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PRODUCTION PROCESS

The processes and methods used to transform tangible inputs (raw materials, semi-

finished goods, subassemblies) and intangible inputs (ideas, information, knowledge)into goods or services. Resources are used in this process to create an output that is

suitable for use or has exchange value.

FACTORS OF PRODUCTION

  Definition Resources re!uired for generation of goods or services, generall"classified into four ma#or groups

$. %and (including all natural resources),

&. %abour (including all human resources),

'. apital (including all man-made resources), and

. *ntrepreneurship (which brings all the previous resources together for

production).

These factors are classified also as management, machines, materials, and mone"

(this, the +s), or other such nomenclature. +ore recentl", knowledge has come to

be recognied as distinct from labour, and as a factor of production in its own right.

KINDS OF PRODUCTION

Direct production - hen an entit" is capable of producing all of the materials

necessar" for their product production b" using their own skill sets without focusing

on one product or re!uiring a staff to perform different #obs. more economic model

than that of reproduction method.

Indirect production - production of an item necessar" for the manufacturing of

ma#or services and goods.

SECTORS OF THE ECONOMY

• /rimar" sector - The industries engaged in production or extraction of natural

resources such as crops, oil, and ores.

• 0econdar" 0ector - The portion of an econom" that includes light and heav"

industrial manufacturers of finished goods and products from raw materials.

1usinesses that make up the secondar" sector of industr" often re!uire

substantial machiner" to operate, and the" create waste that can contribute toenvironmental pollution.

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• Tertiar" 0ector - The tertiar" sector of industr" involves the provision of

services to other businesses as well as final consumers. 0ervices ma" involve

the transport, distribution and sale of goods from producer to a consumer, as

ma" happen in wholesaling and retailing, or ma" involve the provision of a

service, such as in pest control or entertainment.

CONSUMPTION

Definition The process in which the substance of a thing is completel" destro"ed,

used up, or incorporated or transformed into something else. onsumption of goods

and services is the amount of them used in a particular time period.

TYPES OF GOODS AND SERVICES

$. Conu!er Good " the" are goods that are ultimatel" consumed rather than

used in the production of another good. 2or example, a microwave oven or a

bic"cle which is sold to a consumer is a final good or consumer good,

whereas the components which are sold to be used in those goods are called

intermediate goods.&. C#pit#$ Good - consist of an" tangible assets that an organiation uses to

produce goods or services such as office buildings, e!uipment and machiner".

onsumer goods are the end result of this production process.'. Ser%ice - economic activit" where an immaterial exchange of value occurs.

hen a service such as labour is performed the bu"er does not takeexclusive ownership of that which is purchased, unless agreed upon b" bu"er

and seller.

TYPES OF CONSUMPTION

$. I!!edi#te conu!ption " hen "ou can use the product or service onl"

once to satisf" the needs or wants.&. De&erred conu!ption " when "ou can use the product or service over and

over to satisf" the same need or want whenever it occurs.

E'CHANGE

Definition 3pen, organied marketplace (such as a stock exchange) wherebu"ers and sellers negotiate prices. *xchanges re!uire an almost instant (real time)

bid and ask matching mechanism, settlement and clearing, and market wide price

communication and determination.

M#r(et)  n actual or nominal place where forces of demand and suppl" operate,

and where bu"ers and sellers interact (directl" or through intermediaries) to trade

goods, services, or contracts or instruments, for mone" or barter.

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+arkets include mechanisms or means for ($) determining price of the traded item,

(&) communicating the price information, (') facilitating deals and transactions, and

() effecting distribution. The market for a particular item is made up of existing and

potential customers who need it and have the abilit" and willingness to pa" for it.