MODULE 2

PRODUCTIVITY AND PROFITABILITY

LEARNING OBJECTIVES:
 Define productivity and profitability
 Discuss inputs of production.
 Give the meaning of GDP.
 Explain each source of GDP.
 Differentiate trade surplus from trade deficit
 Give the difference between inflation and deflation.
 Discuss the impact of trade surplus , trade deficit , inflation and
deflation

I.DISCUSSION:

What is profitability?

Profitability is a measure of an organization's profit relative to its expenses.

Organizations that are more efficient will realize more profit as a percentage of its
expenses than a less-efficient organization, which must spend more to generate the
same profit.

There are 3 main ways to improve the profitability of your company: Sell

more, price higher and reduce costs.
 PRODUCTIVITY

Productivity is a measure of economic performance that compares the amount of

goods and services produced (output) with the amount of inputs used to produce
those goods and services.

Productivity refers to the rate of output per unit of labor, capital or equipment 

(input). We can measure it in different ways. We can measure the productivity of a
factory according to how long it takes to produce a specific good. In the services
sector, on the other hand, where units of goods do not exist, it is harder to measure.
Some service companies base their measurement on how much revenue each
worker generates. They then divide that amount by their salary.
According to The Motley Fool, a financial and investing advice company, in a
factory, you can measure productivity by dividing the total output by the number
of workers. Imagine a table factory that employs 100 people producing 2000 tables
per day. The productivity of each employee is:
2000 (tables) ÷ 100 (workers) = 20 tables per worker per day

We express productivity as output divided by input.

Historically, we have used technology to boost productivity in the world of

business and agriculture.

What is efficiency?

If we can increase output per worker from 20 to 30 tables per day, without
increasing costs, the factory has improved efficiency. It will have lower unit costs.
The lower unit costs will generate higher profits.
Although we often cite the two terms together. However, they do not have the
same meaning.
Productivity focuses on getting the maximum production per worker or unit of
machine per minute, hour, day, or week, etc. Efficiency, on the other hand, looks
more at eliminating waste and maximizing quality.
Factors that determine productivity

It is the result of several factors, including the quality of machines available and
workers’ skills. Speed of delivery and effective management are also important
factors.
A company can improve output per worker by investing in better equipment,
training its staff, and improving the management of workers.
Also, if workers know there is concern for their well-being, output per head can
improve significantly.
The company will be initially spending money in the short term if it aims to boost
productivity. However, over the long term, it will be worth it when production per
unit of input per day rises.
We can express productivity as the ratio of output to inputs we use in the process
of production minus output per unit of *input.
* Input is something that we put into a system to achieve output. For example,
power to drive a machine and the machines themselves are items of input. Input
also includes the workers.
Idle time, time during which workers or machines are not producing, can
significantly reduce a company’s rate of production.
Productivity is what matters

It is what really matters when looking at the production performance of nations and
companies. When output per worker, for example, rises so do living standards.
Living standards rise because a greater level of real income improves individuals’
ability to buy goods and services.
With more income people, can enjoy better leisure, education, housing, and
contribute to social and environmental programs.
As far as businesses are concerned, greater output with the same inputs helps them
become more profitable.
Why is productivity important?
Productivity gains are crucial for an economy because they allow people to achieve
more with less. It also allows them to achieve more with the same available
resources.
Two vital resources in the production process are scarce – labor and capital.
Therefore, maximizing their impact will always be a core concern of businesses.
Economists measure and track productivity because it provides an important clue
to predicting future GDP growth levels.
What is Gross Domestic Product (GDP)?

Gross domestic product (GDP) is one of the most widely used indicators of
economic performance. GDP measures a national economy's total output in a
given period.
GDP measures the monetary value of goods and services produced within a
country's borders in a given time period, usually a quarter or a year. 
SOURCES OF GDP:
1.Personal Consumption Expenditures
2.Business Investment
3.Government Spending
4. Net Exports

Importing is the purchase of goods from a foreign country while exporting is when
a country sells goods to another country.

What is import example?

An import is any product that's produced abroad and then brought into another
country. For example, if a Belgian company produces chocolate and then sells it in
the United States that would be an import from an American perspective.

How import and export affect the economy?

Those exports bring money into the country, which increases the exporting nation's
GDP. When a country imports goods, it buys them from foreign producers. The
money spent on imports leaves the economy, and that decreases the importing
nation's GDP.

Relationship between GDP and exports

When a country exports goods, it sells them to a foreign market, that is, to
consumers, businesses, or governments in another country. Those exports bring
money into the country, which increases the exporting nation's GDP.

Does exporting affect GDP?

Maintaining the appropriate balance of imports and exports is crucial for a

country. The importing and exporting activity of a country can influence a
country's GDP, its exchange rate, and its level of inflation and interest rates.

When there are too many imports coming into a country in relation to its exports
—which are products shipped from that country to a foreign destination—it can
distort a nation’s balance of trade and devalue its currency. The devaluation of a
country's currency can have a huge impact on the everyday life of a country's
citizens because the value of a currency is one of the biggest determinants of a
nation’s economic performance and its gross domestic product (GDP).
Maintaining the appropriate balance of imports and exports is crucial for a
country. The importing and exporting activity of a country can influence a
country's GDP, its exchange rate, and its level of inflation and interest rates.

TRADE SURPLUS

A trade surplus contributes to economic growth in a country. When there are more
exports, it means that there is a high level of output from a country's factories and
industrial facilities, as well as a greater number of people that are being employed
in order to keep these factories in operation. When a company is exporting a high
level of goods, this also equates to a flow of funds into the country, which
stimulates consumer spending and contributes to economic growth.

TRADE DEFICIT
A trade deficit is a situation in which a country imports goods worth more than the
value of the goods that it exports

How does trade deficit affect the economy?

A trade deficit reduces the incomes of domestic workers, pushing many into lower
income brackets. Families with lower incomes generally find it much harder to
save. Therefore, increasing trade deficits can and do reduce national savings.

II. Assessment:
1.Which of the following is an input in the production process

A. Money B. Labor C. Added Value D. Packaging

2. Production can be define

A. how efficiently inputs are changed into outputs
B. the process of changing goods into services
C. the process of changing inputs into outputs
D. how efficiently inputs are used.

3.A firm employs 40 workers. The average weekly output is 10 000. The average weekly
labour productivity is:
A. 40% B. 20% C. 100 D. 250

4. One way of improving labor productivity is to:

A. employs more people
B. replaces machines with employees
C. reduce spending on training of employees
D. invests in new technologies.

5. Which of the following best describes quality?

A. The service provided to a customer before, during and after purchasing.

B. Products being made to a high standard to meet customer needs.
C. High level of productivity.

6. WHAT ARE THE 4 FACTORS OF PRODUCTION?

A. Land, Capital, Need & Want
B. Land, Labor, Capital, Entrepreneurs
C.Water, Air, Food & Shelter
D.Land, Capital, Good & Service

7. WHAT IS LABOR?
 A. work people do for pay to produce good and services
B.actions people do for other people
C. any physical object
D. The money people get for inheritance

. 
8. _______________ IS KNOWN AS THE NATURAL RESOURCES USED TO PRODUCE
GOODS AND SERVICES

A. Entrepreneurs B. Capital C. Labor D. Land

. 
9. _______________ IS KNOWN AS THE MANMADE RESOURCES USED
TO PRODUCE GOODS AND SERVICES.
A. Entrepreneurs B. Capital C.Labor D.Land

10. AN ENTREPRENEUR IS A PERSON WHO _______________.

A. owns his own business
B. uses goods and services to produce labor, land, and capital.
C. use land, labor, and capital to produce good and services.
D. loves nature and runs a business

11. The term used to describe the way a nation provides for the needs and
wants of its people
A. resources
B. economy
C. factors of production
D. Infrastructure

12. Land, labor, capital, and entrepreneurship

A. Economy
B. Infrastructure
C. Factors of production
D. Capital
. 
13. Everything contained in the earth or found in the sea ex: coal and crude oil
A.  Land B. Labor C. Resources D. Infrastructure

14. The goods used in the production process such as factories, machinery and equipment
A. Land B. Labor C. Resources D. Capital

15. The people who work in both the public and private sector
A. Land B.  Labor C. Entrepreneurship D. Capital

16. The skills of people who are willing to invest time and money to run a business
A. Labor B. Land C. Capital D. Entrepreneurship 
17. The definition of TRADE is __________________.
A. Importing goods
B. to buy or sell goods or services
C. Exporting goods

18. Export means...

A. to get rid of the goods you don't need.
B. sending a product to another country for sale.
C. to get more goods to be able to make more money.
D. bringing a product into a country to be sold.

19. Import means

A. buying goods from another country
B. selling goods to another country
C. only making one kind of product. 

20. Watches made in Norway are worn by people in California.

A. import  B. export

21. Tires made in Tennessee factories are used on cars in Europe.

A. import B. export
 
22. Diamonds found in South Africa are used to make rings in Maine.
A. import B. export

23. What is a trade deficit?

A. When the value of exports exceeds the value of imports

B. when the value of imports exceeds the value of exports
C. when the values of imports and exports are equal
D. when the value of imports for one nation is greater than the value of imports
for another nation

24. What is a trade surplus?

A. when the value of exports exceeds the value of imports
B. when the value of imports exceeds the value of exports
C. when the values of imports and exports are equal to each other
D. when the value of money greater than the amount of goods and services imported

25. The situation that exists when exports exceed imports.

A. Trade Deficit B. Trade Surplus C. Imbalance of Trade

26. The situation that exists when imports exceed exports.

A. Trade Deficit B. Trade Surplus C. Imbalance of Trade

27.  The difference between imports and exports

 A. Balance of Payments B. Balance of Trade C. Imbalance of Trade

28. The difference in the value of imports and exports

A. Balance of Trade B. Balance of Payments C. Imbalance of Trade
. 
29. If a country has a negative balance of trade, that means .....

A. More money is going out of the country

B.More money is coming into the country
C. The amount of money going out of the country and coming into the country is equal

30. Which BEST describes GDP?

A. It is a measure of what is happening to prices in an economy

B. GDP  measures how much is produced in an economy in a given time period
C. It is the data used to determine how many people are employed
D. GDP is used to determine the inventories of businesses around the us

31. Business spending on physical capital, new homes, and inventories is counted
in which component of GDP?

A. Consumption B. investment C. government spending D. imports-exports

32. The total dollar value of all final goods and services produced within the
country’s border in a given year.  This measure includes inflation.

A. Gross National Product (GNP)

B. Gross Income Measure (GIM)
C. Nominal Gross Domestic Product (GDP)

33. Gross Domestic Product (GDP) is the total market value of all domestic:
A. commodities sold in a year.
B. services produced in a year.
C. production during a year.
D. consumer goods sold during a year.

34. Which of the following concepts is the opposite of inflation?

a. Deflation
b. Stagflation
c. Recession
d. None of the above

35. When the price levels of goods and services are falling continuously, this phenomenon
is called _________.
 a. Deflation
b. Stagflation
c. Inflation
d. None of the above

II. ESSAY:

1. Differentiate each of the following:

a. GNP and GDP
b. Inflation and Deflation
c. Favorable Balance of Trade and Unfavorable Balance
d. Productivity and Profitability

2. Discuss the impact on the economy in each of the following:

a. Inflation and Deflation

b. Favorable Balance of Trade and Unfavorable Balance