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productivity In economics, a measure of productive efficiency calculated as the ratio of what is produced to what is required to produce it. Any of the traditional factors of production land, labour, or capitalcan be used as the denominator of the ratio, though productivity calculations are actually seldom made for land or capital since their capacity is difficult to measure. Labour is in most cases easily quantifiedfor example, by counting workers engaged on a particular product. In industrialized nations, the effects of increasing productivity are most apparent in the use of labour. Productivity can be seen not only as a measure of efficiency but also as an indicator of economic development. Productivity increases as a primitive extractive economy develops into a technologically sophisticated one. The pattern of increase typically exhibits long-term stability interrupted by sudden leaps that represent major technological advances. Productivity in Europe and the U.S. made great strides following the development of such technologies as steam power, the railroad, and the gasoline motor. Later in the 20th century, advances in productivity stemmed from a number of innovations, including assembly lines and automation, computer-integrated manufacturing, database management systems, just-in-time manufacturing, and just-intime inventory management. Increases in productivity have tended to lead to long-term increases in real wages. An assembly line is a manufacturing process (most of the time called a progressive assembly) in which parts (usually interchangeable parts) are added to a product in a sequential manner to create a finished product much faster than with handcrafting-type methods. Automation is the use of machines, control systems and information technologies to optimize productivity in the production of goods and delivery of services. Computer-integrated manufacturing (CIM) is the manufacturing approach of using computers to control the entire production process. Database management systems is a collection of programs that enables you to store, modify, and extract information from a database. Just-in-time manufacturing is a strategy used in the manufacturing industry to reduce costs by reducing the inprocess inventory level. It is driven by a series of signals that tell the production line to make the next piece for the product and when it is needed. The signals used are usually simple visual signals, such as the absence or presence of a piece that is needed in the manufacturing process. JIT, or just in time, inventory is a inventory management strategy that is aimed at monitoring the inventory process in such a manner as to minimize the costs associated with
inventory control and maintenance. To a great degree, a justin-time inventory process relies on the efficient monitoring of the usage of materials in the production of goods and ordering replacement goods that arrive shortly before they are needed. This simple strategy helps to prevent incurring the costs associated with carrying large inventories of raw materials at any given point in time. Productivity In a business or industrial context, the ratio of output production to input effort. The productivity ratio is an indicator of the efficiency with which an enterprise converts its resources (inputs) into finished goods or services (outputs). If the goal is to increase productivity, this can be done by producing more output with the same level of input. Productivity can also be increased by producing the same output with fewer inputs. One problem with trying to measure productivity is that a decision must be made in terms of identifying the inputs and outputs and how they will be measured. This is relatively easy when productivity of an individual is considered, but it becomes difficult when productivity involves a whole company or a nation. Industry and government officials have adopted three common types of productivity measures. Partial productivity is the simplest type of productivity measure; a single type of input is selected for the productivity ratio. The company or organization selects an input factor that it monitors in daily activity. Direct labor hours is a factor that most companies monitor because they pay their employees based on hours worked. Total factor productivity is a productivity measure combines that labor and capital, two of the most common input factors used in the partial productivity measure. This measure is often used at the national level, because many governments collect statistics on both labor and capital. In calculating at the national level, the gross national product (GNP) is used as the output. Total productivity is a productivity measure that incorporates all the inputs required to make a product or provide a service. The inputs could be grouped in various categories as long as they determine the total inputs required to produce an output. Many factors affect productivity. Some general categories for these factors are product, process, labor force, capacity, external influences, and quality. People can measure how successful they are economically by the size of their incomes and by their standard of living, including how much of their spendable income will buy. Standard of living is defined as the material well-being of an individual, group, or nation measured by the average value of goods and services used by the average citizen during a given time period.
The well-being of the overall economy is measured in a similar way. Economists constantly measure and record such factors as the amount of goods and services produced yearly by the nation and the income individuals have to spend. The measurement of the national economys performance is called national income accounting. This area of economics deals with the overall economys income and output. It also measures the interaction of consumers, businesses, and governments. The major measurements used for the nations income and production are gross domestic product (GDP), net domestic product, national income, personal income, and disposable personal income. The broadest measure of the economys wealth is gross domestic product (GDP). This is the total dollar value of all final goods and services produced in the nation during a single year. This figure tells how much American workers have produced in that year that is available for people to purchase. GDP is one way to measure the nations material standard of living. It also provides a way of comparing what has been produced in one year with what was produced in another year. Note the word value in the definition. Simply adding up the quantities of millions of different items produced, such as shoes and cars, would not mean much. How can we measure the strength of the economy, for example, if we know that 3 billion safety pins and 2 space shuttles were produced? What needs to be totaled is the value of the items, using some common measure. Economists use the dollar as this common measure of value. As a result, GDP is always expressed in dollar terms. For example, in 1993, GDP totaled about $6.5 trillion. Also, only new goods are counted in GDP. the sale of a used car or a secondhand refrigerator is not counted as part of GDP. Such a sale is not due to the production of the nation, but only transfers a product from one person to another. If a new battery is put in an old car, however, that new battery is counted as part of GDP. In computing GDP, economists measure economic activity in four areas. 1. Consumer goods-goods and services bought by consumers for their direct use. 2. Business or producer goods-business purchases of tools, machines, buildings. 3. Government goods-the goods and services, ranging from paper clips to jet planes, that are bought by federal, state, and local governments. 4. Net exports-the difference between what the nation sells to other countries (exports) and what it buys from other countries (imports). The statistics used in computing GDP are accurate only to a point. Statistics about easily quantifiable things, such as government purchases, are reliable. Some statistics, however, can only be estimated and, therefore, are less reliable. For example, some workers are given food, fuel, or housing in
place of or as a supplements or additions to wages. An apartment building superintendent, for example, some times gets his or her apartment at a reduced rent. GDP can include only an estimate of the value of such goods and services. Moreover, GDP omits certain areas of economic activity. An example would be unpaid work done by individuals for themselves or their families. The work of a domestic engineer could never be estimated since its scope is far too broad. The government cannot estimate the value of this work accurately. Such things as a underground economy or illegal production (marijuana in CA) is not counted. Another way to measure GDP is to measure income earned. When gross domestic product is measured this way, four categories of income are measured. WAGES + INTEREST + RENTS + PROFITS = GROSS DOMESTIC PRODUCT Rising or falling prices affect the dollar value of GDP. A prolonged rise in the general price level of goods and services is called inflation. For example, last year a hamburger may have cost $2.50 This year it may cost $2.75. The physical output-the hamburger-has not changed, only its money value. American-born author Gertrude Stein once said that a rose is a rose. A dollar, however, is not always a dollar. The value of money is usually talked about in terms of its purchasing power. A dollars purchasing power is the real goods and services that it can buy. If your money stays the same, but the price of one good that you are buying goes up, your effective purchasing power falls. Therefore, another way of defining inflation is the decline in the purchasing power of money. The faster the rate of inflation, the greater the drop in the purchasing power of money. The higher GDP figures that result from inflation do not represent any increase in output. To get true measure of the nations output in a given year, inflation must be taken into account. Deflation, a prolonged decline in the general price level, also affects the dollar value of GDP, but deflation rarely happens. If all prices rose at the same rate, only one measure of inflation would be needed. Prices in different sectors of the economy, however, rise at different rates. As a result, the government uses several measures of inflation. The three most commonly used are the consumer price index, the producer price index, and the implicit GDP price deflator. The government measures the change in price over time of a specific group of goods and services the average household uses. This measurement is the consumer price index (CPI). The group of items, called a market basket, includes about 400 goods and services in the areas of food, housing, transportation, clothing, entertainment, medical care, and personnel care. The CPI is the price index that you are probably most familiar with from the news media. The Federal Bureau of Labor Statistics compiles the CPI monthly. In compiling the CPI, the base year is set at the
average price for 1982 to 1984 and is given a value of 100. A base year is a year used as a point of comparison for other years in a series of statistics. CPI numbers for later years indicate the percentage that the market basket price has risen since the base year If you would like to see a comparison of the value of your dollar as compared to your buying power in previous years, click on the link below and use the Federal Reserve Bank of Minnesota's CPI calculator. Consumer Price Index (CPI) The consumer price index looks at the economy from the eyes of the consumer: it reports what it costs to pay for food, housing and other basics. The number is figured ever month. It serves a double role of reflecting economic trends and influencing economic policy decisions. One reason it is so important is that it affects everyone directly-in the pocketbook. The CPI is also the basis for adjusting Social Security payments and determining cost-of-living increases in pensions and wages. Current components of the CPI: HOUSING 1. Shelter, rent and homeowner' s equivalent of rent Fuel, including oil, coal, bottled gas, electricity Household furnishing and operation CLOTHING 1. 2. Men's Shirts Women's dresses and sweaters Jewelry EDUCATION AND COMMUNICATION 1. 2. 3. 4. College tuition Postage Telephone services Computer software and accessories Internet charges
MEDICAL CARE 1. Prescription drugs and medical supplies Physician services Eyeglasses and eye care Hospital services
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Rising living standards over the years requires increases in labor productivity-the amount of goods and services workers can produce in a given time period. Productivity is increased by improvements in the quality of human resources through greater education, training, and the attitudes of workers. It also is increased through business investments, which provides more and better capital resources for each worker. Also vital to increased productivity is technological change, which is innovation or the development of new ideas. Since managers search for ways to make products efficiently, they pay close attention to production costs. They find that costs usually vary when the level or speed of production changes. To see how and why, youll want to look at two kinds of production costs. Fixed costs (overhead) remain constant as the rate of production changes. Variable costs (direct) change as production changes. Below are listed some costs, determine whether or not they are fixed or variable. 1. rent 2. electricity to run the machines 3. the commissions of sale representatives 4. fire insurance 5. assembly-line workers 6. supervisory salaries Unit costs contain both fixed and variable costs. Fixed costs per unit always decrease as output increases. Variable costs per unit can decline at first, but as output increases still further, they increase due to the law of diminishing returns. The law of diminishing returns says as more and more variable resources are added to a fixed amount of other resources, the additional amount produced eventually diminishes. Mass production and batch processing techniques such as division of labor, use of complex equipment, and the assembly line are most effective in large business.
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TRANSPORTATION 1. 2. 3. 4.
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New vehicles 5. Airline fares Gasoline Motor OTHER GOODS AND vehicle SERVICES insurance 1. Tobacco and smoking products Haircuts and other personal services Funeral expenses Baby-sitting Drycleaning
FOOD AND BEVERAGE 1. 2. 3. 4. 5. 6. 7. Alcoholic beverages Breakfast cereal Milk Coffee Chicken Wine Restaurant meals and snacks
RECREATION and ENTERTAINMENT 1. 2. 3. 4. Televisions Pet and pet products Sports equipment Admissions to sporting events, movies, concerts
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