SUBJECT: PRINCIPLES OF BUSINESS
Topic:- Production
OBJECTIVES:
Students should be able to;
• Define production
• Differentiate the levels of production
• Identify the factors of production
• Classify the types of production
• Explain the importance of productivity
CONTENT SUMMARY
• Production:
• The is the creation of goods and services which satisfy human wants
and needs and for which people are prepared to pay a price.
• Levels of production: basically describes the manner in which
people’s wants and needs are satisfied.
1. Traditional
2. Domestic
3. surplus
LEVELS OF PRODUCTION
• Traditional production / subsistence level of production: is a
situation in which people in the past sought to provide for their basic
survival, no more and no less.
• Domestic production / local production: uses local inputs of
land, labour, capital and enterprise. It involves goods and services
produced with local resources and helps to cater for at least the basic
needs of a population. This level of production is important because it
enables a country to rely on its own resources rather than importing
from other countries.
• Surplus / export: is produced over and above the domestic needs of a
country and is a feature of mature or developed economies. Where local
needs are satisfied and there is sufficient to export to other countries.
FACTORS OF PRODUCTION
• Factors of Production: the resources required to produce
goods and services to satisfy human wants and needs.
• Types of factors of production
• Land or natural resources
• Labour or human effort
• Capital or manufactured (man-made) resources
• Entrepreneurship or enterprise.
LAND AS A FACTOR OF PRODUCTION
• Land or natural resources: along with the earth’s surface, any
natural resource below the earth or above is regarded as land. When
land is used to produce goods and services, it becomes a factor of
production and must be paid for.
• The reward for land is rent.
• E.g. fish, oil and mineral deposits below the surface and trees, air,
sunlight, rivers, fruits and crops above ground are considered as land.
• Land can be considered as renewable resources and non-renewable
resources.
LABOUR AS A FACTOR OF PRODUCTION
• Labour: maybe defined as human effort of any kind. This includes
skilled, semi-skilled & unskilled, manual & non-manual labour. An
individual is considered as a unit of labour only when they are employed,
or willing and able to be employed.
• Skilled labour: is when an individual has training and ability in a
particular field, e.g. auto mechanic or electrician.
• Unskilled labour: is when an individual has limited training and little
or no ability, e.g. someone who dig trenches. Manual labour incudes
construction workers whereas, non-manual labour includes an office
clerk.
CAPITAL AS A FACTOR OF PRODUCTION
• Capital: as a factor of production describes resources that are necessary for the further production
of consumer goods and services.
• Characteristics
1. Capital goods can be used in the production of other goods and services.
2. It is man-made.
3. It is not used up immediately in the process of production.
• Types of capital
Physical capital comprising of fixed capital & working capital.
• Fixed capital does not change its physical form in the production process & is long lasting. E.g.;
buildings & machinery
• Working capital changes during the production process. E.g. raw materials, plant, seeds, fertilizer,
etc.
Financial capital refers to the money capital which a company uses to run its day-to-day
operations. It consists of loan capital and share capital.
Social capital are private and public investments. E.g. house buildings, gov’t expenditure on roads,
bridges, airports, ports & power supply.
TYPES OF PRODUCTION
Types of production
• Extractive or primary sector
• Construction or secondary sector
• Manufacturing or secondary sector
• Service or tertiary sector
EXTRACTIVE OR PRIMARY SECTOR
• Extractive or primary sector: is concerned with extraction of
basic resources or raw materials from land (i.e. sea, earth,
atmosphere) which are the converted to goods & services. E.g.;
• Oil drilling
• Aluminum mining
• Banana cultivation
• Forestry
CONSTRUCTION OR SECONDARY SECTOR
• Construction or secondary sector: this sector
converts the raw materials obtained in the primary sector
into capital or consumer goods. It is mainly concerned
with manufacturing or processing raw materials.
SERVICE OR TERTIARY SECTOR
• Service or tertiary sector: is the link between the
manufacturer & the consumer. It can be divided into
direct & indirect services.
• Indirect services; provide the means by which goods and
services change ownership from producer to consumer.
• Direct services; are demanded for their own sake. E.g.
health, education, haircuts, plumbing etc.
PRODUCTIVITY
• Productivity
• Productivity is a measure of how rewarding a factor of production is in terms of output
produced.
• Productivity of labour is defined as the measure of output per person or unit of input.
• Output is defined as the total amount produced over a given period.
Benefits of high productivity
• A lower cost of goods lowers their price and they become affordable, increasing the
standard of living.
• Lower prices mean more competition, which is beneficial to the consumer.
• Greater productivity also promotes a healthy attitude towards work (called the ‘work ethic’)
and we can therefore become self-reliant.
• If demand for cheap, good-quality local goods is steady, then employment in these
industries remain steady.
• Increased productivity enables higher wages to be paid.
• Productivity in all sectors leads to long-term growth.
FACTORS OF PRODUCTIVITY
• Factors of productivity
• Level of education and training: this will determine how easy someone is to train. A
trained worker works faster.
• The amount and quality of capital: this will determine how fast the job gets done, e.g tools
and equipment available to the labour force.
• Working conditions: if conditions are ideal, such as more space, air conditioning etc,
output will improve.
• Motivation: if there is an incentive, e.g. a bonus, a worker will work harder for the reward.
• Good management: if the managers are able to place the correct worker in a job, or
organize the company so that the level of production increases with each worker,
productivity should rise.
• Attitude to work: if a worker has ambition or has an honest attitude to work, this work
ethic increases productivity; punctuality and low absenteeism are examples of behaviour
that results from good attitudes.
• Health of the workforce: a healthy worker produces more than another worker who is
unhealthy.
