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Components of the aggregate production function

Economists construct different production functions depending on the focus of their studies. [link] presents two examples of aggregate production functions. In the first production function, shown in [link] (a), the output is GDP. The inputs in this example are workforce, human capital, physical capital, and technology. We discuss these inputs further in the module, Components of Economic Growth.

Aggregate production functions

The first illustration shows that workforce, human capital, physical capital, and technology produce GDP. The second illustration shows that human capital per person, physical capital per person, and technology per person produce GDP per capital.
An aggregate production function shows what goes into producing the output for an overall economy. (a) This aggregate production function has GDP as its output. (b) This aggregate production function has GDP per capita as its output. Because it is calculated on a per-person basis, the labor input is already figured into the other factors and does not need to be listed separately.

Measuring productivity

An economy’s rate of productivity growth is closely linked to the growth rate of its GDP per capita, although the two are not identical. For example, if the percentage of the population who holds jobs in an economy increases, GDP per capita will increase but the productivity of individual workers may not be affected. Over the long term, the only way that GDP per capita can grow continually is if the productivity of the average worker rises or if there are complementary increases in capital.

A common measure of U.S. productivity per worker is dollar value per hour the worker contributes to the employer’s output. This measure excludes government workers, because their output is not sold in the market and so their productivity is hard to measure. It also excludes farming, which accounts for only a relatively small share of the U.S. economy. [link] shows an index of output per hour, with 2009 as the base year (when the index equals 100). The index equaled about 106 in 2014. In 1972, the index equaled 50, which shows that workers have more than doubled their productivity since then.

Output per hour worked in the u.s. economy, 1947–2011

The graph shows that output per hour has steadily increased since 1960, when it was $32, to 2014, when it was $106.148.
Output per hour worked is a measure of worker productivity. In the U.S. economy, worker productivity rose more quickly in the 1960s and the mid-1990s compared with the 1970s and 1980s. However, these growth-rate differences are only a few percentage points per year. Look carefully to see them in the changing slope of the line. The average U.S. worker produced over twice as much per hour in 2014 than he did in the early 1970s. (Source: U.S. Department of Labor, Bureau of Labor Statistics.)

According to the Department of Labor, U.S. productivity growth was fairly strong in the 1950s but then declined in the 1970s and 1980s before rising again in the second half of the 1990s and the first half of the 2000s. In fact, the rate of productivity measured by the change in output per hour worked averaged 3.2% per year from 1950 to 1970; dropped to 1.9% per year from 1970 to 1990; and then climbed back to over 2.3% from 1991 to the present, with another modest slowdown after 2001. [link] shows average annual rates of productivity growth averaged over time since 1950.

Questions & Answers

definition of choice?
Anick Reply
it refers to the act of selecting one alternative from the other
Donfack
State and explain three advantages and two disadvantages of capitalist economic system
Ghislain Reply
What is cross elasticity of demand
Justice Reply
Is a demand in which the of goods change over time.
Shadrick
How can I join
Shadrick
join what?
Castino
it measure the extend in which the quantity demanded of a good respond to change in price of other good.
Donfack
refers to sensitivity of quantity demanded in change of price of commodity
Daniel
meaning of PPP
OBANYI
What is balance of payments
Bah Reply
what are free good
Maillot Reply
how do you determine price change
Matri Reply
what is economics?
Yaya Reply
what is economic
Nana Reply
Economics is the study of how Individual consumer, institution and society as a whole uses its available finite resources to satisfy infinite needs and wants
Richard
Explain the following concepts using suitable exemple. 1) National budget. 2) National debt
Rosalie
what is international trade
BOBO Reply
other things remain constant.
Esale Reply
explain scarcity
Richard Reply
scarcity occurs when there are not enough resources to satisfy human's needs and wants therefore we need to allocate our resources using the price mechanism.
Isha
scarcity is when there is inadequate resources to catch the unlimited wants which would compel individual to make choice.
Prince
scarcity simply means when there's a shortages of resources to satisfy Hunan's need and wants in a particular time, which means the demand for it at the moment is higher than the supply
Abu
scarcity simply means when there's a shortages of resources to satisfy humans need and wants in a particular time, which means the demand for it at the moment is higher than it supply.
Abu
😂😂😂
Isha
That escalated real quick😂
Isha
scarcity is sometimes considered as the basic problems of economics resources r scarce because we live in a world of humans in which wants are infinite but the land labor and capital r required to satisfy those wants are limited
Nkwenti
scarcity means unlimited resources
Rena
resources are limited but human wants can not be limited
Himanshu
joint or complementary demand
Ryt Reply
what is demand
Qudus Reply
it maybe define as the amount or quantity of goods and services which a consumer is willing to buy with the ability to pay at a given price at a particular time
Habib
yesoo thanks dear
Gyamfua
Explain 3 reasons why the manufacturer may decide to sell directly to the consumers
Rosalie
reasons: 1.direct contact with consumer 2.he can fix his own prize to the commodity 3.he get the actual profit without the help of middle man
And
right
parvez
why is economics a science
Isaac Reply
Because science is all about thinking by making models whether a computational or Mathematical. Economics is a social sciences because it effects society but to understand Economics we use maths so it is a Science
Amit
hi
Mony
hello
Amit
I hope.......Economic is social science because it makes new new currency of money,it is decided the country’s depend system and the system be repeated others benefits in our ...
Anik
yeah
Habib
so what is the disadvantages of mix economic system
Habib
Economics is regarded as a social science because it uses scientific methods to build theories that can help explain the behaviour of individuals, groups and organisations.
Ali
The question is: why is Economic a "science" and not why is economics a "social science?" Alright folks?
Xavier
In my own understanding of why economics is a science it bcz it deals mainly on human resources just like biology that deals in the human body why economics is science it also deals on the management of human resources all over the world bcz without economics there will be no human resources
Ogbonnaya
what is technology
Nkwenti
my response to the earlier question is, economics is a science but not a pure science like biology, chemistry and physics. The reason is that those pure science study inanimate object while economics study human being, their experiment are predictable.
raimi
Economics is a social science subject that shows the relationship between ends and scarce means with their alternative uses
Ajenifuja
what is Equilibrium?
Fatima Reply
it means equal price and equal quality
Arthur
thank u Arthur!
Fatima
😇🙏
Fatima
Thanks
Moses
Equilibrium is a state of balance in an economy. In as far as market forces are reasonably concerned, equilibrium means the state at which the quantity of goods supplied is equal to the quantity of goods demanded.
Xavier
what is labour
Ayham
labor can be define as a both physical and mental effort of man put forward towards production
Habib
name the types of demand and explain any two
ALIMAMYISLA
Joint demand Composite demand Competitive demand
Ajenifuja
Labourcan be defined as man mental and physical exertion
Ajenifuja
equilibrium is a state of balance especially between opposing forces or influences
Nkwenti
equilibrium means the state of point in which a person is satisfied and after that point if that person consumes more than the satisfaction level will decrease.
Himanshu
Equilibrium is a state of balance in and economy. that mean equal privé and equal quality e.t.c.
Rosalie
Equilibrium is a situation in which economic forces such as supply and demand balance and in the absence of extremal lnfiuences the values of economic variables will not change.
Gyamfua

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Source:  OpenStax, Principles of economics. OpenStax CNX. Sep 19, 2014 Download for free at http://legacy.cnx.org/content/col11613/1.11
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