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Productivity measures the volume of output that can be produced by given inputs. It shows the efficiency of the inputs of production like labour and capital. Technology advancement helps in improving productivity.

Productivity helps in assessing the input quality and standards. Higher productivity reduces the cost of production and enables the use the scarce resources more efficiently in the production methods. It allows countries to produce beyond their potential level determined by the given resources. It is the reason why countries invest in R&D activities. As innovations increase productivity and productivity increases income and output.

For example, capital-intensive methods have greater productivity than labour-intensive methods and produce greater output using the same resources and time.