Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Question
OM
1. Why is high productivity important for a nation?
2. Why do you suppose that service jobs have lower productivity than manufacturing jobs?
3. How can a company gain a competitive advantage by having higher productivity than its competitors have?
Transcribed Image Text:READING
WHY PRODUCTIVITY MATTERS
It is sometimes easy to overlook the importance of productivity. National figures are often reported in the media. They may seem to
be ho-hum; there's nothing glamorous about them to get our attention. But make no mistake; they are key economic indicators-
barometers, if you will, that affect everybody. How? High productivity and high standard of living go hand-in-hand. If a country
becomes more service-based, as the United States has become, if some (but not all) high-productivity manufacturing jobs are replaced
by lower-productivity service jobs, that makes it more difficult to support a high standard of living.
Productivity gains can offset inflationary pressures related to wage increases. Productivity increases result in lower costs per unit.
Those savings not only generate higher profits, they also help pay for wage increases.
Productivity levels are also important for industries and companies. For companies, a higher productivity relative to their competitors
gives them a competitive advantage in the marketplace. With a higher productivity, they can afford to undercut competitors' prices to
gain market share or charge the same prices but realize greater profits! For an industry, higher relative productivity means it is less
likely to be supplanted by foreign industry.
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