The measures used in

economics Economics () is a behavioral science that studies the Production (economics), production, distribution (economics), distribution, and Consumption (economics), consumption of goods and services. Economics focuses on the behaviour and interac ...

are physical measures,

nominal price In economics, nominal value refers to value measured in terms of absolute money amounts, whereas real value is considered and measured against the actual goods or services for which it can be exchanged at a given time. Real value takes into acco ...

value measures and

fixed price A fixed price is a price designated for a good or a service that is neither subject to bargaining nor bartering. The price may be fixed since the seller has placed it, or given that the price is managed by the authorities under price regulati ...

value measures. These measures differ from one another by the variables they measure and by the variables excluded from measurements. The measurable variables in economics are quantity, quality and distribution. Excluding variables from measurement makes it possible to better focus the measurement on a given variable, yet, this means a more narrow approach. The table was compiled to compare the basic types of measurement. The first column presents the measure types, the second the variables being measured, and the third column gives the variables excluded from measurement.

Variables

The measurable variables in economics are quantity, quality and distribution. Measuring quantity in economics follows the rules of measuring in physics. Quality as a variable refers to qualitative changes in the production process. Qualitative changes take place when relative of different constant-price input and

output Output may refer to: * The information produced by a computer, see Input/output * An output state of a system, see state (computer science) * Output (economics), the amount of goods and services produced ** Gross output in economics, the valu ...

factors alter. Distribution as a variable of the production refers to a series of events in which the unit prices of constant-quality products and inputs alter causing a change in

income distribution In economics, income distribution covers how a country's total GDP is distributed amongst its population. Economic theory and economic policy have long seen income and its distribution as a central concern. Unequal distribution of income causes e ...

among those participating in the exchange. The magnitude of the change in income distribution is directly proportionate to the change in prices of the output and inputs and to their quantities. Productivity gains are distributed, for example, to customers as lower product prices or to staff as higher pay.

Physical measure

A physical measure can measure the quantity of a variable with unchanged quality. Using a physical measure provides that the quality of the measurement object has been specified and the quality remains homogeneous. If the presumed unchanged quality is not realized, the measurement gives results which are hard to interpret. In this case, the results are affected by changes in both quantity and quality but in which proportion is unknown. Values of the objects being measured are by no means related to the physical measures, hence, changes in prices do not affect the measurement results. Normally it is not possible to combine physical measures. They are best suited for narrow-focused measurements with neither quality nor value alterations. Therefore, physical measures are best for measuring the real process, and this is why they are used a lot as tools of operative management. Typical ratios in a real process are capacity, efficiencies, lead times, loads, faults, product and process characteristics, etc.

Fixed-price value

A fixed-price value measure is used to measure changes in quality and quantity. True to its name, prices are kept fixed for a minimum of two measuring situations. For this reason, it is possible to define the changes in quality and quantity of a most varied and wide range of commodities, keeping apart the changes in income distribution. Fixed-price measures are suited for wide-ranging measurement because it is possible to combine different commodities based on their value. In a fixed-price measurement, a change in quality means that the relative quantities and relative prices of various commodities change. The best known applications of this are the

productivity Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production proce ...

formula and the

production function In economics, a production function gives the technological relation between quantities of physical inputs and quantities of output of goods. The production function is one of the key concepts of mainstream economics, mainstream neoclassical econ ...

. The production function is always presented with fixed-price ratios, i.e., its variables, productivity and volume, are fixed-price values.

Nominal price value

The most common figures in measuring business are the figures because they can describe the

profitability In economics, profit is the difference between revenue that an economic entity has received from its outputs and total costs of its inputs, also known as surplus value. It is equal to total revenue minus total cost, including both Explicit co ...

of business process. Variables in the nominal price measurement are quality, quantities and distribution (in form of product prices). There are no excluded variables. Nominal price measures of value are suited for measuring profitability and its components as well as the value of reserves.

Return Return may refer to: In business, economics, and finance * Return on investment (ROI), the financial gain after an expense. * Rate of return, the financial term for the profit or loss derived from an investment * Tax return, a blank document or t ...

and costs in the loss and profit statement are typical examples of a nominal price. In short-term reviews with only little production income distribution taking place, nominal price values are well suited for estimates of fixed price values.

References

* {{cite conference , first =S. , last =Saari , title =Productivity. Theory and Measurement in Business , publisher =European Productivity Conference , date =30 August – 1 September 2006 , location =Espoo, Finland , url =http://www.mido.fi/index_tiedostot/Productivity_EPC2006_Saari.pdf , archive-url =https://web.archive.org/web/20071203181947/http://www.mido.fi/index_tiedostot/Productivity_EPC2006_Saari.pdf , archive-date =3 December 2007 , url-status =dead Production economics Price indices

Variables

Physical measure

Fixed-price value

Nominal price value

See also

References