The Economy and Financial Literacy

The Production Process

What is Production?
Production is when the inputs are transformed into outputs. It involves the
manufacture of goods and services used for sale. It is a process where raw
materials are changed into goods, e.g. cotton – cloth – clothes or where ideas and
information are changed into goods or services. Production involves output – all
the activities involved in producing goods or providing services. Four factors are
needed in the production process: natural resources, labour, capital and
entrepreneurship.

Factors of Production
Land
Resources a business uses in the manufacturing process can be land – raw
materials or semi-processed materials (planks of wood, gold, cut and polished gem
stones or electronic parts). Raw materials come from the primary sector where
they are mined or farmed. Our country is rich in gold, diamonds, platinum, iron
and coal and we produce maize, fruit, vegetables, wine and wool.
Semi-processed goods come from manufacturers who process raw materials that
are used in making other products. Manufacturing activities are part of the
secondary or tertiary sector in the economy.
Labour
Businesses need labour to be able to operate. Labour is one of the inputs in the
process of production, supplying needs and wants of consumers. Labour can be
skilled, semi-skilled and unskilled. Payment for labour is in wages (weekly) or
salaries (monthly).

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Labour refers to the work done directly with goods or services that are produced
and is a direct cost.
Businesses also have labour for administrative work – answering the telephone,
dealing with queries of customers, keeping account and financial records, etc.
There are also staff that do sales and other important duties in order to run
businesses efficiently and profitably. Labour cost is part of the overheads of a
business and is an indirect cost.
Capital
Capital as an input, is the amount of money used to buy resources needed and
labour used directly in making a product, so it is part of the running costs of a
business.
Businesses use money to make more money, by buying and renting property.
Consumers use money to buy goods and services and pay rent according to their
needs. Capital is money the business uses:
• to get started – buying machinery, equipment, rent of premises
• working capital to pay for running costs
• to grow by expanding and developing new products
Entrepreneurship
Entrepreneurship is the driving force of a business and the production process. It
encompasses vision, skills and energy of the entrepreneur to produce goods and
services to consumers and provide job opportunities. They bring the other factors
of production together and turn them into businesses. Entrepreneurs are creative
and they are risk takers, but they plan thoroughly and try to make good decisions
to make a profit and to reduce those risks. They can’t be reckless, otherwise the
business may fail.

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Inputs and Outputs
All businesses are involved with the processes of inputs and outputs.
Inputs are resources and labour that a business needs to produce their goods and
services, involving the factors of production.
Outputs are goods and services produced for sale to consumers. They are the
result of the production process, which include all goods and services produced
during the production process and all the waste produced.
E.g. When a carpenter makes a wooden table, it is the output and the waste is the
sawdust he makes during the production of the table.

Sustainable Use of Resources

Resources are part of the economic wealth of a country. Resources are either
renewable or non-renewable.
Renewable resources can be replaced. E.g. Wood and cotton can be replanted and
grown as long as they are needed.
Non-renewable resources cannot be replaced. E.g. minerals like gold, platinum,
iron and fossil fuels like coal, oil and natural gas, as well as plants and trees that
take a long time to grow. If resources are over-used, they can become extinct.
The wealth of a country is closely linked to the available natural resources. Our
country is rich in minerals, fertile land, wooded areas and a coastline that harvests
fish. But water is scarce and we don’t have crude oil reserves to produce petrol,
diesel and motor oils.
The worldwide concern is that the earth’s natural resources are being consumed
and slowly destroyed. The world population is at its highest and it continues to
grow. We are constantly using resources and many of them are running out or
threatened by pollution.

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There are ways to use resources in a sustainable way:
• use renewable energy resources like wind and solar energy instead of non-
renewable resources like fossil fuels
• use resources that cause less harm to our environment, like paper bags
instead of plastic
• use less natural resources and non-renewable resources that we can reuse
and recycle
• use and produce machines and equipment that use less electricity and
water
• find ways to use less resources to produce goods and materials in
production

What is Economic Growth?

Economic growth refers to the increase in production within a country. It is
measured by comparing the total value of production of a country in a year with
the total production of the previous year. If productivity increases, more goods
and services are produced, more jobs are created and more people have enough
money to spend on their needs.
Entrepreneurship, skilled labour, resources and capital is needed in economic
growth, as well as good planning and determination. Government can assist by
making it easier to start new businesses and get loans for businesses. People
motivated to work will also help the economy grow. Sustainable economic
growth is possible where there is a low and stable inflation rate and low levels of
unemployment.

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What is Productivity?
Productivity is how quickly inputs are turned into outputs for sale. It is also the
capacity of individuals or a production system to produce a number of products or
services within a period of time. There are various ways to measure productivity –
e.g. in a factory productivity can be measured by the number of hours it takes to
produce a product, or productivity of a service can be measured by the income
generated from the service of an employee, divided by their salary.

The Effect of Productivity on Economic Growth

Productivity and economic growth are closely related because a higher
productivity rate is always needed for economic growth. We know that economic
growth is the increase of goods and services produced in an economy in a specific
period of time, so the rate of production is affected by how much and how quickly
the economy grows. When products are produced at a slow rate, labour costs are
higher and the products become expensive, but when they are produced quickly,
but are still good quality, they become cheaper because labour costs are lower.
This means that more products can then be produced and sold.

Technology in the Production Process

When people used to make things for themselves, like shoes, clothes and tools,
long ago, they would sometimes make a few extra. They would then sell or trade
the extra things to others. This was the earliest and simplest kind of production.
Home industries then started to develop as people became known for their skill in
producing certain things.
Characteristics of home industries:
• members of the family worked together in their homes or on their land
• simple tools were used by hand, usually making one item at a time

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As technology progressed, machines replaced many processes done by hand.
Producing products more efficiently and quickly led to the opening of factories.
Factories then employed workers to operate the machines and the manufacturing
was done away from home for the first time. Factory owners would put pressure
on their workers to work faster. They also decided which jobs should be done by
women and which jobs should be done by men. The production process also
changed – instead of one person completing one whole product from start to
finish, the process was split up and an individual would only do one part of the
product over and over again. This was the beginning of mass production as
opposed to unit production (products being made one at a time). Mass
production is when a large number of the same product are being produced,
usually in a mechanised process, to save time and money.

Contribution of Technology to Improving Productivity and

Economic Growth
Modern businesses use various forms of technology, from telephones to
computers, specialised machines to satellite communications. Businesses need to
replace and upgrade their existing technology often to keep up with technological
developments. More products can be produced in a short amount of time by using
technology in the production process, so production then becomes more efficient.
Workers need to be semi-skilled and skilled in order to work with high
technology machines and equipment in manufacturing. This means that people
must do special training to find well-paid work in manufacturing and in a
technologically-advanced business.