12.2 Productivity: Its Role and Determinants

12.2 a. Why Productivity Is So Important

Productivity is an economic measure of output per unit of input. Inputs include labor and capital, while output is typically measured in revenues and other gross domestic product (GDP) components such as business inventories. Productivity gains are vital to the economy, as they mean that more is being accomplished with less. ^[1]

Example: Capital and labor are both scarce resources, so maximizing their impact is a core concern of modern business. ^[1]

https://youtu.be/Q3zxRc0Z9QA

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12.2 b. How Productivity is Determined

The determinants of productivity are: ^[3]

• Physical capital: the stock of equipment and structures that are used to produce goods and services.
• Human capital: the knowledge and skills that workers acquire through education, training, and experience
• Natural resources: the inputs into the production of goods and services that are provided by nature, such as land, rivers, and mineral deposits
• Technological knowledge: society’s understanding of the best ways to produce goods and services

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