Premlal C R
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.
