15 min read
Mathew Wahome
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
| Level | Description | Examples |
|---|---|---|
| Primary | Extracting natural resources | Farming, mining, fishing, forestry |
| Secondary | Processing raw materials into finished goods | Manufacturing, construction |
| Tertiary | Providing services that support production and consumption | Banking, transport, retail, insurance |
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
- Increases output and productivity.
- Saves time and training.
- Improves quality through skill.
- Encourages invention of machines.
- Reduces costs per unit.
Disadvantages
- Boredom from repetitive tasks.
- Interdependence: a halt in one stage stops production.
- Workers may lose general skills.
- Reduces pride in the finished product.
- Unemployment if machines replace workers.
Limits
- Size of the market.
- Nature of the product (e.g. custom items).
- Availability of capital.