The Concept of Production in Economics


The Production Concept

Production refers to the creation of wealth for the sole purpose of utility in order to improve the welfare of people. It is the creation of goods and provision of services to satisfy human wants.

Types of production/Forms of production

Production can be undertaken either directly or indirectly

1) Direct production

This refers to the process where goods and services are produced for one’s own use. It is also known as subsistence production. This production was very common in the past though still practiced in some developing countries. Examples of such production include growing of crops, fishing, keeping poultry, and hunting.

Characteristics or features of direct production

  • The goods or services produced are mainly for one’s own use.
  • It is usually carried out in small scale.
  • The methods used for production are usually simple
  • It involves little or no specialization.
  • The quantities produce are relatively low
  • There is usually no surplus for the market.

2) Indirect production

It refers to a type of production where goods and services are produce for sale. It can also be described as production for the market or commercial production.

Characteristics/features of indirect production

  • Goods and services produced are mainly for sale-income got
  • Modern technology is extensively used in the production process – capital intensive
  • Production is usually on large scale – thus one enjoys economies of scale
  • Surplus goods are produced – no deficit
  • Producers tend to specialize in different areas – efficiency
  • The goods and services produced are usually of higher quality.

Today, most production is of the indirect type because most people and countries goods and services are for sale.

Levels of Production

Production is a broad process which includes five main activities and they include extraction, manufacturing, trade and distribution, warehousing and the provision of services. Productive activities are closely linked to what is generally referred to as levels of production. Production may be divided into three levels e.g.

1) Primary production/extraction

Primary production is the level of production in which the main activity is extraction of natural resources. It may also involve looking after natural resources. The products may be consumed in their natural state, cooked before eating, or used as raw materials for producing other goods. The occupations involved in the primary production or extraction level range from quarrying, mining, forestry, fishing, farming and lumbering.

2) Secondary production

This involves changing of raw materials into finished products. In this level, raw materials extracted at the primary level are processed into finished goods. This creates more utility in the in the goods mainly through a process called also includes construction activities e.g. some of the raw materials of quarrying are used in construction of buildings, roads and bridges. The main occupations include processing, manufacturing, oil refining and construction of roads, buildings and bridges. Machines and modern technology is usually used.

3) Tertiary production

This production level involves activities carried out in provision of services. The two main types of tertiary production include direct and commercial services.

  • Direct services: These are services that are provided directly to the consumers who are involved in occupations like health care, legal services, domestic services, security, lighting, education, preaching, nursing and entertainment. They are produced both in private practice and in the government through local authorities. Public facilities include garbage collection, sewerage services trucks, hospitals and schools. Current economic systems allow the private individuals to use their private facilities to do so.
  • Commercial services: they are services that support various production processes. They include transport, communication, warehousing, advertising, banking and insurance. These services are important in creating place and time utility in goods. They are referred to as aids to trade.

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