Production – SS1 Commerce Lesson Note (First Term)

Production is the changing of raw materials into finished goods, and the provision of goods and services to satisfy human wants.

• Other name: production is also called the creation of utility.
• Scope: it covers making goods, moving them and supplying services to the final user.

Behavioural objectives

By the end of the lesson, students should be able to:

1. Define production and utility.
2. Distinguish between capital goods and consumer goods.
3. Describe primary, secondary and tertiary production, with examples.
4. Name the four factors of production and the reward for each.
5. State the functions of the entrepreneur.
6. Explain the process of production.

What is utility?

Utility is the ability of a good or service to satisfy a human want.

There are four types of utility: form, place, time and possession.

• Form utility: created when a material changes shape, as when wheat becomes flour and then bread.
• Place utility: created when goods move to where buyers need them, as when yams move from Benue to Lagos.
• Time utility: created when goods are stored until they are needed, as when grain is kept in a warehouse until the dry season.
• Possession utility: created when ownership passes to the buyer through sale.

What are the types of goods?

There are two types of goods in production: capital goods and consumer goods.

• Capital goods (producer goods): goods used for further production of goods and services, e.g. raw materials, machines, trucks.
• Consumer goods: goods and services ready for use by the final consumer, e.g. bread, milk, the services of a teacher.

What is the difference between capital goods and consumer goods?

How is production classified?

Production is classified into three stages: primary, secondary and tertiary.

What is primary production?

• Meaning: the extraction of raw materials from the soil or sea.
• Examples: mining, farming, fishing, lumbering.

What is secondary production?

• Meaning: the conversion of raw materials into finished or semi-finished products.
• Examples: manufacturing of cars, fans, clothes and chemicals.

What is tertiary production?

• Meaning: the stage where goods and services from the first two stages are taken to those who need them.
• Who is involved: traders, transporters, bankers, insurers and others who bring goods to consumers.
• Direct services: services given straight to people, as by teachers, doctors and lawyers.
• Examples: transport, communication, insurance, banking, trade.

What are the factors of production?

Factors of production are the resources that are combined for production to take place.

There are four factors of production: land, labour, capital and entrepreneur.

What is land?

• Meaning: resources provided free by nature.
• Examples: soil, sunshine, rain, minerals, forests, fishing grounds.
• Reward: rent.

What is labour?

• Meaning: the physical and mental efforts of people directed to production.
• Unskilled labour: needs no training, as with a farm helper.
• Semi-skilled labour: needs some training, as with a machine attendant.
• Skilled labour: needs long training, as with an electrician or a teacher.
• Reward: wages.

What is capital?

• Meaning: wealth made by people that is used to produce further wealth.
• Examples: machinery, motor vehicles, cash.
• Reward: interest.

Who is the entrepreneur?

• Meaning: the factor that organises and co-ordinates the other factors for more productive purposes.
• Example: a person who starts and runs a bakery.
• Reward: profit.

What are the rewards of the factors of production?

What are the functions of the entrepreneur?

The entrepreneur starts the business, organises the other factors and bears the risk of loss.

• Risk bearing: takes the chance of loss if the business fails.
• Decision making: decides what, how much and how to produce.
• Co-ordination: brings land, labour and capital together.
• Provision of capital: supplies money to start and run the business.
• Initiating the business: starts the enterprise from an idea.
• Organisation of research: studies the market and new methods.

What is the process of production?

The process of production is the series of activities and stages in creating goods and services and getting them to the final consumer.

• Complete production: production is complete only when the goods and services reach the final user.
• Aids to trade: the process includes those who aid production and trade, e.g. transport and warehousing.

What are the stages in producing bread?

1. Farmers grow wheat (primary production).
2. Mills turn the wheat into flour (secondary production).
3. Bakeries bake the flour into bread (secondary production).
4. Warehouses store the bread or flour until needed (tertiary production).
5. Vehicles carry the bread to shops (tertiary production).
6. Retailers sell the bread to the consumer (tertiary production).

Evaluation

1. Define production and utility.
2. Distinguish between capital goods and consumer goods, giving one example of each.
3. Name the three classes of production and give one example of each.
4. List the four factors of production and state the reward for each.
5. State four functions of the entrepreneur.

Assignment

1. Choose one product, such as garri or a pair of shoes. Describe the stages it passes through from raw material to final consumer. Name the primary, secondary and tertiary stages.