In this post, we shall be looking briefly into the meaning of production, its types and factors. So, by the end of this lesson, you are expected to be able to:
- define production;
- mention the types of goods;
- list the two types of human wants;
- enumerate the three types of production; and
- identify the four factors of production.
Meaning of Production
Production is the processing of raw materials into finished goods, and the distribution and provision of goods and services to satisfy human wants.
Production can also be defined as the creation of utility, in which case utility is the ability of any commodity or service to satisfy human want.
Types of Goods
There are two main types of goods:
- Consumer goods: These are goods and services that can satisfy the consumer’s immediate wants. Examples of consumer goods are beer, milk, bread, and the services of a teacher, a lawyer, a barber, and so on.
- Capital goods: These are goods and services meant for the production of further goods and services. Examples of such goods include vehicles, machines and raw materials.
Types of Human Wants
There are basically two types of human wants. They are:
- Material wants: They are wants that may be satisfied with the use of the gift of nature.
- Immaterial wants: These are wants no meant to increase our material wealth but to make our lives worth living and are satisfied with personal services. These wants may include education, protection, health, amusement, etc.
Types of Production
There are three types of production. They are:
Primary production: This involves the extraction of raw materials from the soil or sea, e.g. mining, farming, fishing, etc.
Secondary production: This is a stage where raw materials are processed into finished goods i.e. utility is added to the raw materials of the primary production.
Tertiary production: This is the stage where the goods and services made available at the two earlier stages are taken to those who are in need of them.
Factors of Production
There are four factors of production:
Land: Land as a factor of production is a free gift of nature. It is fixed. In land, there are examples like water, forest, and minerals.
Capital: It is the wealth set aside for the generation of more wealth. There are four types of capital: fixed capital, circulating capital, current capital and social capital.
Fixed capital refers to durable assets of a business such as building, machinery, furniture, etc. Circulating capital refers to those materials that change their forms in the process of production into finished products, e.g. raw materials such as cocoa. Current capital refers to those things needed for day to day running of the business, e.g. money and is also known as liquid capital. Social capital refers to infrastructural facilities provided by the government to aid production, e.g. roads, electricity, railways, seaports and airports.
Labour: This refers to both physical and mental efforts of man directed to production. Labour is categorised into skilled, semi-skilled and unskilled labours respectively.
Entrepreneur: An entrepreneur is a factor of production that co-ordinates other factors of production. An entrepreneur takes decisions; bears risks; conducts researches; procures capital; ensures there is efficient management; and finally, maintains good communication with people both within and outside the production chain.