A MOMENT WITH JAMES SORIE SAMURA

• Define production
• Explain types of production
• Enumerate factors of production
• Explain factors that helps in determining the volume of production
• Explain consumer goods
• Explain capital goods
• Explain the risk bearer and his functions in the production of goods and services
• Explain types of capital
• Explain types of labour

DEFINITION OF PRODUCTION

J.R. Hicks defines production as an organised activity of transforming resources into finished products in the form of goods and services inorder to satisfy demand for produced resources.

In economics, production is not just the making of things or services but the making of things and services that satisfies peoples wants.

The produced goods should have an economic worth, that is, exchange value.

TYPES OF PRODUCTION

There are three types of production in the study of economics. These are:

1. Primary Production
   1. Secondary Production
   1. Tertiary Production
2. PRIMARY PRODUCTION

This is the production of raw materials from industries such as agriculture, forestry, fishing, mining and oil extraction.

Primary production are carried out by industries which make use of the gift of nature from sources such as the earth’s surfaces, ocean and sometimes from the atmosphere.

• SECONDARY PRODUCTION

This has to do with the manufacturing and construction industries. It involves converting raw materials and intermediate materials into semi-finished goods and finished goods.

The conversion of coconut to oil, flour to bread, iron ore to steel are all examples of secondary production.

Examples of secondary production companies are car-manufacturing companies, clothing companies, shoe-making companies, furnishing companies, chemicals production companies, engineering and building companies etc.

• TERTIARY PRODUCTION

This involves sectors that enhance services that enable finished goods to reach consumers. Examples are distribution services, banking, insurance, transport and communications. Law, administration, education, health and defence are part of this sector. The hospitality and tourism sector can fit itself here, though in some cases it can be found in other stages especially the secondary stage of production.

FACTORS THAT HELPS IN DETERMINING THE VOLUME OF PRODUCTION

These are the commodities and services required to facilitate the process of production. They are known as economic resources. They are:

1. Land
2. Labour
3. Capital
4. Enterprise
5. LAND

Otherwise referred as gift of nature. It is not just that part of the earth’s surface that is not covered by water but also the minerals, soil fertility and sea resources. It provide space and specific resources (Penguin Dictionary).

Land has the following characteristics:

1. LAND IS FIXED IN SUPPLY

That is the total average of land to men cannot be added or reduced. Sierra Leone has a fixed land area of 71, 740 Km². However, drainage, irrigation, and fertilizer can add land for agricultural purpose.

• ALTERNATIVE USES

Land can be used for different purposes. The same piece of land can be used for farming, road construction, estate construction etc.

• DIFFERNCE IN FERTILITY

Land has difference agricultural potential

• LABOUR

Labour is a primary factor of production just as land. It is toil and/or skills with the reward of wage. This factor produce a human service either skilled, semi-skilled or unskilled.

This characteristic makes labour a unique human effort of any kind (physical and mental) directed to the production of goods and services.

• CAPITAL

Capital is a man-made resource with the reward of interest. This a produced means of production or the cost for production. It is wealth not use for the purpose of consumption but is utilized for the purpose of production.

• ENTERPRISE

This is the organisation of land, labour and capital to produce goods and services. It is about risk taking and organising.  The reward for enterprise is profit.

CONSUMER GOODS

These are goods purchased for consumption without any intention to be used in future production of other goods.

Examples are food, clothing, vehicles, electronics and appliances.

Consumer goods can be categorised into:

• DURABLE GOODS: Have lifespan of morethan three years e.g. vehicle and furniture.
• NON-DURABLE GOODS: These are meant for short time use and have a lifespan of less than three years e.g. food
•  

CONSUMER SERVICES

These intangibles cannot be seen or touched but felt and gives satisfaction. Haircuts, oil changes, car repairs are all examples of services.

CAPITAL GOODS

These are goods produced and purchased to be used in future production of goods and services. They are known as economic goods.

THE RISK BEARER AND HIS FUNCTIONS IN THE PRODUCTION OF GOODS AND SERVICES

The risk bearer is an entrepreneur who takes the risk of uncertainty. The term ‘entrepreneur’ and his unique risk-bearing function in economics is first mentioned in the early 18^th century.  According to Richard Cantilon as quoted in an article published by D.K Sinha, an entrepreneur is an agent who byers factors of production at certain prices in order to combine them into a product with a view to sell it at uncertain prices in future. Example is buying a piece of land at a certain price and paying labourers at certain prices to build at that land with the intention to sell/rent the house at uncertain prices in future.

In 1965, Knight described an entrepreneur to be a specialized group of persons who bear uncertainty. Uncertainty here is risk that cannot be insured against and cannot be calculated.

Thus, the functions of the risk bearer (entrepreneur) are group as:

1. RISK BEARING FUNCTION
2. This is most important and specific function of an entrepreneur is the risk bearing function
3. This is because every business has some amount of risk
4. The production of goods and services to future demands which is uncertain and unpredictable, because it is influence by changes in fashion or taste and like of consumers
5. The price structure, value of money, climatic conditions and government policies are some other factors that affect the demand of a commodity. All these factors are variables that makes it difficult to estimate future demand
6. ADMINISTRATIVE AND DECISION MAKING FUNCTION

This has to do with the conception of business idea, estimation of the details of the business, strategizing and implementation of the business, supervising and control of business activities and innovative and critical thinking in decision-making.

• DISTRIBUTION FUNCTION

This disperse of funds to the different factors of production, that is, land, labour, capital and entrepreneurship.

TYPES OF CAPITAL

There are three broad categories of capital:

• Financial capital
• Human capital and
•  Natural capital
• FINANCIAL CAPITAL

This involves equity, debt, investment and working. It is to be note that equity and debt are the most common forms of financial capital.

Equity is an ownership stake in a company, and equity investors will receive the residual value of the company in the event it is sold or wound-down. Unlike debt, it does not have to be repaid and does not have an interest expense associated with it. Equity is used to fund the business and purchase assets to generate revenue.

Debt is a loan or financial obligation that must be repaid in the future. It has an interest expense attached to it, which is the cost of borrowing money. The cash received from borrowing money is then used to purchase an asset and fund the operations of a business, which in turn generates revenues for a company.

• HUMAN CAPITAL

This involves social capital, intellectual capital, physical capital and talents/skills capital.

Human capital is used by businesses to create products and perform services that can be used to generate revenue for the company. Companies don’t “own” people they way they do other assets. The most common types of human capital are intellectual and skills/talents.

Intellectual refers to the intelligence of people, which can be used to successfully run a company, think creatively, solve problems, form strategies, and outperform competitors.

Skills and talents are used in much the same way as intelligence to help a business operate and generate revenues. Skills do not necessarily require mental capacity and can include manual labor, physical exertion, social influence, etc.

• NATURAL CAPITAL

This involves commodities, animals, vegetation and ecologies.

Natural capital can also be used by businesses to generate income and increase production. Many businesses use natural resources such as water, wind, solar, animals, trees, plants, and crops to operate their company and increase value over time.

Companies may or may not own the natural assets they require to operate.

TYPES OF LABOUR

1.                Physical and Mental Labour:

Such work in which physical labour and physical strength is more important in comparison to mental labour is called physical labour. For example—the work of Rickshaw Puller, workers working in factory, porter who carries luggage on the platform.

But mental Labour is that in which brain is applied or mental fatigue is more in comparison to physical fatigue, For example—The work of an advocate, teacher, doctor, chartered accountant etc. For better performance of work, mental and physical labour is essential.

2.                Skilled and Unskilled Labour:

Skilled Labour is that in which special knowledge, learning, training and efficiency is required in performing the work. For example—The Labour of engineer, doctor, teacher and a scientist has been called as skilled Labour.

While the work in which special knowledge, training or learning is not required is known as unskilled labour. For example—the work of rickshaw puller, porter-carrying luggage on platform is called unskilled. The remuneration of skilled worker is normally higher than that of unskilled worker.