Grade 10
Principles of Business
2019
SECTION 5: PRODUCTION
Production
The creation of goods and services to satisfy the needs and wants of consumers. It may also be defined as
changing inputs into outputs.
Objective 1: identify factors in the production of goods and services
FACTORS OF PRODUCTION
The term ‘factors of production’ refers to the resources that are combined in the production process to
create goods and services.
1. Land (Natural Resources)
2. Labour (Human Resources)
3. Capital (Man-made Resources)
4. Enterprise/Entrepreneurship (entrepreneurial
skills)
1. LAND
This consists of all the natural resources on the earth including those in the sea and the atmosphere around
us. Each country in the Caribbean has various natural resources which can be used in various industries
to produce goods; natural resources such as soil, seas, rivers, forests, minerals, vegetation etc. Most of
these resources are non-renewable once used up in production that is it In addition, production
cannot occur without the use of Land.
Objective 2: identify industries developed from the natural resources of Caribbean territories- Caribbean
industries developed from agricultural produce, mining, fishing, and other areas.
Natural Resources of the Caribbean and the industries they support
Country
Jamaica
Trinidad and Tobago
Guyana
Barbados
Antigua & Barbuda, The
Bahamas, Barbados and
Jamaica
Natural Resources
Mining: Bauxite
Limestone
Gypsum
Silica sand
Forestry
Extractive/Agriculture
Mining: Crude Oil
Asphalt
Agriculture
Mining: Diamonds
Bauxite
Gypsum
Manganese
Forestry
Agriculture
Mining: Natural Gas
Limestone
Agriculture
Tourism and Hospitality
Production Use
Aluminium Production
Plaster production
Wallboard and plaster production
Window glass and drinking glass production
Lumber
Sugar cane, coffee and banana
Oil refining to produce fuels and other materials used
in plastic and chemical production.
Road Construction
Sugar cane
Jewellery and industrial tools
Aluminium Production
Wallboard and plaster production
Specialist in steel production
Lumber
Sugar cane, rice
Energy Production
Building material in the construction industry
Sugar cane, spices, dasheen and coco
Beaches, caves, waterfalls and vegetation
Examples: The La Brea Pitch Lake in Trinidad and construction of roads in the Caribbean, Mining of limestone and its use in
manufacturing cement at the TCL Group of companies including Arawak Cement Company Limited, Barbados; Caribbean
Cement Company Limited, Jamaica; TCL Guyana Inc; and TCL Trading Company Limited, Anguilla.
2. LABOUR
This includes all human resources which are needed to combine other factors of production to produce
goods and services. It refers to both physical and mental ability. This factor is rewarded with wages,
salaries and or profits. This factor is very important since people are needed to operate equipment,
program machinery, make decisions, interact with clients etc. Without it, the other factors would be
useless. The Labour Force refers to all persons who have reached the age for work as stipulated by law
and who are either employed or unemployed. This is major factor that determine economic growth.
Adapted from http://smspob.weebly.com/summary-notes.html and http://wizznotes.com/pob/factors-of-production
Edited by Mrs. S. DaCosta-Walker
1
Grade 10
Principles of Business
2019
Classification of Labour by Skill
Labour skill level
Unskilled
Explanation
Jobs that involves very little or no formal training
Semi-skilled
Jobs that require some formal training and possibly, a
work based qualification
Skilled
Jobs that require a high level of training often
combined with considerably experience
Jobs that usually require a high level of educational
qualification, often with professional qualification too
Managerial and
professional skills
Factors Affecting the Labour Supply
 Size and structure of population
 Age at which people enter and leave the
labour force
 Government policies
 Hours of work
 The number of women who opt to remain
at home
 Skill Levels
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Caribbean Examples
Street cleaners in Kingston, Laundry workers
in a Port of Spain hotel and (watchman,
vendor, labourer etc.)
Assembly line workers operating machinery
e.g. sugar company of Jamaica (driver,
plumber, data entry operator etc)
Engineers, computer operators, senior factory
supervisors
Lawyers, solicitors, teachers, doctors, business
executives, university lecturers
Mobility of labour
Religious and cultural practices
Adequacy of health services
Quality of labour force
Willingness of people to work
Migration patterns
Wage rate
PRODUCTIVITY
Objective 3: differentiate between production and productivity-Output produced versus output per unit of input.
Productivity is the rate at which goods are produced (efficiency of production). It may also be the
relationship between the amount which is produced and all the inputs (raw materials, money etc.) which
have to be used to produce those goods.
Factors Affecting Productivity
 Education and Training
 The amount and quality of capital
 Motivation
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Working Conditions
Health of Workers
Good Management
Law of Diminishing Return
Productivity is the level of production per unit of input e.g. amount produced per worker per hour.
Formula
Productivity = Output/Input
For example: A factory employs 6 workers and the total daily output is 12 tables. What is the productivity
level?
=Output/Input = 12/6 = 2
Productivity = 2 tables
If productivity increases to 3 tables per day using the same number of workers, what would be the
production level:
6 * 3 = 18 tables
Ways to increase productivity
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Motivation
The quality of technology and the amount of capital equipment available. E.g. if a hand saw was used to cut
the wood same could be replaced with an electric saw.
Management ability and leadership style: if managers allocate the right work to right workers and if they
encourage workers with their leadership style the productivity will increase.
Training and skill levels of workers- the better trained workers tend to work faster and more efficiently.
Working conditions and the layout of the factory or workplace-if conditions are clean and well ordered and
if the workplace is logically laid out, workers will be able to produce more in the same time.
Workers Health- unhealthy or sick workers will have low productivity
How increasing productivity reduces labour cost per unit
Output per worker = Labour productivity
Daily wage paid per worker
2 tables per day
3 tables per day
$60
$60
Labour cost per table
Wage per worker/Labour productivity
$30
$20
Adapted from http://smspob.weebly.com/summary-notes.html and http://wizznotes.com/pob/factors-of-production
Edited by Mrs. S. DaCosta-Walker
2
Grade 10
Principles of Business
Objective 4: explain the importance of productivity;
2019
Importance of Productivity
Productivity increases output. High productivity results in lower cost per unit of output resulting in higher
levels of profit for a business. For example, a factory worker can produce 10 items in an hour and he
subsequently produces 20 units in the same hour after some training. His productivity has doubled and the
business will benefit from a fall in unit cost as more units are being produces at the same costs of
production.
Higher profits for the firm will mean more funds available for its expansion, new business ventures and
community support. It may also wish to pass on the benefits of lower costs to consumers in the form of
lower prices.
Objective 5: explain the role of capital in production
3. CAPITAL
Capital is the money and all other assets which are employed in the process of production. Capital refers
to assets such as machinery, equipment, inventory and cash that are used to start and continuously operate
a business.
Role of Capital in Production
Capital plays a vital role in the overall production of good/services. Money is needed for overall
operation of the business e.g. purchase of equipment and raw materials, payment of wages/salaries etc.
The use of fixed capital (tools, equipment) increases the productivity of labour. E.g. the use of a tractor
rather than a hoe can increase the rate at which a field is ploughed.
The amount and type of capital a firm uses depends on the size and type of industry in which it operates.
E.g. the production of cars requires large factories and specialised equipment while the production of
leather goods can be done in a small shop with little equipment.
With the use of capital, division of labour is made possible which in turn can increase the level of
productivity/ output per person.
Capital is also used for investment into various capital ventures. This can be done by saving with financial
institutions (banks, cooperatives etc.) which then in turn loan the money to different organisations or
entrepreneurs.
Types of Capital
Objective 6: differentiate amongst types of capital
A. Working Capital
Items required for the day to day operation of the business and which are continually being used up e.g.
raw materials, cash, bank.
B. Fixed Capital
This usually refers to items which are long lasting and are used in the production of goods and services
e.g. buildings, machinery, tools etc.
C. Venture Capital
This is the financing that investors provide to start-up companies and small businesses that are believed to
have long term growth potential.
4. ENTERPRISE/ENTREPRENEURSHIP
This is the ability to coordinate and combine the various factors of production in an effort to successfully
run the organisation. The entrepreneur is often seen as the fourth factor of production. This role is also
carried out by the various managers within businesses. Without it production is not possible. An
entrepreneur can be seen as someone who has the following functions:
1. Creation of ideas
2. Takes the initiative and risks
3. Raises finances to fund production
4. Determines what, for whom and how much to produce
5. Ensures that factors are used in the correct proportions
Benefits of Being Self-employed
1. Receives all profits
2. Can set own hours
3. Makes all decisions and reports to no one
4. Close personal relationship with clients
Adapted from http://smspob.weebly.com/summary-notes.html and http://wizznotes.com/pob/factors-of-production
Edited by Mrs. S. DaCosta-Walker
3
Grade 10
Problems of Being Self-employed
1. Bears all losses
2. Work long hours
Principles of Business
2019
3. May not always get a salary
4. May find it difficult to acquire loans
Exercise
1. What is the difference between production and productivity?
2. List the factors of production and give an example of each.
3. State THREE factors which can affect productivity.
4. Explain which capital is necessary for the running of a business.
5. Give THREE factors which affect the labour supply.
Objective 7: classify the different types and levels of production;
TYPES OF PRODUCTION
1. Extractive/Primary Sector
This type of production involves the extraction of basic raw materials from the land e.g. mining,
agriculture, fishing, forestry. Some of these resources can be used directly or are used as the raw materials
of other industries to be converted to other goods.
2a. Manufacturing/ Secondary Sector
This sector generally uses the raw materials of primary sector to create other goods (manufacturing). E.g.
sugar, oil refining, canning, furniture and garment making etc.
2b Construction
This is also part of secondary sector and uses products from the manufacturing area e.g. building
3. Service/Tertiary Sector
This is known as the service sector where no “tangible” goods are produced. It is divided into direst
services which are needed for their own sake (education, health etc.) and indirect services which are
needed in order to exchange goods (transportation, communications, banking and tourism etc.)
Exercise: For the following countries, give examples of primary, secondary and tertiary production
Barbados
Jamaica
Trinidad
Guyana
PRODUCTION LEVELS
1. Subsistence Production
This is the lowest level of production.This is the production of goods to satisfy one’s own personal needs.
Subsistence productions refers to output from the production process that is just enough for the survival.
This amount of production is therefore not adequate to meet all needs and wants of a family, community
or a country. For example, subsistence farming involves the production of crops to feed the family and for
survival. Wealth is not created as whatever is produced is consumed. Other examples include kitchen
garden, sewing one’s own clothing etc.
Benefits
 It saves money
 One of a kind items are created
 Creativity can be explored
2. Domestic Production
The production of good/services for the local market. Domestic production refers to production that is
more than survival level. It provides output that is enough to satisfy domestic needs and wants. Excess is
not available for export. However, production is adequate to supply local demand.
Benefits
 Use of local inputs e.g. labour, capital, raw materials etc.
 Provision of jobs
 Reduces imports
 Reduces the use of foreign exchange
 Economy may become self-sufficient
Adapted from http://smspob.weebly.com/summary-notes.html and http://wizznotes.com/pob/factors-of-production
Edited by Mrs. S. DaCosta-Walker
4
Grade 10
Principles of Business
2019
3. Surplus and export
The production of goods above what is needed to supply domestic needs. The surplus is sold on the
international market. This level of production is adequate to supply local demand and for export. Large
industries can produce large quantities of output to satisfy local consumption and earn foreign exchange
from export, for example, the sugar and banana industries.
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Benefits
Foreign exchange earned
The development of an external market
Jobs
Can improve Balance of Trade and current account of Balance of Payment
Objective 8: describe the characteristics of cottage industries;
COTTAGE INDUSTRIES
These are industries which are usually carried out in the home. They usually require some form of skill in
order to manufacture goods. These industries are very important to rural areas as they provide income,
employment and provide goods and services which may only have been available in the town which may
be far away. In other words, Cottage industry is a generic term for any type of home–based production
business. The term is specifically used to describe industries of a craft nature e.g.: Pastry making, leather
work, mats, crochets, quilt making, basket weaving, carving and pottery. This type of home–based
business is not difficult to start as it requires little capital to purchase tools and employs family members.
These small scale businesses are important to an economy. They utilize local raw materials such as clay
for pottery, wood for carving and straw for baskets. They earn foreign exchange from selling to tourist at
craft markets and fairs.
Characteristics
1. Work mainly carried out manually
2. Home based
3. Business carried out on a small scale, use simple tools
4. Use of local raw materials, inexpensive member provide labours
5. Family members provide labour and in some cases help is hired.
Benefits
 Low costs: no high rental costs for factories or offices as work is all done from home of from local
community centres church halls and similar location.
 Offer employment to family members who may only have manual skills
 Use local materials such as wood, sand, clay, pebbles and often used recycled materials which help to
reduce the waste problem e.g. of recycled materials include plastic bottles and cloth piece for making
quilt.
 They provide an important link with the tourist industry in producing many of the gifts that tourists
buy.
Problems
 The skills of family member may be limited
 Small scale production will not benefit from economies of scale. So cottage industries may have
higher average costs than factory produced goods.
 Hard work and long hours are needed if such businesses are to have a chance of success
Objective 9: outline the functions of small businesses;
ROLE/FUNCTION OF SMALL FIRMS
Supplying goods and services that satisfy demand
Identifying a particular need in a market and developing a product that will supply that market need
improves standard of living and increases the overall revenue (GNP) earned in a country. Small
businesses have the advantage over large businesses to identify changing market trends as they are closer
to the customers. They are also able to produce unique products to suit the needs of each customer. In
other words, they can provide services that large firms are not willing to produce.
Adapted from http://smspob.weebly.com/summary-notes.html and http://wizznotes.com/pob/factors-of-production
Edited by Mrs. S. DaCosta-Walker
5
Grade 10
Principles of Business
2019
Creating employment
Small businesses account for a large percentage of total employment in Caribbean economies.
Making profits
The main purpose of starting and operating a business is to make profits. Profit makes it worthwhile for
the entrepreneur to continue business. Profit earned may be reinvested to expand the business.
Niche Markets
A niche market is a focused, targetable portion of a market. By definition, then, a business that focuses
on a niche is addressing a need for a product or service that is not being addressed by mainstream
providers. Establishing a niche market give you the opportunity to provide products and services to a
group that other businesses have overlooked. You can think of a niche market as a narrowly defined
group of potential customers that have specific needs, a subset of a larger group.
Objective 10: discuss the advantages and disadvantages of small business
Advantages:
 generate employment and incomes especially in rural areas and economically depressed areas;
 increase competition for larger firms; and,
 introduce new products and ideas (for example, event planning).
Disadvantages:
 the business lacks expertise in certain areas;
 owners find it difficult sourcing finance from financial institutions; and,
 limited ability to service customers due to unavailable resources.
Objective 11: explain how a business grows internally and externally;
Internal growth- It happens when a business expands its own operations rather than relying on takeovers
and mergers.
 opening other outlets;
 employing more workers and
 increasing capital.
External growth- is when a business or a company increases its profits through mergers and acquisition
rather than its operation. The main goal is to bring the external finance into the company and achieve
greater market share.
 joint ventures- a business agreement in which the parties agree to develop, for a finite time, a new
entity and new assets by contributing equity.
 Mergers- a deal to unite two existing companies into one new company.
 takeovers/acquisitions- A takeover is a special form of acquisition that occurs when a company
takes control of another company without the acquired firm’s agreement. Takeovers that occur
without permission are commonly called hostile takeovers. Acquisitions, also referred to as
friendly takeovers, occur when the acquiring company has the permission of the target company’s
board of directors to purchase and take over the company.
Objective 12: outline the opportunities for and benefits of developing linkage industries
LINKAGE INDUSTRIES
Industries which are dependent on another’s output to produce goods and services. E.g. the rum distillery
is dependant on the sugar industry. Other names for linkage are ‘spin off’ and screwdriver’ industries.
Linkage may be:
 Forward
 Backward
Importance of Linkage Industries
1. Employment
5. Close proximity between industries can reduce
2. Foreign Exchange earner
costs e.g. transportation
3. Self-sufficiency
6. Reduction of imports
4. Use of local resources
7. Increase in investment
8. Knowledge can be shared
Adapted from http://smspob.weebly.com/summary-notes.html and http://wizznotes.com/pob/factors-of-production
Edited by Mrs. S. DaCosta-Walker
6
Grade 10
Principles of Business
2019
Problems
1. Limited raw materials
2. Access to foreign market is not guaranteed
3. Shortage of capital
Forward Linkage
If the final product or finished products of one industry is used in another industry as its raw material then
a forward linkage occurs. For example, sugar produced from a sugar factory is used by a bakery to make
pastries. Sugar is therefore the end product of one industry and used as raw material in another. Other
examples include agriculture and canning, lumber and construction and cattle farming and meat
processing.
Backward linkage occurs when the demands of an industry leads to the establishment of other industries
to produce for the needs of this industry. For example, the establishment of several multinational fast food
restaurants in the Caribbean has led to new businesses being established to supply these restaurants with
raw materials (vegetables, ground provisions, meats and paper based products).
Importance of Linkage
1. It guarantees the movement of products in that there is always an outlet for the product.
2. It generates income which will eventually be re-spent in the economy.
Benefits of developing Linkage industries in the Caribbean Economies
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Employment opportunities increase in the region as jobs will not only be created in hotels but also
in food, processing factories and local farms for example.
Local supplies reduce transport costs and help to keep the hotel industry competitive
Regional self sufficiency is encouraged. There is now a market for the goods and services
provided by all of the primary, secondary and tertiary sectors, that supply goods and services.
Joint research and development can be undertaken e.g. into the type of product foreign tourist like
to eat.
Imports and the foreign currency cost of these are reduced. This is a real benefit to Caribbean
economies as it enables them to buy in important imports such as foreign machinery to further
help boost local production.
Tourism needs…
Which is linked to….
Which is linked to ….
Food for hotel guest
Frozen packaged, processed food from
primary products- secondary sector
Drinks produced by factories e.g. rum and
soda, drinks-secondary sector
Supply of fresh food from local
farmers-primary sector
Sugar used in drink production.
Drinks products are transported to
hotels and guest house-tertiary sector
Timber, cotton, wool-primary sector
Drink for hotel guests
Beds and other furniture, bed linen
carpet
Hotel building and roads to access
hotels
Furniture linen and carpet making industriessecondary sector
Construction industry-secondary sector
Gypsum, limestone and asphalt
Objective 13: explain the effects of growth on a business.
GROWTH OF BUSINESS AND ITS EFFECTS
How Firms Grow
1. Expanding their markets
2. Creating new products
3. Merging with another firm
4. Takeover
Why Firms Grow
1. To reduce cost & achieve economies of scale
2. To increase profits
3. To achieve greater security
Effects of Growth
In any organisation growth will have an effect on the following
Adapted from http://smspob.weebly.com/summary-notes.html and http://wizznotes.com/pob/factors-of-production
Edited by Mrs. S. DaCosta-Walker
7
Grade 10
Principles of Business
2019
1. Organisational structure
It may become more complex, affecting the chain of command and the span of control of individuals.
New departments may also be created. There are also implications for the increase in the amount of
communication within the firm. Authority may now be delegated among a greater number of personnel
whereas one or two persons may have held it.
2. Capital
More money is now required to finance operations. For example, buying equipment, paying workers, raw
materials etc. In order to finance its operations the firm may now have to increase its borrowing or issues
shares where possible.
3. Labour
An increase in the number of workers usually occurs but the extent to which is does may depend on if the
firm is labour or capital intensive. There may also be division of labour/specialisation which increases
output. Specialists may also be hired.
4. Potential for export
As production increases and the local market is being satisfied, surplus production may be exported as a
market is established.
5. Use of Technology
There will be greater used of technology as long as it will lead to reductions in cost and increases in
output. In turn it may cause a reduction in labour
Quiz
1. Discuss the importance of one natural resource to the survival, economic growth and development of your
Caribbean country.
2. Explain the importance of productivity to a business organization and state two ways by which productivity
can be achieved.
3. Discuss the importance of two factors of production to the production process.
4. Differentiate between subsistence and surplus levels of production and explain the importance of surplus
level production to an economy.
5. Give two examples of items made by cottage industries in your country and explain how these activities
contribute to your economy’s growth.
6. Differentiate between a forward and a backward linkage and give one example of each in your country.
Adapted from http://smspob.weebly.com/summary-notes.html and http://wizznotes.com/pob/factors-of-production
Edited by Mrs. S. DaCosta-Walker
8