PRODUCTION AND PRODUCTIVITY CHAPTER 9

What Is GDP? GDP Definition: The market value of all final goods and services produced in a nation's economy during a given time.

Inflation and GDP Inflation is a period of rising prices Is it real or not? Inflation is a period of rising prices Purchasing power is going down The final cost of goods is higher than before Inflation makes GDP appear to have risen GDP adjusted for inflation is real GDP

Only final products-- not ingredients or supplies What is counted in GDP? Only final products-- not ingredients or supplies Consumption Things bought by the ultimate consumer Investment Capital resources Government Spending Net exports Exports less imports

What doesn't show? What doesn't count? Problems with GDP? What doesn't show? What doesn't count? Doesn't show welfare or well-being Best measure of welfare is per capita real GDP Goods and services produced but not sold Child care, lawn care, etc. Value of leisure time Illegal production or black market Regaining lost ground

Productivity and Labor Productivity Definitions Productivity The output of goods and services per unit of input (Input is time, workers, capital, resources) Labor productivity The amount the work force can produce in a given time

Factors affecting productivity Quality of human capital Education, training, attitudes Quality of capital resources Technology changes Quality of management Total quality management

Production and costs Fixed costs Variable costs Engineering costs, salaries, interest Variable costs Utilities, raw materials

Law of diminishing returns When is more less? The more variable resources added to fixed amount of other resources, the amount produced will eventually diminish

Economies of Scale Is bigger better? Reductions in costs resulting from large-scale production