Since most of the resources necessary to carry on production are scarce relative to demand for them they are called economic resources. Production of a commodity or service requires the use of certain resources or factors of production. It results in the output (creation) of an enormous variety of economic goods and services. Production is an important economic activity. Output :Īny activity connected with money earning and money-spending is called an economic activity. Government services, such as law, administration, education, health and defence, are also included. Examples cover distributive traders, banking, insurance, transport and communications. In fact, these services are supplied to the firms in all types of industry and directly to consumers. Industries in the tertiary sector produce all those services which enable the finished goods to be put in the hands of consumers. They are generally described as manufacturing and construction industries, such as the manufacture of cars, furnishing, clothing and chemicals, as also engineering and building. This includes production in manufacturing industry, viz., turning out semi-finished and finished goods from raw materials and intermediate goods- conversion of flour into bread or iron ore into finished steel. These industries are engaged in such activities as extracting the gifts of Nature from the earth’s surface, from beneath the earth’s surface and from the oceans. Primary production is carried out by ‘extractive’ industries like agriculture, forestry, fishing, mining and oil extraction. Three Types of Production :įor general purposes, it is necessary to classify production into three main groups: 1. This being so, and because in economics an important task is to measure changes in the volume of production, it is necessary to add the qualifying clause ‘through exchange’, i.e., in return for money, to the definition of production. So from our above definition it is clear that many valuable activities such as the work done by people in their own houses and gardens (the so-called do it yourself exercise) and all voluntary work (such as free coaching, free-nursing, collection of subscription for a social cause such as flood-relief or earthquake- relief) immensely add to the quality of life but there is no practical way of measuring their economic worth (value). If we will buy something we must want it if we are not willing to buy it then, in economic terms, we do not want it. The test of whether or not any activity is productive is whether or not anyone will buy its end-product. Those who provide services Such as hair-dressers, solicitors, bus drivers, postmen, and clerks are as much a part of the process of satisfying wants as are farmers, miners, factory workers and bakers. On the other hand, all jobs which do aim at satisfying wants are part of production. The making or doing of things which are not wanted or are made just for the fun of it does not qualify as production. The essential characteristics of the business firm is that it purchases factors of production such as land, labour, capital, intermediate goods, and raw material from households and other business firms and transforms those resources into different goods or services which it sells to its customers, other business firms and various units of the government as also to foreign countries. They are artificial entities created by individuals for the purpose of organising and facilitating production. Since the primary purpose of economic activity is to produce utility for individuals, we count as production during a time period all activity which either creates utility during the period or which increases ability of the society to create utility in the future.īusiness firms are important components (units) of the economic system. Let us make an in-depth study of the meaning, definition, types and factors of production.
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