Question

List and describe the four determinants of productivity and How productivity can increase GDP, jobs, and higher income level?

Answer 1

Productivity refers to the efficiency with which a country can use its factors of production such as capital and labor to increase the output with the same level of inputs.

The four determinants of productivity are-

Physical capital- refers to the stock of machinery and building that are used to produce goods and services.

Human Capital- refers to the labor or work force who have skills and specialization which the learn through education,training and experience and use it in the production of goods and services.

Natural Resources- refers to the scarce and abundant resources which are provided by the nature and which are used in the production process.

Technological Knowledge- the knowledge is referred to as the best practices,the society has learned while engaging in the production activity and as we progress,the new and improved methods can be learned over time increasing the efficiency.

The productivity can increase the quantity of output a country produces because as productivity increases,a country becomes more and more efficient in producing goods and services.It can produce the same amount of goods and services in less time with using the same input of labor and capital which it was using earlier.

The productivity decreases the per unit cost of production making it cost efficient for the firms and increasing their profitability.With less cost,the firms will engage in more production activity and with increase in productivity,the specialization increases which will increase the competitveness of the market which benefits the market and consumers will get a variety of products at low prices with differenciation which will push the demand higher.It will increase the economic growth of the market as output will rise increasing the country's GDP and as GDP increases,more investment opportunities will open which will require the labor and capital flow which will increase the employment in the country.As the firms are producing at lower costs and enjoying profits,they can afford to pay their specialized and productive workers higher wages.