1. PRODUCTION AND PRODUCTIVITY
CHAPTER 9

2. What Is GDP? GDP Definition:
The market value of all final goods and services produced in a nation's economy during a given time.

3. Inflation and GDP Inflation is a period of rising prices
Is it real or not?
Inflation is a period of rising prices
Purchasing power is going down
The final cost of goods is higher than before
Inflation makes GDP appear to have risen
GDP adjusted for inflation is real GDP

4. Only final products-- not ingredients or supplies
What is counted in GDP?
Only final products-- not ingredients or supplies
Consumption
Things bought by the ultimate consumer
Investment
Capital resources
Government Spending
Net exports
Exports less imports

5. What doesn't show? What doesn't count?
Problems with GDP?
What doesn't show? What doesn't count?
Doesn't show welfare or well-being
Best measure of welfare is per capita real GDP
Goods and services produced but not sold
Child care, lawn care, etc.
Value of leisure time
Illegal production or black market
Regaining lost ground

6. Productivity and Labor Productivity
Definitions
Productivity
The output of goods and services per unit of input (Input is time, workers, capital, resources)
Labor productivity
The amount the work force can produce in a given time

7. Factors affecting productivity
Quality of human capital
Education, training, attitudes
Quality of capital resources
Technology changes
Quality of management
Total quality management

8. Production and costs Fixed costs Variable costs
Engineering costs, salaries, interest
Variable costs
Utilities, raw materials

9. Law of diminishing returns
When is more less?
The more variable resources added to fixed amount of other resources, the amount produced will eventually diminish

10. Economies of Scale
Is bigger better?
Reductions in costs resulting from large-scale production