PRODUCTION

Introduction

Definition

This is the creation of goods and services or

increasing their usefulness to became more

satisfying.

Utility

The ability of a good or service to satisfy human

wants.

Types of utility

i.) Form utility

This is changing the form of a commodity by

converting raw materials to finished goods. For

example it can be done though processing.

1
ii.) Time utility

This is created by storing the goods until the

appropriate time to use it. For example storing

food for later use.

iii.) Place utility

This is the bridging of geographical gap between

the producers and consumers through

transportation. For example transporting goods

from one area to another.

iv.) Possessive utility

This is the transfer of ownership of goods from

one person to another through trade.

Direct and indirect production

There are two types of production:

 Direct production.

 Indirect production.

2
Direct production/subsistence

This is production of goods and services for

personal use and the products are not marketed.

Characteristics of Direct Production

 Productivity usually on small scale

 Usually for own consumption

 Production is not for the market

 Use simple method of production

 Goods and Services are of low quantity and

quality

 Encourages individualism.

 Leads to low standards of living.

 Can be very tiring.

3
Indirect production

This is the production of goods and services with

the aim of selling excess in order to acquire what

one does not produce.

Characteristics of Indirect Production

 Production with a view of exchange.

 The producer specializes in one or a few areas

of production.

 It results in surplus production of goods and

services.

 Goods produced are of high quality.

Level of production and Related Occupation

There are three levels of production.

4
a.) Primary level/extractive

This level involves extraction of goods from their

natural setting.

b.) Secondary level

In this level raw materials are transformed into

finished product or into more useful forms.

c.) Tertiary level

This level of production deals with provision of

services and it is divided into three categories as

follows:

 Communal Service

 Direct personal services.

5
Level Nature Examples

Primary Extractive Lumbering ,

Mining Farming

Secondary Processing

Manufacturing Maize milling ,

Constructive coffee

processing, Oil

Tertiary Commercial refining

services Maize milling,

Manufacturing

Road building

Direct ,Railway

personal Construction

services

6
 Banking ,

Insurance

,Wholesaler

Teaching

,hairdressing

,Medical Care

Factors of production

These are resources that are necessary in the

production process. They are resources or agents

required in the production, without which

7
production is not possible. They are discussed as

follows:

a.) Land

Land refers to all the natural resources. For

example. Soil, mineral, rivers, lakes and climate.

Rewards for land are:

 Royalty

 Rent

 Rates

 Commission

8
Characteristics of land as a factor of production

 Basic factor of production.

 Supply is fixed.

 It lacks geographical mobility.

 Quality is not homogeneous.

 Productivity of land can be increased by

increasing quantity and quality of capital.

 It is subjected to the law of diminishing

returns.

 It is a natural resource.

b.) Labor

This is human physical or mental effort applied in

production. Rewards for labor are:

 Wages.

 Salaries.

9
Characteristic of labor as a factor of production

 Basic factor of production.

 Cannot be stored.

 Labour cannot be separated from the laborer.

 Laborers sell their labour and themselves.

 Labour is mobile.

c.) Capital

This refers to all man – made resources used in

production of goods and services. Rewards for

labour:

 Interest  .

Characteristic of labour as a factor of production

 Man – made hence supply is under man‟ s

control.

 Basic factor of production.

 It is subjected to depreciation.

 Can be improved through technology.

10
 d.) Entrepreneurship

This is the ability to organize other factors of

production in appropriate proportions for

effective production. The rewards are:

 Profit

Function of entrepreneurship

 Identifies viable business opportunity.

 Combine the other factors of production.

 Provides capital required to carry out

production.

 Employs and rewards other factors of

production.

 He bears all the risks and losses.

 He makes all the decisions on the business.

 He controls and manages the business.

11
Division of labour and specialization Division of

labour

This is where a production process is broken down

into stages and each stage is assigned to an

individual are group of individuals.

Specialization

This refers to where one concentrates in the

production of what he/she can produce best

leaving other people to produce other

commodities.

Advantages of division of labour and specialization

 Output per worker is greatly increased.

 Production of high quality goods and service.

 A worker can engage in a trade which she/he is

best talented.

 Specialization encourages invention and

innovation.
12
  Makes production faster and efficient.

 Enable a worker to acquire skills in a particular

field.

 Division of labour saves time.

Disadvantages of division labour and specialization

 Specialization leads to monotony of work

resulting to boredom.

 Hinders creativity since people work

mechanically just like machines.

 Specialization make a worker depends on one

trade.

 Use of machines is encouraged which creates

unemployment.

 Specialization may make a country dependent

on other countries.

13
  Many people are brought together leading to

social problems such as crimes and

prostitution.

Classification of goods and services produced in an

economy.

Consumer goods are produced for final or direct

use by the buyer. E.g. food and clothing.

Producer goods produced to be used in production

of other goods. E.g. Machines.

Free Goods they are available in abundant as gifts

of nature. E.g. Air.

Economic goods they are goods which are scares in

supply and have money value. E.g. human resource.

14
Perishable goods are those that go bad very easily

unless stored in special facilities. E.g. flowers and

fruits.

Durable goods are those that will continue giving

services for a long time. E.g. vehicles and

television.

Public goods are those goods that belong to no one

in particular but are owned by the government or

by all collectively. E.g. roads, airports and rivers.

Private goods are owned by individuals. E.g.

personal cars and private schools.

Intermediate goods are goods that are not ready

for use before they are further processed. E.g.

sisal, Sugar- cane and wheat.

15
Finished goods are final products that come out of

production in the required form. E.g. Furniture

from Timber.

Material goods are commodities that are tangible

like books, chairs and vehicle.

Non –material goods are services such as teaching,

nursing, entertaining.

Ways in which production activities affect environment.

i. Depletion of productive resources e.g.

forests, fish in lakes, exhaustion of

minerals.

ii. Degradation of environment which may lead

to climate changes that may have adverse

consequences on the lives of the people.

iii. Pollution of air and water which is

detrimental to both human and animal life.

16
iv. Problem of disposal of solid and plastic waste

which may result in spread of diseases.

v. Adverse effects on the ozone layer posing a

threat to the future of mankind. For example

continues depletion of ozone would lead to

increased cases of skin cancer.

vi. Pollution of human habitat making it

unhealthy and prone to diseases.

17