Production & Productivity (Cambridge (CIE) IGCSE Economics)
Revision Note
The Distinction Between Production and Productivity
The terms production and productivity are fundamentally different
Production is the act of adding value to the factors of production to create goods/services e.g. using tomatoes and basil to create a soup
It is the process of factor conversion into goods/services
It is a measure of output e.g. 3 cans of soup
Productivity is a measure of efficiency that calculates the amount of outputs produced per unit of input
It calculates how efficiently resources are being used in the creation of goods/services and provides a metric for comparison e.g. after training workers proved to be 27% more efficient in their productivity
It is a measure of efficiency e.g. 3 cans produced per worker
Influences on Production
Production is often influenced by the state of the economy
During a recession production falls
During a boom period, production increases
As production is dependent on the demand for goods/services, any change to any of the conditions of demand will result in changes to production
As production is also dependent on the supply of the factors of production, any change to any of the conditions of supply will result in changes to production
Influences on Productivity
Higher productivity is important for a firm and economy for the following reasons
It lowers costs and improves a firms national and international ability to compete
It allows firms to produce more output with the same input which puts it in a position to generate increased economies of scale
Firms can generate higher profits
Higher profits may mean that the firms can pay their workers more
Higher profits may mean that the government revenue from corporation tax will increase
An improved ability to compete in international markets will help to generate economic growth
The Influences on Productivity Growth
Influence | Explanation |
---|---|
Innovation |
|
Investment |
|
Training |
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Competition |
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Entrepreneurial freedom |
|
Examiner Tip
Students regularly confuse the terms 'production' and 'productivity'. make sure you know the difference.
Remember that production (output) can rise while productivity (efficiency) falls.
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