Three Types of Production :įor general purposes, it is necessary to classify production into three main groups: 1. This being so, and because in economics an important task is to measure changes in the volume of production, it is necessary to add the qualifying clause ‘through exchange’, i.e., in return for money, to the definition of production. So from our above definition it is clear that many valuable activities such as the work done by people in their own houses and gardens (the so-called do it yourself exercise) and all voluntary work (such as free coaching, free-nursing, collection of subscription for a social cause such as flood-relief or earthquake- relief) immensely add to the quality of life but there is no practical way of measuring their economic worth (value). If we will buy something we must want it if we are not willing to buy it then, in economic terms, we do not want it. The test of whether or not any activity is productive is whether or not anyone will buy its end-product. Those who provide services Such as hair-dressers, solicitors, bus drivers, postmen, and clerks are as much a part of the process of satisfying wants as are farmers, miners, factory workers and bakers. On the other hand, all jobs which do aim at satisfying wants are part of production. The making or doing of things which are not wanted or are made just for the fun of it does not qualify as production. The essential characteristics of the business firm is that it purchases factors of production such as land, labour, capital, intermediate goods, and raw material from households and other business firms and transforms those resources into different goods or services which it sells to its customers, other business firms and various units of the government as also to foreign countries. They are artificial entities created by individuals for the purpose of organising and facilitating production. Since the primary purpose of economic activity is to produce utility for individuals, we count as production during a time period all activity which either creates utility during the period or which increases ability of the society to create utility in the future.īusiness firms are important components (units) of the economic system. Let us make an in-depth study of the meaning, definition, types and factors of production.
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