Production refers to the creation of wealth or utility. It is an activity that results in the creation of goods and services to satisfy human wants. It is a process in which some materials are transformed from one form to another. Examples: Wheat is used for producing bread; wood is used for making furniture.
Every productive activity involves the use of certain basic or primary resources. These resources are known as factors of production. In other words, ‘Anything which helps in the process of production of a commodity or service is called a factor of production.
Factors of production
Land includes not only the surface of the Earth but also all the other gifts of nature. As land is a gift of nature, it does not have any cost of production. It is readily available for any use. However, other agents of production are available at a cost. The supply of land is fixed by nature. It is a basic factor of production because it cannot produce anything by itself. It can be used for alternative uses such as cultivation, dairy or poultry farming, rearing of livestock, the building of houses, and playgrounds.
Labour is the aggregate of all human physical and mental efforts used in the creation of goods and services. Laborers are rewarded suitably in the form of wages for their productive work. Labour can move from one place to another or from one use to another use. Generally, the mobility of labor depends on the education and skill of laborers, the wage difference between different sectors, and social customs. It is possible for any labor to engage itself in different fields of work.
Capital is produced means of production. Capital is produced by humans with the help of natural resources and it is not a gift of nature. It is a means of production which is not consumed directly. It increases the productivity of land and labor.
Organization refers to the services of entrepreneurs who set up production units for the production of goods or services and sell them to consumers. An organization hires laborers, rents land, and borrows capital to organize the whole production process.
Micro and Macro Economics
The term ‘micro’ was derived from the Greek word ‘mikros’ which means ‘small’. Microeconomics studies the economic relationships or economic problems of an individual firm, household, or consumer. It is concerned with the determination of output and price for an individual firm or industry.
The term ‘macro’ is derived from the Greek word ‘macro’ which means large. Macroeconomics studies economic relationships or economic problems of the economy as a whole. It is concerned with the determination of the aggregate output and general price level in the economy as a whole.
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