Productivity & Specialisation.

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  • Created by: Yashee97
  • Created on: 04-04-15 19:13
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  • Production & Specialisation.
    • Production.
      • Production converts inputs into outputs.
        • Inputs ; they're the factors of production. ( CELL )
        • Outputs ; goods & services that meet the needs and wants of the consumer whilst making profit.
          • Consumer non-durable goods ; goods that don't last long & can only be consumed once.
          • Consumer durable goods ; goods that can be used more than one.
          • Services ; items that are not tangible. ( e.g. train travel & buying a holiday )
        • Opportunity cost will exist throughout the process including when consumers & deciding what to buy.
      • It is a means to an end in order to provide economic welfare & happiness.
      • Production can be broken down into three stages, with value being added at each stage.
        • Primary ; concerned with the extraction of raw materials.
        • Secondary ; manufacturin of the raw materials into finished goods.
        • Tertiary ; producing goods & services for the customer.
      • Productivity.
        • Output per unit, e.g. labour productivity is output per worker.
        • All factors of production contribute towards a firms current levels of output, although labour productivity is usually focused upon Total Factor Productivity ( refers to all factors being measured together ).
        • A chnge in TPF measures the change in a firms output when more than one factor has changed.
        • Factors can change through either quantity or quality improvement.
        • Productivity in UK.
          • Productivity gap ; the difference between productivity levels in the UK & their main competition countries.
          • The UK used to be known world-wide for car manufact- ing.
            • Our labour force were highly trained in this area.
            • However , investment by companies abroad & the growth of technology has meant we have lost this competitive edge.
            • Failure to keep up with these changes lead to reduced productivity for some companies, whilst other have benefitted.
    • Specialisation ; the concentration of workers, firms or whole economies , on a narrow range of goods & services.
      • Specialisation can apply to an individual business of an economy.
      • Businesses can specialise on a particular product or service.
      • Individuals can specialise on a particular job.
      • Governments can specialise on a particular business sector depending on factor endowments.
      • Positive.
        • Workers can become more skilled if they focus on one task.
        • Output can be produced more quickly.
        • Average cost per unit decreases due to greater utilisation of capital.
      • Negative.
        • Workers will become less flexibly & it will become harder to adapt if new types of good need to be produced.
        • Morale in the workplace may fall as jobs become more repetitive & absenteeism & labour turnover may rise.
    • Exchange.
      • Specialisatio requires a focus on specific areas of production. For it to be worthwhile, a system of trade & exchange is necessary. Unless this takes place, people will only be able to consume the goods the make. Individuals , businesses & countries will therefore have to exchange goods with other countries to meet needs. Bartering will take place.
        • Bartering is an inefficient method of trading in modern society.
          • Therefore money is used as a medium of exchange.
            • Money is far more efficient than bartering as it does not rely on there being a double coincidence of money.
            • Purpose of money.
              • A unit of account ; allows us to compare value.
              • A means of exchange ; users have confidence in money,
              • A store of value ; means of saving.
              • A standard for differed payments ; measure of what we owe.
      • Exchange Dilemma.
        • Successful bartering requires a double coincidence of wants to take place.
          • This assumes that one individual wants what they're trading with another individual.
      • Trade between nations has increased significantly as a result of globalisation, both nationally & internationaly.
      • Trade permits countries to specialise in products / services they're able to produce efficiently.
      • Benefit & Negative.
        • Exchange between developed & developing countries. Increase in output of country, rather than trying to do it internally. Widening of range of goods & services on offer.
        • Resources can be finite. De-industrialisation. Change in tastes. Political impact.
    • Productivity.
      • Labour ; total output / number of units of labour. Capital ; total output / units of capital. Productivity ; total output / total input.
      • The benefits of high productivity ; Lower waste, lower average cost per unit, higher profit, higher real wages.
        • Average cost ; the cost per unit. Also known as unit costs. Average cost per unit = total costs / number of units produced.
          • Referring to diagram.
            • The average costs curve are usually 'U' shaped. This is because as more is produced, the costs of production falls.
            • As output increases beyond Q2, the average costs increase.
              • Q2 provides lowest average cost per unit. This is known as the cost - minimising level of output.
      • Productive efficiency.
        • Firm ; Productive efficieny occurs when a firm minimises average costs & produces at lowest point on it's average cost curve.
          • For a single firm to achieve productive efficiency the firm must use their all factors of production to ensure production takes place at the ' cost minimising level of output '.
            • Any other level of output is productively inefficient, as costs are higher, due to resources not being used as efficiently as possible - wastage occurs.
        • Economy ; The whole economy is productively efficient when producing on it's PPF.
          • For an economy to be productively efficient , production must take place on the economy's PPC. All points on it are fully utilising all the factors of production. It's not possible to produce more of one good without there being an opportunity cost.
            • At z, it is possible to make more of capital without reducing the output of consumer goods.

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