There are two main activities in an Economy such as production and consumption. Similarly there are two kinds in economy, Producers and consumers. Well-being is made Possible by efficient production and by the Interaction between producers and consumers.

In the interaction, consumers can be identified in two roles both of which generate well-Being. Consumers can be both customers of the producers and suppliers to the producers. The customer’s well-being arises from the Commodities when they buy and consume. The Supplier’s well being is related to the income they receive when they sell the commodities and services. In an economy all are consumers but all are not producers or sellers.

Meaning of Production:

Production is a process of combining Various material inputs and immaterial inputs In order to make something for consumption (the output). It is the act of creating an Output, a good or service which has value and Contributes to the utility of individuals.

Production in economics refers to the Creation of those goods and services which Have exchange value. It means the creation Of utilities. Utility means want satisfying Power of a product. According to the nature Of utilities they are classified into form utility, Time utility and place utility.

Types of Utility

Form utility

If the physical form of a commodity is changed, its utility may Increase.

Eg. The demand and uses of cotton increases, if it is converted Into clothes.

Place utility

If a commodity is transported from one place to another, its utility may Increase.

Eg. If rice is transported from Tamilnadu to Kerala, its utility will be more.

Time utility

If the commodity is stored for future usage, its utility may increase.

Eg. If agricultural commodities which are used by the consumers throughout The year like Paddy, Wheat, etc. Are stored for future use its utility increases.

Types of Production

There are three types of production. They are

1. Primary production
2. Secondary Production
3. Tertiary Production

Primary Production

Primary production refers to the state Of activity in which natural resources are Directly used. Since agricultural is given prime Importance, it is also referred as agricultural Sector production.Agriculture, forestry, fishing, mining and Oil extraction are examples to primary sector.

Secondary Production

The process of manufacturing products By using primary products as raw materials is Known as secondary level production. Since Industries are given prime importance, it is also referred as industrial sector production.

Primary sector and Secondary sector Production Cotton (Primary sector) – Cotton Industry (Secondary Sector) = Cloth ProductionIron ore (Primary sector) – Iron Industry (Secondary sector) = Material Production Manufacturing of cars, clothing, chemicals, Engineering and building etc.. are examples to Secondary sector.

Tertiary Production: Tertiary production is known as the Services which are not visible rendered by The teachers, doctors etc., are to the economy. Banking, insurance, education, health and Defence etc.. Are examples to service sector.

Factors of Production

Factors of production are known as Inputs of production which are transformed into output or products. There are two main Divisions of factors of production. They are

• Primary factors of production
• Derived factors of production or Modern Factors of production or secondary factors of production.

Primary factors of production are Land and Labour. Derived factors of production Are capital and organisation.

Capital is known as investment and the organisation is known as organising Land, Labour and Capital for producing Products. Organisation is also known as Entrepreneurship.

Land:

Land as a factor of production refers to All those natural resources or gifts of nature Which is provided freely to man. It includes Within itself several things such as land surface, Air, water, minerals, forests, rivers, lakes, seas, Mountains, climate, and weather. Thus, land Includes all things that are not made by man.

Characteristics of Land:

1. Land is a Free Gift of NatureMan has to make efforts in order to acquire Other factors of production. But to acquire land No human efforts are needed. Land is not the Outcome of human labour. Rather, it existed Even long before the evolution of man.
2. Land is fixed in supplyThe total quantity of land does not undergo Any change. It is limited and cannot be increased Or decreased with human efforts. No alteration Can be made in the surface area of land.
3. Land is imperishable All man-made things are perishable and These may even go out of existence. But land is Imperishable. Thus it cannot go out of existence.
4. Land is a Primary Factor of ProductionIn any kind of production process, we Have to start with land. For example, it helps To provide raw materials for industries and to Produce crops
5. Land is ImmovableIt cannot be transported from one place To another. For instance, no portion of India’s Surface can be transported to some other Country.
6. Land has some Original Indestructible PowersThere are some original and indestructible Powers of land, which a man cannot destroy. Its Fertility may be varied but it cannot be destroyed ZzCompletely.
7. Land Differs in FertilityFertility of land differs on different pieces Of land. One piece of land may produce more And the other may be less.As a gift of nature, the initial supply price of Land is zero. However, when used in production, It becomes scarce.

Labour

Labour is the human input into the Production process. Alfred Marshall defines Labour as, ‘the use of body or mind, partly orWholly, with a view to secure an income apart From the pleasure derived from the work’

Characteristics of Labour

• Labour is more perishable than other factors Of production. It means labour cannot be Stored. The labour of an unemployed worker Is lost forever for that day when he does not Work. Labour can neither be postponed nor Accumulated for the next day. It will perish. Once it is lost, it is lost forever.
• Labour is an active factor of production. Neither land nor capital can yield much without labour.
• Labour is not homogeneous. Skill and Dexterity vary from person to person.
• Labour cannot be separated from the Labourer.
• Labour is mobile. Man moves from one Place to another from a low paid occupation to a high paid occupation.
• Individual labour has limited bargainingPower. He cannot fight with his employer for a rise in wages or improvement in work-place Conditions. However, when workers combine to form trade unions, the bargaining power of labour increases.

Division of Labour:

The concept ‘Division of Labour’ was Introduced by Adam Smith in his book ‘An Inquiry into the Nature and Causes of the Wealth of Nations’.

Division of labour means dividing the Process of production into distinct and several Component processes and assigning each Component in the hands of a labour or a set of Labourers, who are specialists in that particular Process.

Example: A Tailor stitches a shirt in full. In The case of Garments exporters, cutting of Cloth, stitching of hands, body, collars, holes for buttons, stitching of buttons etc., are done independently by different workers. Therefore, they are combining the parts into a whole shir

Merits of division of labour :

• It improves efficiency of labour when labour repeats doing the same tasks.
• It leads to the use of modern machinery in production, resulting in inventions. Ex. More’s Telegraphic Codes.
• Time and raw materials are used very efficiently.

Demerits of division of labour:

• Repetition of the same task makes labourer to feel that the work is monotonous and stale. It kills the humanity in him.
• Narrow specialization reduces the possibility of labourer to find alternative avenues of Employment. This results in unemployment Reduce the growth of handicrafts and the Worker loses the satisfaction of having made a commodity in full.

Capital:

Capital is man made physical goods used to produce other goods and services. In the Ordinary language, capital means money. In Economics, capital refers to that part of man-Made wealth which is used for the further Production of wealth. All wealth is not capital but all capital is wealth. According to Marshall, ‘Capital consists of those kinds of wealth other Than free gifts of nature, which yield income’.

Forms of capital:

1. Physical Capital or Material Resources Ex. Machinery, tools, buildings, etc.
2. Money capital or monetary resources Ex. Bank deposits, shares and securities, etc.

Human capital or Human Resources Ex. Investments in education, training and Health.

Characteristics of Capital:

• Capital is a passive factor of production
• Capital is man-made
• Capital is not an indispensable factor of Production
• Capital has the highest mobility
• Capital is more flexibility
• Capital is productive
• Capital Lasts Long
• Capital involves present sacrifice to get future benefits

Entrepreneur or Organisation:

An entrepreneur is a person who combines the different factors of production (land, labour And capital), in the right proportion and initiates The process of production and also bears the risk Involved in it.

The entrepreneur is also called ‘Organizer’. In, modern times, an entrepreneur is called ‘the Changing agent of the society’. He is not only responsible for producing the socially desirable Output but also to increase the social welfare.

Characteristics of Entrepreneur:

• Identifying profitable investible opportunities
• Deciding the location of the production unit
• Making innovations
• Deciding the reward payment
• Taking risks and facing uncertainties