Topic 4: Production

1. Meaning of Production

Production is the process of creating goods and services to satisfy human wants by combining resources (factors of production).

2. Levels (Types) of Production

Also: direct production (for own use) and indirect production (for exchange).

3. Factors of Production

1. Land

All natural resources: soil, minerals, water, forests, climate. Reward: Rent.

• Characteristics: gift of nature, fixed supply, immobile, varies in quality.

2. Labour

Human physical and mental effort used in production. Reward: Wages or salaries.

• Characteristics: perishable, mobile, varies in skill, depends on population.

3. Capital

Man-made resources used to produce other goods (machines, buildings, money). Reward: Interest.

• Characteristics: man-made, depreciates, mobile, and is productive.

4. Entrepreneurship

Organising the other factors and bearing the risk. Reward: Profit.

4. Division of Labour and Specialisation

• Division of labour: splitting production into tasks, each done by a different worker.
• Specialisation: concentrating on one task, product or area.

Advantages

1. Increases output and productivity.
2. Saves time and training.
3. Improves quality through skill.
4. Encourages invention of machines.
5. Reduces costs per unit.

Disadvantages

1. Boredom from repetitive tasks.
2. Interdependence: a halt in one stage stops production.
3. Workers may lose general skills.
4. Reduces pride in the finished product.
5. Unemployment if machines replace workers.

Limits

• Size of the market.
• Nature of the product (e.g. custom items).
• Availability of capital.