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The fraction of outputs to one or more inputs is known asproductivity. The output is the product i.e., goods or services andthe inputs are labor, capital and management. The production systemis the system through which the inputs are transformed intooutputs.

When the efficiency of the production system increases, then theproductivity is said to be improved. Efficiency increases whenthere is optimum utilization of the available resources in theproduction of goods and services. Thus, we can say that improvedproductivity reduces wastage and produces high quality productswith the minimum use of resources. High production does not meanincreased productivity. High production may be due to increase inthe inputs but high productivity will result from reducing inputs.It is very important to increase productivity because the standardof living of the people of a country can be improved only byimproving productivity.

Productivity can be improved in two ways:

1. The output remains the same and the inputs are reduced,or

2. The inputs remain the same and the output is increased

When the inputs increase and the output remain the same, theprices of the products rise. The same is the case when inputs andoutputs increase proportionately. When outputs decrease and inputsremain the same, there is decrease in productivity.

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Thus, productivity increases when inputs decrease while outputsremain the same.