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Unit-1 PRODUCTION




UNIT-1
PRODUCTION
ECONOMIC ACTIVITY
            An effort to do something is known as an activity. Why do so many people engage themselves in different activities? The answer is that they want to earn their livelihood and to satisfy their wants and needs.
Human activities are broadly classified into two categories;
            Economic activities: - Economic activities are those activities which relate to the production and exchange of economic goods or services for getting something in return. Eg:- Activities of traders, manufacturers, sellers, etc..
              Non- economic activities: - Non-economic activities are those activities which aim to the mental satisfaction rather than profit making. Eg:-A house wife is cooking for her family, social work without the intention of return, etc.
Meanwhile, cooking food in the hotel is an example of economic activity but cooking food for the family is a non-economic activity.

Types of Economic Activities
Economic activities are classified into the following categories;
            1. Business: - Business is an economic activity concerned with the production and distribution of goods and services with the object of making profit or acquiring wealth for satisfying material wants.
            2. Profession:-Profession is an economic activity wherein a person renders personal services of specialized nature by using his personal skills, for the purpose of earning something. Eg:- Services of Nurses, Teachers, Doctors, Lawyers, Accountants, etc..
            3. Employment: -Employment involves working for or under someone else,  known as the employer, in return for a salary or wage. The people rendering services (both mental and physical) are known as the employees.

Important Terms in Commerce
Goods:- All physical things or materials which are ready to use are known as goods, it can be seen and touched.  Eg:- books, pen, pencils, car, etc…
Services:- Services are physical or mental efforts for doing something. It cannot be seen and touched.  Eg:- Services of teachers, Doctors, Lawyers, Nurses, etc.
Needs:- The basic requirements of human being are known as human needs, these are limited in nature.
Eg:- food, clothes and shelter
Wants:- Human wants are those goods or services that require ever and above the basic needs, They are unlimited in nature.
Eg:- Car, Air conditioner, TV, Vehicles, etc
Economic goods:-These are goods which are produced and demanded by the consumers who are ready to pay a price for each. They are limited in supply.
Eg:- Books, pencils, clothes, TV, washing machine, etc
Free goods:-These are the gifts of nature; we don’t have to pay a price for those. They are unlimited in supply.
Eg:-Sunlight, Air, Water.
Barter system:- Barter system means the exchange of goods for some other goods. It is the mutual exchange of one’s goods to other’s goods without money as a medium of exchange. This system is replaced by the arrival of money.
Perishable goods (Non-durable goods):- The goods which are damaged in a very short period of time is called perishable goods. It cannot be used for more than one time.
Eg:- Meat, milk, fish, bread, vegetables, fruits, etc.
Durable goods:- The goods which are not damaged quickly and can be used for long time is called durable goods.
Eg:- Machinery, vehicles, TV, refrigerator, washing machine, etc.
Consumer goods:- The goods which are ready to be sold and consumed by the final consumers are called consumer goods. It directly satisfies the consumers.
Eg:- Tooth paste, coca cola, biscuits, T-shirt, etc.
Capital goods:- The goods which are used to produce other goods are called capital goods.
Eg:- Machinery, Tailoring machine, Crane, pick-up van, etc.
Raw material:- The materials which are used as input in the production of a finished goods are called raw materials. It is not useful to a consumer directly.
Eg:- Raw cotton, a piece of cloth, rubber, etc.
Demand:- Demand is a market force which indicates the total number of goods or services which are ready to be purchased by the buyers in a particular period of time.
Supply:- Supply is a market force which indicates the total number of goods or services which are ready to be produced by the producers in a particular period of time.

PRODUCTION
     Production is an economic activity by which the raw-materials are converted into finished goods to satisfy the requirements of the consumers. It is important to notice that a production process is said to be completed when the goods reach in the hands of the final consumers.
Eg:-Woods become furniture and Bricks, stone, cement, etc become buildings, bridges, etc. Production may be divided into three, Industry, Commerce and Direct services.
STAGES OF PRODUCTION (SECTORS OF PRODUCTION)
1. Primary production [Primary Sector]
2. Secondary production [Secondary Sector] 
3. Tertiary production [Tertiary Sector]
1. Primary stage
This is the first stage of production where It includes the extraction of basic raw materials from the nature and the reproduction of plants and animals. This stage is further sub-divided into two,
-Extractive industry
            -Genetic industry
Eg:- Mining, quarrying, fishing, farming, forestry, etc.
 2.  Secondary stage
            This is the second stage of production where the raw materials found in primary stages become semi-finished or finished products. Primary stage supplies the input for this stage. This stage includes the following two types of industries-
            -Manufacturing industry
            -Construction industry
Eg:- Textile industry, Building construction, Chemical industry, Road construction, etc.
3. Tertiary stage
This is the third stage of production where the finished goods are distributed to the consumers. This stage includes both commercial services and direct services.
    The commercial services include transportation, communication, warehousing, advertising, retailing, banking, insurance etc.
 The direct services refer to such services which are necessary even though they are not directly participating for production activities but they are necessary for a healthy work-force. For example, doctors, actors, civil servants, policemen, teachers, nurses, lawyers, etc.

CHAIN OF PRODUCTION (CHAIN OF DISTRIBUTION)
Chain of production is the way through which the raw materials are passed on and become finished goods and finally reaches in the hands of the consumers.
The Chain of production begins with the raw materials and ends with the consumers.

DIFFERENT FORMS OF CHAIN OF DISTRIBUTION OR CHAIN OF PRODUCTION.
1. Raw materials- Manufacturers-(Finished Goods)-Wholesalers- Retailers- Consumers.
2. Raw materials- Manufacturers-(Finished Goods) - Retailers- Consumers.
3. Raw materials- Manufacturers-(Finished Goods) - Consumers.
4. Raw materials- Manufacturers-(Finished Goods)-Wholesalers- Freight Forwarding agents- Retailers- Consumers.

INDUSTRY
An industry is a group of independent business producing similar articles. Individual unit of production is immaterial in the concept of industry.

TYPES OF INDUSTRY
1. Genetic industry
Genetic industry is related to the reproducing and multiplying of certain species of animals and plants. Eg:- Nurseries, Cattle breeding, Agriculture, Poultry farms, Fishing, etc
2. Extractive industry
The extractive industry is engaged to the extraction of raw materials from the soil, air, water or from the beneath the surface of the earth.
Eg:- Mining, Collection of minerals, quarrying, etc.
3. Construction industry
Construction industry is engaged in the creation of bridges, roads, buildings, etc for the development of the economy. Immovable things are produced under this industry.
Eg:- Construction of buildings, roads, dams, bridges, canals, airports, etc
4. Manufacturing industry
Manufacturing industry is engaged in the conversion of raw materials and semi-finished materials into finished products. Moveable things are produced under this industry.
Eg:- Cement industry, sugar industry, iron and steel industry, Cotton industry, etc.
Manufacturing industry can be classified into three:
            a. Analytical industry
            b. Synthetic industry
            c. Processing industry
a. Analytical industry
Here one raw material is analyzed and many products are received as finished goods.
      Eg:- Crude oil is the main raw material for making petrol, diesel, LPG, kerosene, etc
b. Synthetic industry
In synthetic industry, many raw materials are brought together in order to make a final product.
            Eg:-Vehicle manufacturing, Furniture manufacturing, etc
c. Processing industry
In this industry, a raw material passes through different various processes to become a final product.
Eg:-Cloth industry- Collection of raw cotton from the farmers-Makes threads- makes cloths-Tailors make clothes- reach to the consumers. Sugar industry, etc.
5. Service industry
These industries are engaged in the provision of essential services to the community. Service industry is classified in to two,
            a. Direct services:-These are services directly provided to the consumers without middlemen. There is direct contact between the render and the consumer.
            Eg:- Teachers, doctors, lawyers, nurses, accountants, etc
            b. Indirect services:-These services are also known as commercial services or aids to trade. These are provided to help the movement of finished products from the producer to the consumer.
Eg:- Finance, communication, transportation, advertising, insurance, warehousing, banking, etc.

FACTORS OF PRODUCTION
            Factors of production are important factors which speedup the production processes.
1.    Land
2.    Labour
3.    Capital
4.    Enterprise

1. Land
Land represents all the natural resources such as agricultural and building land, mines and quarries, rivers, oceans and atmosphere and everything where a business located.
The reward for land is called rent
2. Labour
Labour includes both physical and mental efforts, whether undertaken for payment or not or within the family or household.
The reward for labour is called wages or salaries
3. Capital
Capital represents not only wealth and finance but also physical assets such as machinery that can be used to produce goods and services.
The reward for capital is interest
4. Entrepreneur
Entrepreneur is a person or group who undertake the risk of running the business or production.
The reward for entrepreneur is profit or loss

DIVISION OF LABOUR AND SPECIALIZATION.
Division of labour is the process by which the complex works are divided into different categories and each category is assigned to expert personnel.
            Eg- In a business organization, there are so many departments such as finance, administration, labour, distribution, advertising, etc. Each department will be under the control of Head of the Department.
Specialization-means the process of ensuring maximum output by employing right employees in the right job, according to their skills and experiences.

Advantages of specialization.
1. Individual workers can concentrate on those jobs to which they are most suited.
2. Practice makes perfect. Once people have learned a job, their skills at it increase.
3. Division of labour normally allows a great saving on tools and equipment.
4. As the work is broken down into individual tasks, it is likely that new and more efficient techniques will be developed.
5. It makes possible to mechanize the production process.
6. It ensures the standardization of products.

Disadvantages of specialization
1. Interdependence: Each part of a factory or an industry depends on the performance of the other departments.
              For example if there is broke down in one section it can quickly spread to other sections, causing delays and sometimes unemployment.
2. There is a danger of boredom when a worker is performing a simple continuous routine, often hundreds times a day.
3. As machinery becomes more complex it replaces labour, causing unemployment.
4. The spread of division of labour normally leads to a decline in craftsmanship.
5. As machinery takes over, output is standardized and the choice of goods available to consumers is reduced.
6. Difficult to select skillful employees.

TYPES OF DIVISION OF LABOR
The principle of the division of labor is applied at all levels of economic activity
1. Specialization by industry
    An economy is made-up many industries, each of which tends to specialize on a particular product or process.  
  For example, in the UK there are industries which are specialized in the production of coal, oil, chemicals, clothing, pottery, and so on.
 2. Occupational division of labour.
            The division of labour according to the occupations or works is known as occupational division of labour.
            Eg:- Teachers, Fishermen, Carpenters, lawyers, Doctors, etc.
3. Geographical division of labour
            This is a type of division of labour according to the geographical location. Here the division is based on the production or manufacture of certain goods.
            Eg:- Arabian countries for Petroleum products, Maldives for fishing, Srilanka for tea leaves, China for electronic goods, etc
4. Complex division of labour.
            The process of dividing entire work of an organization into a number of specialized jobs is known as complex division of labour.
            Eg:- A business organization is classified into different departments like Finance, Administration, Marketing, Advertising, etc.

COMMERCE
Commerce includes all the economic activities connected with the distribution of goods and services with the object of earning profits. It includes Trade and Aids to trade. It is a part of production.
 Trade
 Trade is a branch of commerce, it means the buying and selling of goods for the object of earning profit. Trade is classified into two,
-Home trade (Wholesale trade and Retail trade)
-Foreign trade (Export trade, Import trade and Entrepot trade)

Aids to trade (Commercial services)
            Aids to trade are various activities which help the trade.  These are also known as commercial services. Both direct and indirect services are essential in the business aspects. This is also referred as indirect services.
            Eg: - Finance, communication, transportation, advertising, insurance, warehousing, Banking, etc.


TYPES OF TRADE.
1.Home trade or Domestic trade
The trade which is carried on within the boundaries of a particular country is called home trade, where the buyer and the seller belong the same country.
2.Foreign trade or International trade or Overseas trade
The trade between two countries is called foreign trade. The buyer in international trade called importer and the seller is called exporter and both belong different countries.
3.Entrepot Trade
Entrepot trade means importing of goods from one country and exporting the same goods to other foreign countries. Such countries act as collecting and distributing centres.
            Eg. Singapore, Hongkong, etc.
4.Wholesale trade
Wholesale trade consists of buying large quantities of goods directly from the manufactures for the purpose of selling to the retailers.
5.Retail trade.
Retail trade consists of buying goods from wholesalers in large quantities and selling them to consumers in units with the view to make a profit.




Unit-2 RETAIL TRADE


UNIT-2
RETAIL TRADE
Retailer
A retailer is a middleman who buys goods from the manufacturer or from the wholesaler and sells to the final consumers in small quantities. He acts as a connecting link between the wholesalers and the consumers.
Retail trade
  Retail trade consists of buying goods from wholesalers in large quantities and selling them to consumers in small units with the view to make a profit. 

Functions of the retailer.
1. Breaking bulk.
            The retailer buys goods from the wholesalers in large quantities and cuts it into smaller quantities or units and sells to the consumers according to their demand.
2. Provides goods in convenient quantities
            Retailer buys goods from different wholesalers and keeps in his shop and sells in smaller quantities according to the convenience of the buyers.
3. Provides goods in convenient locations and in time
            The consumers can buy the goods from the retailers who are situated nearby them, and whenever the consumers want they can buy the goods.
4. Provides a variety of goods
            A retailer deals with number of wholesalers at a time so hebuys goods and keeps in his warehouse. Comparing to the other traders he will have wide varieties of goods.
5. Provides a delivery service for some goods
            Certain retailers may use their own vehicles to deliver the goods to the consumers according to the order from them.
6. Provides advice and information to consumers
            An expert retailer can give advice and information about a product to the buyers and provide the technical knowledge to handle and operate it.
7. Provides credit to customers
             Some retailers provide credit facility to their regular customers.
8. Provides after-sales service
             If any problem is happened to the products after immediate purchase, the retailer is responsible to replace or refund for it. And during the warranty or guarantee period the retailers or the manufacturers have to repair or replace the damaged products.
9. Deals with customers’ complaints
            Retailers help the consumers even if there is any problem due to the usage of products and inform the manufactures to solve it.
10. Acts as a link between customers and the wholesalers of goods.
            A retailer acts as a link between the consumers and the wholesalers or manufacturers.

TYPES OF RETAILER
Retailers are broadly classified into two,
·         Small scale retailers
·         Large scale retailers
1. Small scale retailers
            These are small scale traders but don’t have any fixed place for retailing. They move from place to place for selling their products. They carry their goods on their heads or wheeled vehicles. Itinerant traders are of the following types,
            a. Hawkers
They are traders selling goods in public places. They always shout about their ware’s price and quantity. Eg- Vegetable traders, fruits traders, etc
            b. Pedlars
A trader, who travels to different places to sell small goods, usually by going from house to house, is known as pedlar.  Eg- Small house hold traders.
            c. Street traders
These are traders who keep their goods in big cities or in towns especially in busy streets.
Eg- small bookshops, pen, clothes, etc
            d. Market traders
 These traders display their goods in different localities related with the festivals like Id and celebrations of new-year, etc. They can be seen in different market places.
            e. Seasonal Traders
These are traders who can be seen in certain seasons. Eg- sellers of umbrellas in rainy season, Woolen clothes at winter season, etc.
g. Pop up shops
A “pop-up shop” is a short-term, temporary retail event that is "here today, gone tomorrow". Demand for products sold in pop-up retail is typically short-lived. Pop-up retail stores are found most often in the apparel and toy industries.

2. Large scale retailers
These are large scale retailers having fixed place or location for trading. They are as following,
            a. The general Shop
It is a small scale retail establishment which stocks wide varieties of consumer goods in a single shop. The aim is to supply the day- to- day requirements of customers in a locality.
Eg- Local shops.
            b. The specialty Shop
It is a small shop which specializes on one line of goods. It sells limited varieties of specialty goods in a single line.
Eg- Clothes shop, Jeweler shops, Sportswear shops, Foot wears shops, etc
            c. Departmental Shops
 A departmental shop is large retail outlet comprising a number of small shops or departments. Each department deals with different types of products and all these departments will be under one roof and ownership.
Eg- Big shopping malls
            d. Multiple Shops or Multiple chain.
The multiple shop or chain store isone of the series of stores operated under a centralized management or ownership. The branches of the multiple shops will be situated in different parts of the city or country.
            e. Super Market
A supermarket is a large retail outlet selling a wide range of consumer goods, having minimum 200 square meters of sales area and is normally situated in the cities.
Normally it provides self-service and displays the goods.
            f. Hyper Market.
Hypermarkets are very big supermarkets having more than 5000 square meters of sales area. It is normally situated in the outside of the cities because of its large size. It offers wide range of goods as well as facilities like parking places, refreshment parks, etc.
            g. Voluntary Chain.
It is a group of independent retailers who join together in order to make profit from bulk purchases. They share the trade discounts given by the seller.
            h. Shopping Centre.
A shopping centre refers to a group of different shops located in a town or city. It offers one stop shopping facilities to the customers.

HOME SHOPPING.
            It is a type of latest retailing method by which the customers can order for the product without the middlemen, at their own homes. In this method the customers get information about the product as well as the product at their doors. The following are the important forms of home shopping,
            1. Mail order firms.
It is type of business unit specializes in a particular kind of retailing by which sales and purchases are done through post or mail without the personal contact between the buyers and the sellers. They advertise about their products and services through newspapers, internet, etc.
            2. Shopping by Phone.(Tele shopping)
In this method the sellers advertise about their product in the newspapers, TV, etc. and get orders through telephones and dispatch products by post.
            3. Shopping by TV.
It is similar to shopping by phone, here the firms advertise about their products through TVs and get orders by telephone or internet.
            4. Shopping on Internet.
It is the latest form of home shopping by which customers can collect information about the products and order through internet and email. Customers can pay money through the internet using cash cards and can deliver by post.

MODERN TRENDS IN RETAILING
            1. Branding- It means the selling of goods under a well-known trade mark or brand name. Brand name must be indicated clearly on the package or container. Brand helps the customers to distinguish a particular product from other similar producers.
            2. Packaging- It means the covering of goods in different ways using different materials in order to protect the goods as well as to carry from one place to another.
          3. Self-service- It is the latest trend in the present market system. Normally large scale retailers provide thisfacility. In this method the customers are allowed to choose the products by themselves without the force from the sales staffs. Here the retailers display the branded products in their shops. Eg-Supermarkets, Hypermarkets, etc
            4. After-sales service- It is offered by the retailers or manufacturers to the buyers after sales is taken place.The products are to be repaired or replaced if any faults occurred within a certain period. Eg- Guarantee, Free installation and fitting, repair, etc.
            5. Bar-coding- It consists a number of parallel black strips and which is printed on the wrapper of the product itself. It consists all the details about the product and a special scanning machine is used to read this.
            6. Loyalty card- Under this scheme the regular customer is given a card which benefits him when he purchases goods repeatedly from the same shop. When the purchases reach to the fixed target, the customer will be given a cash discount or a voucher for further purchases.    
            7. AVM (Automatic Vending Machines)-It is an electronic machine which vendors the goods without the assistance of human. We get goods when we insert certain money in this machine.
            8. EPOS (Electronic Point of Sale)- It is an electronic device installed on the counter of the shop for registering the cash transactions. It helps the customers for self-check-out using electronic cash devices.
            9. Omni channel Retailing. It is a trend of retailing with the integration of mobile marketing, engaging social media campaigns, and a well-designed website together for retailing.
            10 Virtual retailing (E-Shop). A Virtual Business conducts all or most of its business via the internet and does not have physical premises to interact with customers face-to-face. Eg:- Amazon, Ali express.

ADVANTAGES OF LARGE SCALE RETAILING.
a. Advantages to the retailers
1. They get cash discounts and trade discounts due to bulk purchase.
2. Increased sales due to the wider choice of goods.
3. High turnover due to the cash sales.
4. Self-services reduce the staff costs such as wages or salaries.
           
b. Advantages to the consumers
1. Lower price to the goods.
2. Wider choice for fresh goods
3. Freedom to select the goods without the force from the salesmen
4. Better facilities for shopping.


DISADVANTAGES OF LARGE SCALE RETAILERS.
a. Disadvantages to the retailers
1. Large capital investment is required for warehouse, facilities, etc
2. High operating expenses such as camera and security measures.
3. Chance of theft due to self service

            b. Disadvantages to the customers
1. There are no personal services from salesmen.
2. There are no credit facilities.
3. Increased price due to high cost of operation.

E-COMMERCE (ELECTRONIC COMMERCE)
E-com. is an advanced form of business using electronic devices such as computers and internet for buying and selling goods. Shopping on internet or on-line shopping is an example of E-com. All traditional activities such as advertisements, ordering and the payment can be taken place through the internet without being in a face to face contact between the buyer and the seller.
Advantages of E-commerce.
1. Business can be taken place without the face to face contact between the buyer and the seller.
2. Ordering and the payment can be done at home
3. Increased speed of transactions
4. Worldwide sales area
5. Customers can shop for 24 hrs
Disadvantages of E-commerce.
1. Consumers should have technical knowledge about how to use computers.
2. Chance of fraudulent practices due to the malpractices in cyber sector.
3. It is not suitable for rural areas or undeveloped areas where there is no internet coverage.
4. Difficult to set up websites.
5. High cost of installation such as internet connection, computers, etc.
REASONS FOR THE SURVIVAL (EXISTENCE) OF SMALL SCALE RETAILERS.
Or
EXPLAIN WHY SMALL SHOPS ARE POPULAR WITH CONSUMERS?

Ans: 1.Small shops are close to the consumers and opening hours are enough.
2. Consumers get personal services and information about the products.
3. Consumers get informal credit from the sellers.
4. Consumers can replace goods immediately if any damage happened. 
5. Small shop sells goods according to the demand of a particular area where it is located.
6. Consumers get high quality goods.

 
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