Theory of Production SS1 Economics Lesson Note

DEFINITION AND MEANING OF PRODUCTION

Production has diverse meanings, but the usage depends on the context in which it is used.

Production in economics may be defined as the various economic activities aimed at the creation of goods and services and the distribution of these goods to the final consumers for the satisfaction of human wants. That is, production is the making available of goods and services to those who are willing and able to pay for them for the satisfaction of their wants.

Production may equally be defined as the creation of utility while utility is the ability of a commodity or service to satisfy human wants. All goods and services produced must possess utility, which means that they must be capable of satisfying certain human wants.

In effect, economics is not concerned with whether something is good or bad. Its interest is in whether that thing is desired by someone who is prepared to pay for it. Production in economics is never complete until the goods and services produced get to the final consumers.

TYPES OF GOODS

There are two basic types of goods

1. Consumer Goods: These are goods that have reached their consumable stage i.e.; they are ready for use by the consumer without undergoing further process of production. They can be durable or non-durable goods.

Durable goods have a life span usually more than one year and can be used over and over again e.g. radios, shoes, chairs, computers etc. 

Non-durable goods are perishable goods that are consumed almost immediately due to their precarious nature e.g. bread, yam, garri, apple etc.

2. Capital / Producer goods: These are goods which can be used to produce other goods and services. They include such goods as sewing,  machines, vehicles etc.

Other types of goods Includes

a) Non-Economic Goods/Free Goods: These goods are very useful to human existence and survival but not scarce, and thus cannot normally command a price. They are freely available in any quantity desirable to man since they are freely obtained from nature e.g. air, rain, water sunshine etc.

(b) Economic Goods: These are any goods that are useful or valuable and at the same time scarce in their available quantity and which command a price as people are prepared to pay to possess them. They can be utilized and priced according to value and volume.

TYPES OF PRODUCTION

Production is divided into two: Direct and Indirect Production.

1. Direct Production: This is the creation of goods and services to satisfy household requirements It is a small-scale production to meet family needs.
2. Indirect Production: It is production by specialization for exchange. That is the producer is not attempting to satisfy his wants directly except to a very limited extent.

CLASSIFICATION OF PRODUCTION

1. Primary Production
2. Secondary production
3. Tertiary Production

1. Primary Production:  This is the first stage of production which is concerned with the extraction of raw materials from land, air and sea. It includes amongst many others produce from agriculture such as animal husbandry, mining, quarrying, oil drilling, cola, crude oil etc.
2. Secondary Production: This is the processing and transformation of raw materials from primary production into finished goods. At this second stage of production, utility is added to the basic raw materials from primary production. Those in the manufacturing and construction industries are engaged in secondary production.
3. Tertiary Production: This is the last stage of production which is concerned with the commercial activities and rendering of both direct and indirect services. It is mainly concerned with the distribution of produced goods until they reach the final consumers. 

Examples are wholesalers, retailers, barbers, bakers, hairdressers, teachers, musicians, soldiers etc.