Production & Productivity | Economics for GCSE/IGCSE - Year 11 PDF Download

The Distinction Between Production & Productivity

• The terms production & productivity are fundamentally different
• Production is the act of adding value to the factors of production to create goods/services, for example, using tomatoes & basil to create a soup. It involves converting factors into goods/services and is measured by output, such as producing 3 cans of soup.
• Productivity, on the other hand, measures efficiency by calculating the amount of output produced per unit of input. It assesses how effectively resources are utilized in creating goods/services and offers a benchmark for comparison. For instance, if trained workers become 27% more efficient after training, it indicates improved productivity.

Influences on Production

• The state of the economy significantly influences production:
  • Production typically declines during a recession.
  • Conversely, during a boom period, production experiences an upsurge.
• Production is intricately tied to the demand for goods and services, so any alteration in demand conditions leads to corresponding changes in production.
• Additionally, production hinges on the supply of factors of production, meaning any modification in supply conditions prompts adjustments in production levels.

Influences on Productivity

Enhanced productivity holds significant importance for both firms and the economy due to the following reasons:

• Cost reduction and enhanced competitiveness, both domestically and globally, are achieved.
• Increased productivity enables firms to produce greater output using the same input, facilitating the realization of amplified economies of scale.
• Firms can attain higher profitability levels.
• Increased profits may enable firms to offer higher wages to their workers.
• Elevated profits may lead to an augmentation in government revenue from corporation tax.
• Improved competitiveness in international markets contributes to stimulating economic growth.

The Influences On Productivity Growth