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