WEEK 5

TOPIC: PRODDUCTION
SUB-TOPIC 1: MEANING OF PRODUCTION AND CLASSIFICATION PRODUCTION

The term production refers to the creation of goods and services to satisfy human wants.
Production also means the transformation of raw materials into finished goods and their
distribution to the consumer to satisfy human wants. It can also be referred to as the creation
of utility. Production is not complete until the goods and services get to the final consumer. All
goods and services must possess utility, which that they must be capable of satisfying certain
human wants.

DIAGRAM SHOWING CLASSIFICATION OF PRODUCTION

Production

Industry Commerce Service (tertiary)

Primary Secondary Trade Aids to trade Direct Indirect

- extraction - manufacturing - insurance

- fishing - construction - advertising

- farming - transport
Home Foreign
- mining - tourism
- import
-banking
- export
Wholesale Retail
- entrepot
SUB TOPIC 2: CLASSIFICATION OF PRODUCTION

STAGES OR TYPES OF PRODUCTION

Production is grouped into two major categories. These are direct and indirect production.
(a)Meaning of Direct Production
Direct Production is the type of production in which an individual produces goods and services
only for the family use or consumption. The goods produced are not for sale and usually family
labour is employed in the production process. Direct production is in small scale.
(b)Meaning of Indirect Production
Indirect Production is the type of production in which goods and services are produced in large
scale mainly for sale or exchange for other needs. This type of production involves the use of
modern equipment and skilled labour to be able to make surplus goods and services.
Indirect production is sub divided into three major groups. These are primary, secondary, and
tertiary production.
(i) Primary production (industry): Primary production refers to the extraction of raw materials
provided by nature. Primary production forms the basis for further production. Examples of
primary production include agriculture, mining, fishing lumbering etc.
(ii)Secondary Production (commerce): Secondary production involves the transformation or
conversion of basic raw material or semi-finished goods into final forms that are acceptable to
the consumer. Secondary production embraces all forms of manufacturing and construction.
The raw materials from the extractive sector are transformed into finished products such as
cars, food, roads, houses etc.
(iii)Tertiary production (services): Tertiary production is concerned with the provision of
commercial and professional services to people. The goods produced at the primary and
secondary production levels are distributed to the people for consumption. People involved in
this aspect of production include those in commercial services like wholesalers, retailers,
transporters etc as well as professional services like soldiers, bankers, doctors, hairdressers,
teachers, lawyers etc.
The scare resources which are used to produce the commodities we need and want to consume
are collectively called the factors of production. They are; Land, Labour, Capital and
Entrepreneur

SUBTOPIC 2: FACTORS OF PRODUCTION

Meaning: Factors of production refers to agents, components and resources which are
combined together to make production possible. These are:

i. Land
ii. Labour
iii. Capital
iv. Entrepreneur

LAND: Land is a free gift of nature. It includes all natural resources used in production liked
ocean, forests, mineral resources, rivers, oceans, atmosphere etc. The reward for land is rent.

CHARACTERISTICS/FEATURES OF LAND

a. Land is immobile
b. Land is a free gift of labour
c. It is relatively indestructible
d. The supply of land is fixed.
e. The quality and value of land varies from one place to another

IMPORTANCE OF LAND.

Land is needed for the following purposes

a. Farming purposes
b. Livestock purposes
c. Fishery purposes
d. Wild life purposes
e. As collateral security
 f. Residential building
g. Sources of minerals
h. Construction purposes etc.

LABOUR: Labour is defined as all human efforts put into production. It involves man’s mental
and physical exertion in the process of production. The reward for labour is wages and salaries.

Types of Labour: There are three types of labour, namely:

1. Unskilled Labour: this comprises of labourers with little or no education, whose work
requires the use of physical energy.
2. Semi – skilled labour: this comprises of workers with little education or training, whose
job does not require high skill or high mental effort.
3. Skilled Labour: this comprises of workers who possess high level education and skill
such professionals and managerial staff.

CHARACTERISTICS/FEATURES OF LABOUR

1. Labour is mobile
2. Labour has feelings
3. Labour is skilful
4. It is a human factor (it is supplied by man)
5. It is perishable
6. It is not predictable
7. It requires motivations.

IMPORTANCE OF LABOUR:

Labour is very important in production because of the following reasons

1. Provision of personnel
2. Production of goods and services
3. Operation of machines
4. Other factors depend on labour for their usefulness
CAPITAL

Capital is defined as man-made wealth or assets used to create further wealth. It is man-made
resource used to produce other goods and services. The reward for capital is interest.

CHARACTERISTICS/FEATURES OF CAPITAL

1. It is man-made
2. It is durable
3. It exists in different forms
4. It is subject to depreciation
5. It ensures large scale production
6. It promotes division of labour.

IMPORTANCE OF CAPITAL

1. It is used to start up a business

2. It is man made
3. It is used as a collateral to obtain loan or credit
4. It is used to buy raw materials
5. It is used to pay wages and salaries
6. It is used to acquire assets.

ENTREPRENUER

An entrepreneur can be defined as the factor that co-ordinates and organises other factors of
production in order to produce goods and services. It is the driving force behind the business.
The reward for entrepreneur is profit or loss.

CHARACTERISTICS OF ENTREPRENUER

1. Risk bearer
2. Controls other factors of production
3. Decision making
 4. Organisation

FUNCTIONS/IMPORTANCE OF ENTREPRENUER

1. Provision of capital
2. Decision making
3. Risk bearing
4. Efficient management
5. Effective organisation
6. Organising researching activities
7. Determines pricing policy.

IMPORTANCE OF PRODUCTION

1. Availability of goods and services: Production helps to ensure that goods and services
are made available for use by human beings.
2. Improvement of Standard of living: Production helps to ensure adequate improvement
in the standard of living of the people.
3. Provision of employment: Continuous production ensures the employment of many
people.
4. Increase in wealth of people: Production assists people to accumulate wealth as a result
of continuous employment.
5. Increase in export potential: Production also assists a state or nation to boost her export
of goods and services to other nations.
6. Acquisition of skills: The engagement of people in production makes them to acquire
special skills.