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 Course notes quick navigation

1 Introductory concepts 2  Market mechanism  3 Elasticities  4 Market structures 5  Market failures  6  Macro economic activity/eco growth  7 Inflation 8  Employment & unemployment  9  External Stability  10  Income distribution 11.Factors affecting economy  12  Fiscal/Budgetary policy  13  Monetary Policy   14 Aggregate Supply Policies  15 The Policy Mix

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productivity and efficiency

In a broad sense, productivity refers to how well our factors of production (primarily labour and capital) are combining to produce goods and services.  In a more technical sense, productivity refers to the volume of output (e.g. goods or services) that is produced from a given number of inputs (e.g. labour and capital resources) or the ratio of output to inputs (or output per unit of input).

From the discussion of productivity earlier you should recall that labour productivity is best defined as output over the number of labour hours worked; capital productivity is best defined as output over the number of capital hours used; and multi-factor productivity is defined as output over a combination of inputs, such as labour and capital.

Also recall that the most efficient allocation of resources requires that our resources are allocated in the best way possible in terms of providing the maximum net benefits (or greatest 'value') for Australians (i.e. allocative efficiency).  Accordingly, AS policies that seek to boost 'efficiency' levels within our markets and industries (e.g. microeconomic reform policies) are implemented in order to achieve the best allocation of resources.  This necessarily implies the maximum levels or amounts for all types of efficiency measures in an economy, including technical (productive) efficiency, intertermporal and dynamic efficiency.  

'…….a focus on actual productivity means a focus on efficiency - dynamic, allocative, and technical (or cost) efficiency - as a means of getting the most out of our resources and of enhancing the material living standards of Australians.'      

'The Importance of Productivity' David Gruen,  Productivity Perspectives Conference, November 2012

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