Principles of Business

Grade 11
Production

TYPES OF PRODUCTION

Definitions are important in Principles of Business; therefore, before a discussion of this

topic will first define the term ‘production.’ Production refers to the combining of the
factors of production to create goods and services to satisfy people’s wants. The types
(stages) of production should not be confused with the levels of production.

The levels of production classify the amounts of goods and services produced under three
different headings: subsistence, domestic and surplus/export levels. These levels of
production will be considered next week.

When we produce, the activities carried out fall under different headings known as the
stages, types or branches of production. Production can be placed under three or four
such stages, types or branches.

The Three Stages of Production

(a) Primary Production

The industries involved in primary production are known as extractive industries. This is
the raw material stage of production. Raw materials are extracted from the environment.
Examples of primary production includes: mining, fishing, lumbering, quarrying,
agriculture etc. In the Caribbean region agriculture is an important primary activity. Most
Caribbean countries produce sugar cane, bananas, and a variety of fruits.

(b) Secondary Production

Secondary production is also referred to as the manufacturing and construction stage of
production. Secondary production cannot take place without primary production. This
stage of production involves putting the raw materials extracted at stage one (1) together
to make finished or semi-finished goods. It also includes all kinds of construction work.
Examples of manufacturing include: sugar cane to rum, bauxite to aluminum, lumber to
furniture, and coffee beans to coffee etc. Construction involves: construction of houses
and other buildings and the construction of roads, bridges etc.

(c) Tertiary Production

The third stage of production is also called the service stage of production. It involves the
provision of indirect ( impersonal) and direct (personal) services. The indirect services
are all those used to distribute the goods produced in the secondary stage of production.
These services include, those of the wholesaler, retailer, importer, exporter, insurance,
transportation etc. The direct services include the services of doctors, nurses, teachers,
hairdressers, plumbers, electricians etc. In the Caribbean tourism is an important area
under tertiary production. The personal touch provided to our visitors earns us the much-
needed foreign exchange.

The Four Stages of Production

When considering four (4) stages of production, the primary stage is the same as when
considering three (3) stages. However, the secondary stage will involve only
manufacturing and not manufacturing and construction. Construction will fall under the
tertiary stage and all services, direct and indirect will fall under the fourth stage, known
as the quaternary stage.p

With the information discussed on the three (3) stages of production you can construct a
similar diagram to the one above? Your steps will begin with primary and end with
tertiary.

Most production in the Caribbean region falls under the primary stage of production.
Some production will be secondary and a small amount tertiary. In countries that are
more developed than those in our region, the majority of productive activity is under the
manufacturing, construction and service stages. The implications of this is that primary
production does not earn much income for a country, whereas, manufacturing,
construction and service industries earn much more income than primary producing
industries. Therefore, countries in the Caribbean region need to concentrate on
developing activities that fall under the stages beyond the primary stage of production.

The Levels of Production

The term levels of production refers to the amount that is produced. It is a way of
classifying production. The amount that is produced or the level of operation of
production of a country is affected by the resources available and the extent to which a
country is able to exploit the resources available.
There are three main levels f production:

1. Subsistence Production (Traditional Production)

When a country is producing at the subsistence level, it is producing the amount that is
only able to meet the basic needs of the country. This level of operation enables the
country to survive, but it is not enough to improve their standard of living or their way of
life. At this level of production, the country has little or no surplus production. What little
surplus there is, is exchanged locally in the market places.
Subsistence production is usually found where agriculture is the main economic activity.
Agriculture however, is affected by drought and other climatic problems. Though this
level of production is not common today, it can still be found in some very poor
countries, where the way of living is simple such as parts of Bangladesh and rural
communities of Africa, Asia and Latin America. There are also tribes in the Amazon
forest who still produce at this level.
Although this level of production is not very efficient and requires many hours of hard
work, a major advantage is that where it is practiced, self-sufficiency is evident.

2. Domestic Production (Local Production)

This level of production involves the quantity that is produced locally by a whole nation
using the resources of the country available to them. Thus, it does not include any
imports from foreign countries. The economy is dependent therefore on what it produces.
This level of production tends to produce a definite surplus, which results in exchange
locally, and so there is a lot more commercial activity than there is at the subsistence
level of production.
The governments of many developing countries, including those in the Caribbean region
encourage domestic production in order to foster self-reliance. However, many find
themselves in the position where though self-reliance is desirable, they have to import
goods and services to supplement what is produced, depriving local producers of a
market. Many developed countries such as the U.S.A. try to grow all the food they need
because they have the natural and human resources to be able to do so.

3. The Export Level of Production (Surplus Production)

This level is also known as cash-crop economy. Countries that produce at this level are
usually the ones that have many resources and advanced technology e.g. U.S.A., Britain
and Germany. Such countries are not only able to satisfy domestic demands, but are also
able to produce a surplus which can be exported to other countries and earn foreign
exchange. They are thus able to experience a better quality of life than countries at lower
levels of production.
The various Caribbean territories are at different stages in the development of their levels
of production. Still, most CARICOM countries, if not all, produce sugar and at least one
fruit at the export level and none operate at the subsistence level for the entire economy.

Your task this week is to:

(a) define ‘production.’(2 marks)
(b) Explain what is meant by ‘stages of production.’ (2 marks)
(c) classify the following areas of production under the appropriate stage (use three
stages of production)
(i) bauxite
(ii) lumbering
(iii) coffee processing
(iv) nursing
(v) selling
(vi) building a school
(vii) constructing a road
(viii) harvesting cotton
(ix) making pots
(x) dentistry (10 marks)
(d) Discuss the interdependence of the primary, secondary and tertiary stages of
production. (6 marks)

TOTAL MARKS: 20