Which factor of production is most commonly cited as the primary reason for differences in living standards across countries?

• A. Labor productivity
• B. Natural resources
• C. Physical capital
• D. Land area

Answer: (A)

Verified step by step guidance

1. Understand the concept of factors of production, which typically include labor, capital, land, and entrepreneurship. These are the inputs used to produce goods and services.
2. Recognize that differences in living standards across countries are often explained by differences in output per worker, which is known as labor productivity.
3. Labor productivity measures how efficiently labor input is used to produce output, and it is influenced by factors such as technology, education, skills, and capital available to workers.
4. Compare other factors like natural resources, physical capital, and land area, noting that while they contribute to production, they are not as directly linked to sustained differences in living standards as labor productivity is.
5. Conclude that labor productivity is the primary factor because it captures the efficiency and effectiveness of labor in producing goods and services, which directly impacts income and living standards.