Thursday, 6 August 2015

A study of the basic economic activity - Production and factors of production

Production is one of the basic economic activity. 
  • Production can be defined as the conversion of resources or raw materials with the help of other inputs into usable goods and services.
  • It is the process of making / producing or developing user friendly goods and services employing or utilising the various means and resources that are available in an economy.

Man can not consume goods in their raw form in most of the cases. The raw materials and resources need to be processed and tamed in order to be consumed. For example, production of cars, buses, trains, etc. require the steel to be first mined in its raw form, then burned, molted and moulded to give shapes. It requires engineering skills, labour force, finance capital for purchasing the steel and machines/ tools, and for payments to labour, etc. Further it requires the skills of efficient management for controlling the various processes as well as efficient usage of inputs.

So, production implies utilisation of resources as well as the other input factors of production. Here one should notice that only those inputs which become a part of the output or those that are consumed and used up during production process are to be treated as the factors of production..

There are four major factors of production without which you can not carry on the production activity. They are-
  • Land,
  • Labour,
  • Capital and
  • Entrepreneurship. 
Now, let me give a brief account of these factors of production as to their importance in production.

Land is one important factor of production. Land is used for cultivation to grow all food grains, vegetables and other trees and plants. The fertility of soil gets used up here in production. Again, land contains rivers and lakes which provide the water for our consumption, besides being used for fisheries and internal transportation purposes. 

Land is the base for all our minerals, oils and other resources. We mine them, process and use them in producing various goods and products that are consumed by us or further used in production of many other different varieties of goods.

Labour is required to do all physical tasks as well as skilled operations in order to produce something.
Purely physical labour includes lifting of weights, ploughing of soil for agriculture and other unskilled jobs like helpers and servants.
Skilled labour requires special talents in the field through education and training like teachers, doctors and engineers.
All of these professionals aid to the production of goods and services as their time and energy are consumed in the process.

Capital is one more important factor of the 4 factors of production. You can't do any business without capital. Production requires the accumulation of resources which are procured by paying money or equivalent before starting any production. So, you have to invest capital before starting the production or establishing any kind of business.
Even after accumulating the required resources, you have to pay for the services utilised of land, labour and other intermediary activities before you may start earning income or profits from the business. So, capital is one important factor of production.

Even after all your resources and inputs have been procured to start your production, you need some managerial skills and talents to run your production process. You need to organise everything in a systematic manner to enable  production. You need to know what to produce, how much to produce and the inputs required for the output. You should be able to calculate and predict things prudently and efficiently in order to produce maximum output with the available limited resources in order to succeed. So, entrepreneurship plays an important role in production and you can't ignore it. 

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