4.1.4

• define productivity

  output per unit of input
• define production

  the process of turning inputs into outputs
• define specialisation 


  focusing on a narrow range of tasks
• what is the division of labour

  different workers focus on performing different tasks in the course of production
• what is meant by exchange

  to give something in return for something else
• what is the medium of exchange

  a commonly accepted method of payment that allows for goods to be traded without barter (often cash)
• how can specialisation increase productivity

  it can improve skills needed for production

  this makes production quicker

  leads to less waste / better quality
• how can specialisation be a bad thing

  it can lead to boredom/ motivation problems within the work force
• what is meant by a double coincidence of wants

  two people have gods they are both happy to swap in exchange
• why does specialisation require a medium of exchange

  when specialisation occurs trade is required so a medium of exchange is needed to facilitate this
• why does productivity matter

  increases international competitiveness

  better use of scarce resources

  increases productive capacity

  decreases cost per unit - can lead to a fall in prices for consumers
• how can productivity be improved

  labour

  specialisation

  quality of labour (education)

  motivation of labour

  enterprise

  organisation of labour

  land

  selection of land

  using fertilisers

  capital

  quality of the tech
• state the law of diminishing marginal returns

  adding a variable factor of production to a fixed factor of production will eventually lead to marginal returns falling
• explain diminishing marginal returns

  initially increasing variable factors leads to increasingly large increases in outputs. this is a increasing marginal returns and happens due to a n increase in productivity caused by a division of labour and specialisation.

  however in the long run due to a fixed factor of production productivity falls. this means eventually output will increase by smaller and smaller amounts in other words a marginal returns will diminish.
• Diagram for dmr 


  pls
• what is meant by the short run

  when one factor of production is in fixed supply
• what is meant by the long run

  when its possible to alter all fcators of production
• what is meant by returns

  output
• what is meant by marginal returns

  the increase in output when one more factor of input is added
• what is an average return 


  total output divided by the number of workers
• what is the long run production theory

  returns to scale
• what is needed for returns to scale

  investment in all factors of production
• what does the type of return to scale depend on

  the extent to which scale improves productivity
• what are the 3 types of returns to scale

  decreasing

  constant

  increasing
• define decreasing returns to scale

  where an increase in the scale of all factors of production leads to a less than proportionate increase in output
• define constant returns to scale


  where an increase in the scale of all factors of production leads to a proportionate increase in output
• define increasing returns to scale


  where an increase in the scale of all factors of production leads to a more than proportionate increase in output
• give factors that can influence whether scale is increasing or decreasing

  if using a modern level of technology returns are lielky to be increasing

  if using an efficient production process through specialisation and division of labour scale is likely to be increasing

  the opposite may cause decreasing returns to scale
• what problems can be caused by increasing scale (can lead to decreasing returns)

  communication

  coordination

  control

  these all become harder leading to a greater likelihood of inefficiency
• define cost

  an amount of money that a business spends to make a product or provide a service
• what is a fixed cost

  costs of production that do not change when the number of products made does
• what is a variable cost

  costs of production that vary when the number of products made changes
• what is total costs 


  fixed costs + variable costs
• what is meant by average total cost

  total cost divided by output (unit cost)
• what is marginal cost 


  the change in total costs that result from producing one additional unit of output
• what is the relationship between productivity and average total costs

  ceteris paribus when productivity rises costs per unit fall
• draw the costs curve

  insert here
• explain the shape of marginal cost curves

  initially

  production increases from low outputs by adding factors of production

  productivity increases due to specialisation and division of labour

  productivity rising means that the cost t produce one more unit falls as output rises

  eventually

  increases production from high levels of output

  this leads top problems with productivity due to fixed factors of production

  decreasing productivity means that the cost to produce one more unit increases
• what is the long run cost theory

  economies and diseconomies of scale
• define economies of scale

  a proportionate saving in costs gained by an increased level of production