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Lesson Note

Subject: Economics
Topic: Production

Lesson Objectives: by the end of the lesson the learners should be able to;
1. Define the term Production;

2. Mention and explain the types of production;

3. State the importance of production.

Lesson Summary Aids: See reference materials below content.

Lesson Summary / Discussion


What is Production?

Satisfying consumers wants in economics most of the time involves the production of goods and services at a given cost. Production is defined as the various economic activities aimed at the production and distribution of goods and services for the satisfaction of human wants. Production could also be defined as the creation of utility. All goods and services produced must be utilized. That is, they should be able to satisfy certain human wants. Production include the creation of tangible goods such as clock, cars, tables, TV sets, houses, books, etc, as well as services rendered by some professionals such as doctors, layers, hair dressers, soldiers, police, teachers, mechanic, etc. Production id also seen as the technical relationship between inputs and outputs. That is, it is the process by which inputs are turned into outputs. Here, it is obvious that we can not get outputs without inputs. Inputs are needed and have to undergo certain processes before they can become outputs. The production of outputs could involve many stages of production. For example, in producing cake, the wheat (input) have to be processed into flour, other inputs (such as sugar and baking powder) are added, then the inputs undergo baking before we get bread. The processing of wheat into bread is known as production process. It could now be appreciated that the well being of the citizens of a society among other things depends on the level of production in such a society. Production determines to an extent the amount of goods and services that the members of a society could enjoy, though local production could be complemented by importation. Production then is seen as a technical relationship between inputs and outputs in an attempt to satisfy human wants.

It should be noted that production is said to be complete when the goods and services produced get to the final users or consumers.

The production process involves three major groups of people. These are

  • producers
  • distributors and
  • consumers.

Types of Goods

Goods and services can be classified into two major categories. These are consumer goods and producer or capital goods.

A. Consumer goods: These are goods and services that can satisfy the consumer’s immediate needs. These goods do not require further process of production for their use by the consumers. Examples are motor cars, milk, cake, radio, television set, the service of a soldier, police, hairdresser, barber, nurse, lawyer etc. Consumer goods can further be grouped into two classes. These are durable and non-durable goods.

Durable goods are goods that can be used over a long period of time before they get won out. Examples are radio, television set, shoes, shirts, cooking pots, spoon, tables, etc. They are generally referred to as consumer durable goods.

Non-durable goods are goods used by people to produce goods that are used up from one use. In other words, they are used up at once. Examples include meat, egg, bread, drugs, milk. They may get bad if not used in time.

B. Producer Or Capital Goods: These are goods used by people to produce some other commodities or services. Examples include motor cars, lorries, tailor’s tools, machines, etc. These goods are used to carry out productive activities.

Types Of Production

In economics, there are different types and even levels of production. This is why an economy is usually categorized into sectors based on the kind of production or kind of output or precisely based on the form of the relationship between the inputs used by such a sector and its output.

Production is grouped into two major categories, namely direct and indirect production.

a. Direct Production

Direct production involves the production of goods and services only for family use or consumption. The goods and services are not for sale, rather they are to be used by the family. It is usually very small in quantity and family labour is usually employed.

b. Indirect Production

In this kind of production, goods and services are produced in large scale and is mainly for sale or exchange for other needs. This type of production involves the use of modern equipment and skilled labour to make surplus goods and services that the producer would exchange to get money, which he would need to satisfy other wants. It is practically impossible for a single producer to satisfy all his wants without depending on others for exchange of goods and services.

Indirect production is subdivided into three major groups, which are primary, secondary, and tertiary production.

Primary Production

Primary production refers to the extraction of raw materials provided by nature. It is concerned with the process of obtaining raw materials or resources in their natural state from the land, air, and water. Primary production forms the basis for further production. Examples include agriculture, mining, fishing, lumbering, etc.

Secondary Production

Secondary production involves the transformation or conversion of basic raw materials or semifinished goods into final forms that are acceptable to the consumers. Secondary production embraces all forms of manufacturing and construction. The raw materials or resources obtained from the extractive sector are transformed into finished products such as processed food, houses, roads, clothes, cars, etc.

Tertiary Production

Tertiary production is concerned with the provision of commercial and professional services which are essential for proper running of the economy. The goods so produced at the primary and secondary levels are distributed to the people for consumption. The people involved in this aspect of production include those in the commercial services like wholesalers, retailers, transporters, etc as well as those involved in rendering professional services like soldiers, police, doctors, lawyers, musicians, teachers, hairdressers.

Factors That Determine The Volume Of Production

  1. Amount of Capital: The amount of capital available to a producer determines the volume of production. The greater the amount of capital, the higher the volume of production.
  2. Availability Of Raw Materials: The raw materials available will determine the volume of production. The more the raw materials available, the greater the volume of production.
  3. Management: The management put in place for the production of goods and services goes a long way in determining the volume of production. Efficient management will increase the volume of production.
  4. The Market Size: Here, the size of the market refers to the demand for goods produced. The greater the demand for goods produced, the greater the volume of production.
  5. Efficiency of Other Factors of Production: The more the efficiency of other factors of production, the more in the increase of volume of production.
  6. Level of Technology: The use of modern technology do lead to high volume of production as against the use of local technology which can never increase the volume of production.
  7. Storage Facilities: When storage facilities are available for storing goods produced, it will boost the volume of production.
  8. Nature of The Goods: If the goods produced are durable, they can be stored. This can encourage producers to increase their volume of production. But perishable goods can not be stored for long and so results in low volume of production.

Importance of Production

1. Availability of goods and services: Production helps to endure that goods and services are made available for use by human beings, thereby addressing some basic economic problems of a society. This is because the main purpose of production is to meet the consumers needs.

2. Improvement in standard of living: Through production, there is adequate improvement in the standard of living in the life of the people of a nation.

3. Provision of Employment: Continuous production leads to increase in employment of people thereby reducing the rate of unemployment in the society. When different people comes up with different business ideas and work with the ideas, they become employers of labour in their own field. We shouldn’t have the mentality of “I am a graduate, what fits me is white collar job”. Well I will put it to you that you are just wasting your time. You can actually start up a business, produce your own goods, make them available. By so doing, you have not only helped yourself to be independent, you can employ others and reduce the rate of unemployment in your country. This may sound ash but take it as the truth.

4. Increase in Export Potential: Production also assists a state or nation to boost her export of goods and services to other nations. Well, this will only happen if such a nation encourage their local industries to diversity in various aspects of production. You should note that a nation that depends solely on one particular product as export will crash some day. So if you belong such a nation, you can stand out by producing other exportable products. Remember, life is not static but change.

5. Acquisition of Skills: Engaging people in various process of production leads them to acquire special skills.

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