CHAPTER FOUR
PRODUCTION
Production is the creation of goods or provision of services to satisfy human wants.
It involves activities such as transforming materials into finished goods, transportation, and storage.
Utility
Utility is the ability of a good or service to satisfy human wants.
Types of Utility
Form Utility – This is changing the form of a commodity by converting raw materials into finished goods. For example, sugarcane may be converted into sugar.
Time Utility – This is created when a good is stored until it is the appropriate time to use it. For example, storing foodstuffs in the school store during the holiday to use when the school opens.
Place Utility – This bridges the geographical gap between the producer of a commodity and its consumers through transportation. For example, transporting books from a bookshop to the school.
Possessive Utility – This refers to the transfer of ownership of goods and services from one person to another. It may be done through trade. For example, ownership of bread may be transferred from a canteen owner to a consumer when the customer buys it.
Types of Production
Direct and Indirect Production
Direct Production (Subsistence Production)
This is a type of production for one’s own personal consumption.
Characteristics of Direct Production
- Goods and services are of low quality and quantity.
- Leads to low standards of living.
- Encourages individualism.
- Can be very tiring.
- Does not encourage invention and innovation.
- No one has the ability to provide all that he/she requires.
b) Indirect Production
Production of goods and services for sale.
Characteristics of Indirect Production
- Leads to high quality and quantity goods.
- Production with a view of exchange.
- Results in surplus production of goods and services.
Level of Production and Related Occupation
Primary Level
- This level is also called the extractive level; it involves extraction of goods from their natural setting.
- The products can be used in the state they are or can be processed to make them more useful. Examples include water, mining, fishing, lumbering, etc.
Secondary Level
- Involves transformation of raw materials into finished products or more useful products including manufacturing (e.g., food processing) and construction (e.g., houses and roads).
Tertiary Level
- Involves provision of services. Divided into commercial and direct.
Commercial Services
Activities that facilitate trade, such as wholesaling, retailing, and banking.
Direct Personal Service
Services rendered by individuals directly to the consumer, e.g., nursing, teaching, and legal services.
Factors of Production and Their Rewards
These are resources or agents required in production, e.g.,
- Land
- Labour
- Capital
- Entrepreneurship
Land
- Natural resources, e.g., minerals, soils, etc.
- Includes all natural resources below or above the earth’s surface.
- The rewards are rent, rate, or royalty.
Characteristics of Land as a Factor of Production
- It is a basic factor of production; production cannot take place without it.
- Its supply is fixed; we cannot add more earth surface than what nature has provided.
- It lacks geographical mobility; it cannot be moved from one geographical area to another.
- Quality is not homogeneous. Productivity of one piece of land will have different levels of fertility, mineral deposits, soil textures, and varying climate conditions.
- Productivity of land can be increased by improving the quality and quantity of capital.
- It is subject to the law of diminishing returns.
- It is a natural resource.
Labour
- Human efforts applied in production, either physical or mental.
- Not all human effort is labour. For it to become labour, it must be aimed at production and be paid for.
- Rewards are wages and salaries.
- Labour may be skilled, semi-skilled, or unskilled, which is determined by the level of education, training, and experience.
Capital
- Refers to all the artificial resources used in the production of goods and services.
- There are two types of capital: fixed and working/circulating capital.
- Fixed capital refers to things that stay in a business almost permanently, e.g., machinery, buildings, vehicles, furniture, etc.
- Working/circulating capital gets used up every time it is applied in the production process, e.g., raw materials and money.
- Capital is rewarded in the form of interest.
Entrepreneur
- An individual who identifies a business opportunity, devotes the factors of production, and starts a business venture which may involve the creation of goods and services.
- The entrepreneur pays for the services of all the other factors of production.
- He makes important decisions in business, e.g., deciding what to produce or sell, how much to produce or sell, and what methods to apply in the production process.
- The reward for an entrepreneur is profit.
Division of Labour and Specialization
Division of Labour
- This occurs when the production process is split into many stages or operations.
- Each stage involves a special task performed by one or a group of workers. For example, in a clothing factory, the production process is organized so that each worker performs only a small part of the whole operation. Some cut the cloth material, others join or sew them together, others fix buttons, etc.
Specialization
- This occurs when one worker performs certain specific tasks of a job.
- It ensures that workers concentrate on doing those jobs for which they are best suited in terms of skills, qualifications, and experience.
Advantages of Division of Labour and Specialization
- Workers’ skills are enhanced because of performing repetitive tasks, resulting in the creation of experts.
- Workers suffer less fatigue as they concentrate on doing one task in one place.
- New talents and inventions are developed as workers perform repetitive tasks; hence, one can detect and correct weaknesses in the techniques used.
- Work is done at a faster rate due to the repetitive nature of tasks and reduced movement of workers from one station to another.
- Goods and services produced are usually of high quality since skills of workers are matched with tasks.
- Use of machines is made possible, leading to standardization of products and lower production costs, which in turn leads to higher profits.
- Overall output increases because work is done at a faster rate.
- Planning and management of workers become easier, which increases efficiency in the organization.
Disadvantages of Division of Labour and Specialization
- Workers may suffer from boredom due to the monotony of doing the same thing repeatedly.
- Individual workers cannot identify themselves in the final products since workers perform only a small part of the whole process.
- In case of loss of jobs, such workers find it difficult to get new jobs because they are specialized in a particular field only.
- Leads to interdependence between countries, businesses, or individuals, which may lead to shortages of goods and services, especially in times of conflict or natural calamities.
- Use of machines may reduce employment opportunities by replacing manual labour.
- Workers eventually lose skills owing to over-dependence on machines.
- Due to specialization, problems at one stage can disrupt the whole production process.
Mobility of Factors of Production
- This is the movement or transfer of a factor of production from one geographical area to another or from one occupation to another.
- Horizontal mobility is the movement from one office to another in the same capacity.
- Vertical mobility is the movement from one grade to another in the same occupation.
- Land lacks geographical mobility but is highly occupationally mobile.
- Capital – Fixed capital lacks geographical and occupational mobility. Equipment, tools, and money may be geographically and occupationally mobile.
- Labour – It is the most highly mobile factor of production, whether geographically, occupationally, horizontally, or vertically.
Factors Hindering Mobility of Labour
- Natural talent and ability differ from one individual to another.
- Training involved for one to acquire skills in new occupations can be lengthy and expensive.
- Some organizations have strict regulations barring new entrants from joining certain professions, e.g., law, medicine, and architecture.
- Some jobs, though not well rewarding, have better terms of service and pension schemes.
- Adverse climatic conditions cause discomfort and disease, discouraging people from changing geographical locations.
- Ignorance by workers of available job opportunities.
- Geographical transfer involves transport costs, changing residence, and school of one’s children.
- Security and political stability of a given region.
- Social ties that bind one to his/her community.
- Language rules on immigration.
