow large, they can use specialised capital in
their production process.
Benefits to society
Remember: Productivity - how much we can produce
with a given amount of resources
·
Growth in
productivity - The necessity for more than just an increase in production - we
need to increase production proportionately more than the increase in inputs.
Living standards and productivity
Living standards are the level of satisfaction of
needs and wants in a country. When firms are able to produce goods more
efficiently, they can produce more goods and services with existing resources.
This leads to an living standard increase. In the long term, improvements in
productivity are essential to increasing living standards in a country.
Type
|
Definition
|
Example
|
Division of labour
(specialisation of labour)
|
·
Businesses
break production into sub-processes
·
Allows labour
to specialise in a particular part of the process
·
Avoids the
time and effort of moving from one process to another
|
Assembly line approach to car
production, each worker completes a small task in production of each vehicle
|
Location of industry
(specialisation of natural resources)
|
·
Businesses
producing similar output congregate in one area
·
Reduce
production costs by sharing common infrastructure
|
Concentration of advance
technological industries in Silicon Valley, California (And North Ryde in
Sydney)
|
Large scale production
(specialisation of capital)
|
·
Businesses
grow so large they can use highly specialised capital equipment in the production
process
|
Large wine producers purchasing
their own specialised bottling and labelling equipment
|
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