CHAPTER 4: PRODUCTION

4.1 MEANING OF PRODUCTION

Production refers to the creation of goods and services to satisfy human wants.
It also involves the transformation of raw materials into finished goods and their distribution to final consumers.
In simple terms, production is the creation of utility.

Production is not complete until goods and services reach the final consumer.

All goods and services must have utility, meaning they must be able to satisfy human wants.

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4.2 CLASSIFICATION OF PRODUCTION

(As shown in the diagram structure)

4.3 CLASSIFICATION OF PRODUCTION

Production is grouped into two major categories:

1. Direct Production
2. Indirect Production

1. Direct Production

Direct production is when an individual produces goods and services mainly for family use.
The goods are not for sale, and family labour is usually used.
It is carried out on a small scale.

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2. Indirect Production

Indirect production refers to producing large quantities of goods and services mainly for sale or exchange.
It involves modern equipment and skilled labour.

Indirect production is divided into:

(i) Primary Production

This is the extraction of raw materials from nature.
It forms the foundation for other types of production.

Examples:

• Agriculture
• Mining
• Fishing
• Lumbering

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(ii) Secondary Production

This involves converting raw materials or semi-finished goods into finished products.
It includes manufacturing and construction.

Examples:

• Car production
• Building construction
• Road construction
• Food processing

(iii) Tertiary Production

This deals with providing commercial and professional services to consumers.
It ensures the distribution of goods produced at the primary and secondary stages.

Examples:

• Wholesalers
• Retailers
• Transporters
• Bankers
• Teachers
• Doctors
• Lawyers
• Hairdressers

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4.4 FACTORS OF PRODUCTION

Factors of production are resources and agents combined to make production possible. They are:

1. Land
2. Labour
3. Capital
4. Entrepreneur

1. LAND

Land is a free gift of nature.
It includes natural resources such as forests, rivers, mineral deposits, and oceans.
The reward for land is rent.

Characteristics of Land

a. Land is immobile
b. Land is a free gift of nature
c. It is indestructible
d. Supply of land is fixed
e. Quality and value vary from place to place

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Importance of Land

Land is needed for:

• Farming
• Livestock rearing
• Fishing
• Wildlife conservation
• Residential buildings
• Collateral security
• Source of minerals
• Construction purposes

2. LABOUR

Labour refers to all human efforts (mental and physical) used in production.
The reward for labour is wages and salaries.

Types of Labour

1. Unskilled labour – little or no education; uses physical strength
2. Semi-skilled labour – basic training; moderate skills
3. Skilled labour – high education and training e.g. doctors, engineers

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Characteristics of Labour

1. Labour is mobile
2. Labour has feelings
3. Labour is skillful
4. It is a human factor
5. Labour is perishable
6. Labour is unpredictable
7. Labour requires motivation

Importance of Labour

• Provides personnel
• Produces goods and services
• Operates machines
• Other factors depend on labour

3. CAPITAL

Capital is man-made wealth used to create more wealth.
The reward for capital is interest.

Characteristics of Capital

1. Man-made
2. Durable
3. Exists in different forms
4. Can depreciate
5. Encourages large-scale production
6. Promotes division of labour

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Importance of Capital

• Used to start businesses
• Used as collateral
• Used to buy raw materials
• Used to pay wages and salaries
• Used to acquire assets

4. ENTREPRENEUR

An entrepreneur organises, directs, and coordinates other factors of production.
He/she is the risk bearer and business decision maker.
The reward for entrepreneurship is profit (or loss).

Characteristics of an Entrepreneur

1. Risk-taking
2. Controls other factors
3. Decision-making
4. Organizational ability

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Functions/Importance of Entrepreneur

• Provides capital
• Makes decisions
• Bears risks
• Manages business
• Organizes production
• Conducts research
• Determines pricing

4.5 IMPORTANCE OF PRODUCTION

1. Ensures availability of goods and services
2. Improves standard of living
3. Provides employment
4. Increases wealth
5. Boosts export potential