In a developing economy, productivity is measured by the____________

Analyze the question: The question asks how productivity is measured. Productivity is a measure of efficiency: how much output is produced from the inputs used.

Explain the concept:

• Productivity = Output ÷ Input
• Labour productivity = Total output ÷ Number of workers (or labour hours)
• Capital productivity = Output ÷ Capital employed

In developing economies, labour is usually the most abundant factor of production, so productivity is most commonly measured as output per worker, also called the output-labour ratio.

Evaluate the options:

• A. Output-labour ratio: This is output relative to labour employed, the standard measure of labour productivity. ✔
• B. Capital-output ratio: This measures how much capital is needed to produce one unit of output. It is a measure of capital requirement, not productivity, and it is also the inverse of capital productivity.
• C. Output growth rate: This measures the change in output over time, which is economic growth, not productivity.
• D. Output per capital: The wording is poor. It could loosely mean output per unit of capital, but it is not the standard measure for a developing economy. It might also be a typo for "output per capita", which is a measure of average income, not productivity.

Exam tip: Productivity always means output divided by an input. If the option has output on top and labour at the bottom, such as output per worker, it is the usual choice. Watch out for the capital-output ratio, which is the reverse of what you need, and for "output per capita", which relates to income per person.