Production and the Components of Production

Definition of Production

Production involves the conversion of raw materials into finished products.

Components of Production

The components of production comprise the economic resources utilized in the manufacturing of goods and provision of services.

The Four Components of Production

Land or Natural Resources

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Land encompasses all the natural resources present on, above, and below the Earth's surface. This includes valuable mineral deposits such as oil, gold, and diamonds, as well as natural elements like sunlight, rainfall, rivers, ponds, lakes, seas, oceans, deserts, and forests. Therefore, land encompasses the physical landscape, water bodies, mineral reserves, and various natural chemicals.

THE REWARD OR PAYMENT FOR LAND IS RENT

Labor or human resources

Labor refers to people’s mental and physical contribution to the creation of goods and services. The reward for labor is wages / salaries.

Types of Labor

• MANAGERIAL & PROFESSIONAL LABOUR - Teachers, lawyers, doctors, nurses, architects, pharmacists.

• SKILLED LABOUR - Engineer. Trained machine operators, Electrician, plumber, mechanics.

• SEMI-SKILLED LABOUR - Drivers, data entry operators, domestic servants

• UNSKILLED LABOUR - watchman, vendor, laborer

• Labor Supply

  • LABOUR SUPPLY REFERS TO THE TOTAL HOURS THAT WORKERS OR EMPLOYEES ARE WILLING TO WORK AT A GIVEN WAGE RATE.

  • THE LABOUR FORCE CONSISTS OF ALL THOSE PERSONS WHO ARE WILLING AND ABLE TO WORK AND WITHIN THE AGE GROUP OF 16-64 YEARS. EXCLUDED FROM THIS AGE GROUP ARE FULL-TIME STUDENTS, HOUSEWIVES AND THOSE MENTALLY AND PHYSICALLY HANDICAPPED.

    Factors affecting it:

  • RATE OF GROWTH OF THE POPULATION

  • THE STRUCTURE OF THE POPULATION

  • CULTURAL PATTERNS AND REASONS

  • ECONOMIC C0NDITIONS

  • MOBILITY OF LABOUR

  • EDUCATIONAL POLICY AND HEALTH OF THE NATION

Growth of the population

• If the population is growing, then the labor supply will increase.
• If the population is not growing, for example, skilled persons are migrating to other countries in search of better job opportunities, then the labour supply will decrease

Structure of Population

An aging population ( i.e. persons over the age of 64) and a very youthful population (i.e. persons below the age of 16) would mean a smaller labor supply.

Cultural & Religious Reasons

If women are not allowed to work, the labor supply will decrease.

Mobility

• Mobility of labor refers to the ability of labor to move freely from one occupation to another or from one geographical area to another.

• The mobility of labour will affect the labour supply.

• Economic conditions

  • In some countries, the ‘family wage’ may be sufficient , and thus the wives may not be required to work. This will reduce the labor supply.

• Educational Policy & Health of the nation

  • If the training periods for individuals is long and if the government decides to extend tertiary education to more persons then there will be less people available for work. This will reduce the labour supply.
  • A healthy population is a productive population. If a country has better health facilities, then individuals will spend fewer days away from the job because of illness.

  Capital or Man-made Resources

Entrepreneurship and the Role of Capital in Production

Entrepreneurship

Entrepreneurship involves individuals who undertake the risks associated with starting a business, acquiring funding, coordinating and rewarding the factors of production, and ensuring their effective utilization.

Profits serve as the ultimate reward for entrepreneurs.

Functions of an Entrepreneur

1. Entrepreneurs skillfully combine the three other factors of production—land, labor, and capital—to achieve optimal efficiency and maximize profitability.
2. As a factor of production, entrepreneurs bear the risks involved in the production process.

Capital

Capital refers to both monetary and non-monetary assets utilized in the production process. It encompasses buildings, machinery, equipment, currency, and stocks used in the creation of goods and services.

Types of Capital

1. Fixed Capital: Fixed capital maintains its form throughout the entire production process. Examples of fixed capital include plants, machinery, and equipment.
2. Working Capital/Circulating Capital: Working capital undergoes transformations during the production process. Examples of working capital include cash and stocks of raw materials.

Interest serves as the reward or payment for capital.

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