Factors Affecting Productivity (Edexcel IGCSE Economics)
Exam board Pearson Edexcel · IGCSEUpdated 2024-06-10
Spec point —
1.2.2b
Production Versus Productivity
- Production refers to the volume of output produced using the factors of production
- Productivity is the **output per unit of input of a resource in a given time period **i.e the rate at which the output is produced
- Common measures of productivity include labour productivity and capital productivity
- Productivity is used to measure the** efficiency of production methods**
Factors affecting productivity
-
Productivity will increase if the quality of the input improves
- Investment in human capital occurs when firms spend money on training their labour to improve efficiency and skill levels. This will increase the speed of producing an output
- Investment in capital will improve both the quality of that capital and the quantity of capital available, which will increase output in a given time period
Factors Affecting Productivity
| Factor of production | Explanation |
|---|---|
| Land | - An improvement in the quality of land can increase its output - E.g. increase in the use of fertiliser, drainage or irrigation may yield more crops |
| Labour | - Improvements in education can improve labour productivity over time - E.g. government investing more into schools and colleges - Investment in human capital - E.g. firms training workers can improve their skills - A positive net migration rate of skilled labour will increase the quality of labour available |
| Capital | - Technological advancements can improve machinery and increase productivity - Process innovation often results in productivity improvements, e.g. moving from labour intensive car production to automated car production |
Productivity improvements and the PPC
-
Increases in productivity will cause an outward shift of the production possibilities curve
- The country is able to produce more with the existing factors of production
-
If the quantity or quality of factors of production decreases (e.g. as a result of a natural disaster), this corresponds to an inward shift of the production possibilities curve
- The country now cannot produce as much as it used to
Worked Example Which one of the following is likely to lead to an increase in the productivity of labour? (1)
- A Implementation of new AI machines
- B Decrease in the use of irrigation schemes
- C Increase in the number of training programs for employees
- D Decrease in land fertility due to environmental degradation
Answer: C Increase in the number of training programs for employees
This would lead to a increase in the quality of labour as a factor of production
- A is not correct as it is a change in capital that may replace labour
- B is not correct because it will affect land and will result in a decrease in productivity
- D is not correct because this would lead to a decrease in land productivity
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