Basic_concepts_of_productivit1

# Basic_concepts_of_productivit1 - Unit I Basic Concepts of...

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Unit – I Basic Concepts of Productivity Basic definition of productivity: Depending upon who is defining it-whether it is an economist, accountant, manager, politician, union leader, or industrial engineer-you will get a slightly different definition of he term productivity. How ever, if we closely examine the various definitions and interpretations of this term, three basic types of productivity appear to be emerging. For the purpose of this text, we shall refer to these basic forms as follows. 1) Partial Productivity: It is the ratio of output to one class of input. For example, labor productivity (the ratio of output to labor input) is a partial productivity measure. Similarly, capital productivity (the ratio of output to capital input) and material productivity (the ratio of output to materials input) are examples of partial productivity. 2) Total-factor productivity: It is the ratio of net output to the sum of associated labor and capital (factor) inputs. By “net output,” we mean total output minus intermediate goods and services purchased. Notice that the denominator of this ration is made up of only the labor and capital input factors. 3) Total productivity: It is the ratio of total output to the sum of all input factors. Thus, a total productivity measure reflects the joint impact of all the inputs in producing the output. In al of the above definitions, both the output and input (s) are expressed in “real” or “physical” terms by being reduced to constant dollars (or any other monetary currency) of a reference period (often referred to as “base period”). This reducing to base period is accomplished by dividing the values of output and input(s) by deflators or inflators, depending upon whether the prices of outputs and inputs have gone up or down, respectively. In other words, the effect of reducing the output and input(s) to a base period is to eliminate the effects of price variations, so that only the “physical” changes in output and input(s) are considered in any of the productivity ratios. We shall take a simple numerical example to illustrate these here basic definitions. Example:

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## This note was uploaded on 05/21/2011 for the course ECON 123 taught by Professor Day during the Spring '11 term at Arab Open University, Amman.

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Basic_concepts_of_productivit1 - Unit I Basic Concepts of...

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