Economic Growth and Sustainability

Published on April 30, 2020

The Production Function

  • The production function in the economy implies the process of producing goods or output with the required inputs or raw materials taking from the economy and returning a finished or semi-finished product. In any of the economy, besides having raw materials and natural resources as the inputs, the production is done using the capital or technology and the cheap factor of production i.e. labour.
  • Businesses and other individual firms use these factors of production and produce the output. In this production of the output, the inputs are required by the firms and in order to make their output beneficial, the firms try and use the lower amount of inputs in order to produce the same output. This is gained by experience.
  • The production function examples are the Cobb-Douglas Production function, Leontief production function, etc. They both consider the two factors of production capital and labour for their models.
    • In economics, Production function = ƒ (Q, K, L, T) where,
    • Q- Quantity/ Output
    • K- Capital
    • L- Labour
    • T- Technology which is kept constant.
  • Through graph:-
This graph shows the production function taking factors of production on the x-axis and the output on the y-axis. The Production function is the function of quantity, capital, labour and technology.
  • So, a production function related to the factors of production used in order to produce a specific amount of output. The production function curve does not shift rightwards or leftwards but if the Technology changes then the curve can shift upwards leading to more output.

Potential GDP

  • Potential Gross domestic product refers to the highest level of output produced in an economy. It does not go hand in hand with the normal GDP as it shows the total amount of the goods and services produced in an economy. Potential GDP is also called as the natural GDP.
  • The potential GDP takes into consideration two main assumptions:-
    1. Aggregate demand must not exceed the Aggregate supply
    2. It assumes full employment level that is unrealistic in today’s world and so the concept is not relevant in most of the countries.
  • The potential GDP is measured by the Congressional Budget Office (CBO) that uses growth forecasts and delivers statistics to check the highest level of goods and services produced in the economy.
  • Potential GDP is also calculated by the fluctuations in the business cycles when there occur the phases of the business cycles in the economy like boom, depression, recession, troughs, etc.

Economic Growth

  • When the production of goods and services increases over a specific period of time in a specific country, this is implied by economic growth. Under economic growth, it is likely that the economic activities and the effects of prices, output and inflation rises or falls and adjusts the path of the economy towards growth.
  • Economic Growth Creates profit for the business Stock prices of the companies rise. This gives incentive to the companies to invest in the market resulting in an increase in investmentsJobs are created Employee promotion and employment generationIncome risesEconomy on the path of growth due to the increase in the per capita income.

Sources of Economic Growth

The sources are:-

Sources of economic growth can be divided into five sources:-

  1. Natural Factors- These factors contribute to the sources of economic growth as the natural factors include the land, water, and the natural or earth raw materials that are used by companies to produce products. Eg: Paper industry, carpenters use timber, woods for houses, e
  2. Human Factors- Human factors are considered to be the most important sources of economic growth as human or labour is the cheapest source of economic growth. With the skilled labour, any industry, firm can bring the best out of all the possible inputs used, also the usage of technology will be efficient with skilled labour. Entrepreneurship is the major reason for economic growth. Introducing young minds in order to show their talents and innovations in the field of business helps the economy grows. Training employees at work would also help the companies to touch high success and lead the economy towards the path of growth.
  3. Physical capital- Physical capital is known to be the capital in kind i.e. machinery, plants, heavy tools, raw materials, etc. All the physically present machines and the heavy plants used for the production process are the physical capital without which production is not possible and the economy cannot grow consequently.
  4. Institutional Factors- Institutional factors play a major role as to increase economic growth. Without proper statistics about the total production, the total amount of profits and the revenue received with the sale of the products the economic growth cannot be measured. So, the institutional factors play an important role too.
  5. Technological Factors- Technology is the most important factor these days for the companies which make their works easier and helps them complete it in less time. Without technology, a company cannot succeed and as a result, an economy cannot grow.


  • Sustainability refers to using the environmental resources in such a way that they do not get depleted and are used by the present generation without compromising with the need of the future generation.
  • It is a broad subject and not only talks about the environment as a whole but also the economy, environment, social aspects, etc. This includes these individual subjects and make up a broad subject having all the aspects related to economics. So, the three-loop structure of Sustainability is:-

Measures of Sustainable Growth

There are five main measures of sustainable growth:-
  1. Usage of technology- Using eco-friendly technology, less wastage and which can be used by the labour will give a great advantage to the companies in order to make them produce products at the optimum level of production.
  2. Reduce, Reuse, recycle approach- This 3R approach helps in reducing the wastage. If wastage occurs too, it helps in removing it by using that waste again in order to produce something new. Hence this helps in saving for the future.
  3. Promoting environmental education and awareness- Making students learn about environment protection practices from the very beginning and indulging them in the activities related to cleaning the environment will make a great change. Introducing new schemes related to the environment helps in maintain the environment also and creating awareness too.
  4. Resource utilization as per carrying capacity- It has two things the supporting capacity and the capacity to tolerate, so the resource utilization is very important for preserving the environment for the future.
  5. Improving the quality of life- It takes into consideration the social, economic and environmental dimensions and helps in improving the quality of life of the poor people as well. They help the needy by taxing the rich. Hence, the quality of life is important for the economy to grow.


  • Any economy in the world needs economic growth and stability to survive. Until there is economic growth, an economy cannot survive, neither the people living can live. To preserve for the future should be the main aim and have sustainability projects developed in the economy to preserve the environment as well as know the economic pace of the economy. An economy should function in such a way that it helps it lead to economic growth and maintain that growth in future too with a sustainable environment.

About me

ramandeep singh

My name is Ramandeep Singh. I authored the Quantitative Aptitude Made Easy book. I have been providing online courses and free study material for RBI Grade B, NABARD Grade A, SEBI Grade A and Specialist Officer exams since 2013.

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