Productivity Investment, economic growth, and standard of living.

Productivity

Investment, economic growth, and standard of living

Productivity

• Inputs: – Resources used to produce a something

• Money, time, energy, manpower, natural resources

• Outputs– What is produced by using inputs

• Goods, services

• Productivity is measured by dividing output by the number of inputs to produce the outpot

• More productivity =– More output (products) with same inputs (resources)– Same output with less inputs

What increases productivity?

• INVESTMENT!!!!– Capital Goods

• Equipment and machines that help your business produce more efficiently

– Human capital• Education and training that make your employees

produce more efficiently

• Investments in capital goods and human capital cause economic growth

• More output = economic growth

Effects?

• When a business increases productivity, it makes more profit and grows

• When a country increases productivity, its people enjoy a higher standard of living

Rational Decision-Making

• Marginal Cost: ADDITIONAL cost of adding more inputs (resources)

• Cost of hiring one more worker• Cost of buying one more machine

• Marginal Benefit: ADDITIONAL benefit of adding more inputs

• Extra profit the extra worker brings your business• Extra profit the machine brings your business

• Rational Decision Making: When marginal benefits exceed marginal costs