Types and Factors of Production

TYPES AND FACTORS OF PRODUCTION

By : Anang P.Setiawan

http://smisbs.blogspot.com

A. Types of Production
•The Primary Sector
Extraction of natural resources, they are Mining, Fishing, Agricultural industries, Forestry.
•The Secondary Sector
The products of the Primary stage are processed and turned into manufactured goods ( Consumer good, e.g. Food, TV. Producer goods, e.g. A components, a piece of machinery, etc)
•The Tertiary Sector
Involve the production of services rather than goods. e.g. Banking, insurance, hairdressing, education, health.

B. Factors of Production
To produce goods and services requires resources.

Factors of production are various types of resources used in the production of goods and services. They are : Land, Labour, Capital, Entreprise/Entrepreneurship.

LAND
Natural resources used in the creation of products. It includes not only land that we stand on, but also grow crops on and build upon, and also fisheries, mines, and forest. Paid in Rent.

LABOUR
Human effort (physically and mentally) provided in the creation of products, paid in wage/salary.

CAPITAL
Human-made goods or means of production (including machinery, building, and so forth) used in the production of other goods, paid in interest.
•Fixed Capital :
Includes machinery, plant and equipment, new technology, factories, and building.
•Working Capital :
Includes stocks of finished and semi-finished goods (components) that will be made into finished consumer goods.

ENTREPRISE/
ENTREPRENEURSHIP
It’s similar to labour but it’s seperated because entreprise is the unique ability of people to organise the factors of production to produce goods and services and make a profit or loss.

What resources go into making a car ?
•Land :
Natural resources used in manufacturing, land for plant and equipment.
•Labour :
Workers employed directly in the car industry;engineers, designers, paint sprayer, management staff, transport and distribution workers, etc.
•Capital :
Fixed capital : Machinery, technology, building-Working capital : stocks of raw materials and components.
•Enterprise/Entrepreneurship :
Management, risk taker

C. Combining the factors of production
Owner and managers :
combine the factors of production in the best way to produce the lowest costs of production.

•In developed countries : Farming tends to be more ‘Capital Intensive’ –using more machinery than labour.
•In developing countries : Farming tends to be more ‘Labour Intensive’-using more labour than capital.

•The balance of factors in a country can change over time.
•Countries such as Korea, Singapore, and Taiwan develop fast becuse they can attract more capital from developed countries and combine with labours, so they become more skilled.


D. Specialisation and the division of labour
In sole trader (one-person business), the owner has to produce the product, market and sell it, distribute and fill out the account. It tends to be small business as no one can be good at everything.

•In a larger business, there is specialisation (The manager manage, the production workers produce, the marketing department markets, the accountants check on the profits.
•Each person concentrates on his/her duty and leave other tasks to other workers. This process is called as the division of labour.


The Benefits and Disadvantages of Division of Labour

BENEFITS :
1.Production is increased – Higher standard of living
2.Low cost of production – low prices for consumers.
3.Employement is increased
4.The return is high – New Investment

DISADVANTAGES :
1.Standardised product – replace craft production
2.Low priced goods – undercut small local producers.
3.Automatic Production – boring for the workers.
4.Companies can quickly close down and switch investment elsewhere.

End of Document