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What is Economic Output?

2017-05-03T13:56:48+00:00

The term 'Economic Output' is included in the Economics edition of the Financial Dictionary. Get yours now on amazon in ebook or paperback format. Read more here...

Economic output refers to the amount of goods and services which a nation, industry, or company creates over a set time period. These might be utilized in later stages of production, traded, or otherwise consumed. The idea surrounding national economic output is a critical one in the world of economics. This is because economists opine that it is not enormous quantities of money which truly make nations wealthy, but rather their national output amount.

Other phrases that analysts and economists often use interchangeably with economic output include output and gross output. This should not be confused with GDP Gross Domestic Product. Value which is added on a national scale is the definition of GDP ultimately. On a local level, this is often called gross regional product or even gross area product. While the two ideas of GDP and output bear some similarities, they are not identical. Both concepts do measure the productivity economically of a particular nation or region for a given time period.

Economic output itself quantifies the total value for all services and goods. The problem with this idea is that it involves a double counting of all intermediate purchases. Looking at an example of this dilemma helps to clarify the issue at hand. If a furniture maker purchases its wood directly off of a saw mill at $150, they might then increase the value of it to $450 by creating an article of furniture. The output involved would be measured as $600. This represents all value in every sale involved for this particular chain of economic activity. The problem is that this method includes the wood value two times. It becomes doubly counted when it is the intermediate stage good and again in the final price or value for the article of furniture.

GDP on the other hand concentrates on only the services’ and goods’ additionally added value. Another way of defining this lies in the economic output minus the intermediate inputs included. When economists take out the goods’ value which already came through the market once before, it allows for a more accurate assessment regarding the output. The strict GDP formula is then GDP equals the gross output minus the intermediate inputs. In the example above with furniture, the GDP equaled up to merely $450 because the formula takes out the $150 in wood inputs from the final sales price of $600.

In the real world, the overwhelming numbers of companies produce products which they make utilizing many materials that go through a few different suppliers hands in the production process. Each supplier will add its own value. Only in the end would this value be tallied into the cost of the ultimate product. The important take away from this is that there is a significant difference between GDP gross domestic product and economic output.

One of the great economic questions of all time that economists wrestle with pertains to why the national output for a given country will constantly fluctuate, sometimes dramatically. There is no one easy answer on which economists have consensus opinion unfortunately. Instead, economists generally concur that there are a variety of factors which cause output to rise and fall. With growth, the majority of economists can agree on there being three principal sources of economic growth.

These are labor increases, factors of production efficiency increases, and capital increases. This is a two-edged sword though. Growth to the factors of production inputs can also be negative. In fact when any factor leads to a decrease in the efficiency of production, capital, or labor, then the growth rate will subsequently decline. This finally translates to a drop in economic output as well as in GDP.

The term 'Economic Output' is included in the Economics edition of the Financial Dictionary. You can get your copy on amazon in Kindle or Paperback version. See more details here.