production

LEARNING OBJECTIVES

By the end of this topic, you should be able to:

• Explain the meaning of production
• Distinguish between different types of utilities
• Distinguish between direct and indirect production
• Describe the levels of production
• Discuss the factors of production and their rewards
• Explain the role of division of labor and specialization in the production process

Production refers to the creation of goods and services to increase their usefulness to the consumers. The production process is incomplete until the goods reach the final consumers. For example, the tea undergoes the following processes after being picked; withering, cutting, fermentation, drying, sorting, grading and packing.

UTILITY

Utility refers to the usefulness of a good or service or the ability of a good or service to satisfy a human want. Types of utilities include;

• Form utility. Materials can be changed from one form to another in order to increase their utility. This is mainly done through processing.
• Place utility. The movement of goods from one place to another can increase their utility. Distributing goods and services from producers to consumers increases their utility.
• Time utility. The utility of goods can be increased by storing them for consumption at a later date.
• Possession utility. The transfer of ownership of a good can increase its utility. For example, selling a good from the producer to the consumer.

FACTORS OF PRODUCTION

For production to take place, several factors are involved. Imagine you are visiting a factory. What will you see? Some of the things you will see include land and buildings. You will also find employees, machinery, and equipment.  All these things can be classified as land, capital, labor or entrepreneurship. These are the factors of production.

Factors of production are the resources that facilitate the production of goods and services.

Land. This includes the site on which the factory is built and other natural resources. It refers to all of the natural resources such as water and farmland. The rewards of this factor of production are rents and rates.

Labor. These are factory employees. Labor refers to all physical and mental contribution of an employee in the production process. The rewards for this factor of production are wages and salaries.

Capital. This refers to the equipment and buildings used to make the products. It refers to all those items that go into the production of goods and services. The rewards for this factor of production are interests

Entrepreneurship. This refers to the organization of other production factors. The rewards for this factor of production are profits.

Direct production refers to the production of goods and services for one’s own consumption. Indirect production is the production of goods and services for sale.

DIVISION OF LABOR AND SPECIALIZATION

Division of labor refers to breaking down the production process into stages and assigning each stage to an individual.

Specialization refers to where one concentrates on one line of production in which he/she is best suited.

ROLE OF DIVISION OF LABOR AND SPECIALIZATION

• Increases output per worker
• Encourages invention and innovation
• Encourages the user of machines
• Enables workers to gain skills in a particular field

CLASSIFICATION OF GOODS AND SERVICES

Goods and services can be classified on the following basis

• Producer or consumer goods. Producer goods also known as capital goods are those that are used to produce other goods or to provide services. e.g. machines. Consumer goods are those that are used directly by the final consumers such as bread.
• Durable and perishable goods. Durable goods are those that can last for a long period of time. They include buildings and furniture. Perishable/non-durable goods cannot last for a long time such as meat and milk.
• Material and non-material goods. Material goods are those that can be felt and touched. Non-material goods are the same as services, they cannot be seen or touched.
• Private and public goods. Private goods are owned by individuals for personal use while public goods can be used by any member of the public.