Date post: | 23-Dec-2015 |
Category: |
Documents |
Upload: | felicia-lamb |
View: | 216 times |
Download: | 0 times |
Economic Growth and Productivity
Chapter 13
Study Questions
1. What is the standard of living and how is it measured?
2. How can the standard of living be raised?
3. What might lower the standard of living? 4. What is productivity and why is it
important?
Study Questions
5. How does specialization lead to efficiency?
6. What is necessary for specialization? 7. What is innovation and how does it
increase productivity?
Standard of Living
Our material standard of living is an indication of our economic well-being.Standard of Living = Total Output/Population
Standard of Living
How to raise the standard of living:Reduce the population?
Standard of Living
How to raise the standard of living:Reduce the population? Increase the total output!
Ideally, the increase in total output must be greater than the increase in population.
Increasing Total Output
PPC pushes outward. GDP grows. To increase the productive capability:
increase the level of resources increase the efficiency of using those
resourcesuse better technology increase economic freedom
Increase the Level of Resources
Land – use new extraction technology; shift use to more pressing needs
Labor – increase numbers; increase quality Capital – keep interest rates low; maintain a
favorable climate for investment Entrepreneurship – easy to start a business;
favorable tax/regulatory climate
Increase the Level of Technology
Encourage technological development Entrepreneurial response to changing
market conditions No government protection of mature
industries
Can the Standard of Living Be Lowered?
Yes, if:resources are decreasedeconomic freedom is restricted fail to keep up with modern technologystifling bureaucracy inhibits growthwidespread corruption existsproperty rights are poorly defined
Productivity
Productivity = Output/Input We use labor hours as a proxy for input,
so: Productivity = Output/Labor Hours
Improving Productivity
Reducing waste Improved efficiency through specialization Innovation
Reducing Waste
Inefficient processes produce both desired goods and waste products.
Improve process efficiency: fewer waste products are producedmore desired products are produced
Specialization
Division of labor:Each worker specializes in one task
improve skills gets better with practice invent new or better tools and processes
Result: more output per labor hourProductivity increases
Comparative Advantage
You can complete a task at a lower opportunity cost than others.
You should specialize in that task. They should become your customers.
Key to Increasing Standard of Living
Specialize according to comparative advantage:more output from fewer inputs
Produce a surplus amount and exchange with others for goods they have a comparative advantage in.
Result: Greater output from fewer inputs.
Innovation
Reorganize the Production Process Switch Resource Inputs Mass Production Mechanization Mass Markets
Reorganize the Production Process
Batch mode to Assembly Line moderequires specializationmultiple units in production at one time
Switch Resource Inputs
If one input’s costs rise, savings can be found by switching to an alternative input whose costs are lower.switching energy sourcesswitching from human effort to roboticscontrol by programmed computers
Mass Production
Large scale production of (nearly) identical units of output.spreads fixed costs over a large outputenables purchase of inputs at bulk ratesenables more specialization of workers and
equipmentall of these lower the average cost per unitenables sale at a lower price
Mechanization
For repetitive tasks, replace humans with specialized equipmentresult: more uniformity in results faster production runsbetter quality of output lower production costs per unit
Mechanization
Low skill repetitive jobs are eliminated. Higher skill jobs are created:
engineering designmanufacturing of equipmentoperation of equipmentmaintenance of equipment
Mass Markets
Catering to a larger market allows larger production runs.Lower costsGreater productivityMore goods required to be producedMore high skilled jobs created to operate and
maintain equipment
Results
Efficiency gains Productivity gains Increase in economic growth Increase in wages Increase in standard of living
Causes of Economic Growth - I
Increased resources available Expanded capital goods base Increased/improved technology Increased productivity Protection of individual property rights Economic freedom
Causes of Economic Growth - II
Improved infrastructure Peace and stability Low or no political corruption A favorable tax climate A favorable regulatory climate
Results of Economic Growth
More satisfactions of wants and needs by more people
Raised standard of living Reduced poverty rates Improved working conditions More leisure time Greater concern for the environment Greater ability to deal with poverty and
environmental problems
Technology helps growth
http://www.econedlink.org/interactives/index.php?iid=258&type=educator