Unit 2: The Basic Processes
GROUP 2
2.1 Production
The Aim of a Good Economy
• The ultimate aim of any good economy is to
satisfy its population's wants and needs.
• A country's welfare and prosperity largely
depend on its volume of production.
• Increased production generally leads to:
 More jobs
 Higher income for the population
Improved standard of living and welfare of
citizens
Defining Production
• Production can be defined as the process whereby an entrepreneur
combinesavailable resources (land, labour, and capital) and turns
them into some sort of product which is used to satisfy the wants
and needs of the population.
• Production is one of the three basic processes of economies.
Factors of Production
There are four factors of
production in any economy. These
are the essential elements that
need to be combined to produce
goods or services.
Land (Natural Resources)
• These are all the resources
occurring in nature and are
sometimes called the "gifts
of nature."
• Examples: fish, minerals, forests,
water, and land for farming.
Labour
• From an economics perspective,
labour is "all the mental and
physical effort which is used in
the production process."
• It includes all the activities
humans perform to earn money
and income in the form of wages
or salaries.
• Examples: teachers, doctors,
municipal workers.
Capital
• This includes all the machines and
resources that are used and needed to
produce goods and offer services.
• Natural resources often need to be
transformed using machines and
equipment to become more useful for
human consumption.
• A tree (natural resource) is transformed
into a chair or table (capital good used in
further production or a final product).
Entrepreneurship
• The skill of combining all factors of
production, taking risks, and developing a
business or product.
• Role of the Entrepreneur:
* Combines land, labor, and capital
effectively.
* Takes the risk of starting and running a
business.
* Ensures the right factors are in the right
place at the right time.
* Aims to produce the right products for the
right prices for the right people.
Direct and Indirect production
Direct Production
• There is no exchange or market
involved.
• Individuals directly create what they
need for their own consumption
Example; a private household that:
* Grows its own food.
* Weaves its own cloth.
* Makes its own clothing.
Indirect Production
• This type of production relies on
specialization (individuals focusing
on specifictasks).
• Goods and services are produced for
exchange in a market.
• This is the dominant form of
production in modern economies.
Primary Industry
• The production activities
involved in extracting and
collecting natural resources
from: oceans or rivers, forests,
under the earth, above the earth
• Examples:
* Fishing
* Farming
* Mining
The Secondary Sector - Manufacturing and
Processing
• The secondary sector involves the
processing or changing of natural
resources into products that are
ready to be used by the public.
• Factories and businesses that buy
raw materials and transform them
into something else.
Example :
* A sawmill turning trees into tables
and chairs.
The Tertiary Sector - Services and Distribution
• The tertiary sector involves the
distribution of goods and the
provision of services to the
public.
Examples:
* Retail
* Logistics
* A hairdresser
Specialization as a Solution to Scarcity
• Today, most people earn money by doing a specific job.
• They use this money to buy the goods and services they need.
• Economists and policymakers view specialization and the division of
labour as tools to solve the problem of scarcity.
* By focusing on specific tasks, individuals and businesses can become
more efficient and produce higher quality goods and services, leading
to greater overall productivity and more available resources.
Consumption
• Consumption happens when people buy a product or use a service.
• Once a product is used or applied, it is being consumed.
• We buy and use various products and services.
We will focus on two main categories:
* Consumer Goods: Products for personal use or enjoyment.
* Capital Goods: Products used by businesses to produce other goods
and services.
Consumption contin....
• Some products can be both consumer and capital goods.
• The key difference is how they are used.
Example: A computer:
* Capital Good: Used by a marketing company to design
advertisements.
* Consumer Good: Used by a family for children to play games.
Immediate Consumption
• Refers to products that can be used up or destroyed when they are
used.
Example: When you go to a fast-food restaurant and buy a hot dog,
once you have eaten it, the product cannot be used again.
Deferred Consumption
• When you buy a product that can be used over and over to satisfy
your needs, with little or no damage to the product.
• These are semi-durable or durable products.
Examples: Clothes, cars, furniture, and shoes.