Unit 36 economic growth

In economics, economic growth is defined as the increasing capacity of the economy to satisfy the wants of goods and services of the members of society. Economic growth is enabled by increases in productivity, which lowers the inputs (labour, capital, material, energy, etc.) for a given amount of output.[1] Lowered cost increases demand for goods and services, which also results in capital investment to increase capacity. New capacity is more efficient because of new technology, improved methods and economies of scale. This leads to further price reductions, which further increases demand, until markets become saturated due to diminishing marginal utility. This relationship is known as the Salter cycle.[2][3]

Economic growth is also the result of population growth and of the introduction of new products and services.

The real process generates the real output and the real income of production. Economic growth means the same as the growth of real output. The real process can be described by means of the production function. The production function is a graphical or mathematical expression showing the relationship between the inputs used in production and the output achieved. Both graphical and mathematical expressions are presented and demonstrated.

Production is a process of combining various material inputs and immaterial inputs (plans, know-how) in order to make something for consumption (the output). The methods of combining the inputs of production in the process of making output are called technology. Technology can be depicted mathematically by the production function which describes the relation between input and output. The production function can be used as a measure of relative performance when comparing technologies.

The production function is a simple description of the mechanism of economic growth. Economic growth is defined as any production increase of a business or nation (whatever you are measuring). It is usually expressed as an annual growth percentage depicting growth of the company output (per entity) or the national product (per nation). Real economic growth consists of two components. These components are an increase in production input and an increase in productivity.