Form 1 Business Notes : Production

Form 1 Business Notes : Production

Secondary Notes
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It’s the creation of goods or provision of services to satisfy human wants 

It involves activities of transforming of materials into finished goods, transportation and storage 


Utility_-is the ability of a good or services to satisfy human wants.

Types of utility

Form utility –this is changing the form of a commodity by converting raw materials to finished goods .e.g. sugarcane may be converted into sugar

 Time Utility-this is created when a good is stored until it is appropriate time to use it. Example storing food stuff in the school store during the holiday to use when the school opens.

Place Utility- this is bridging the geographical gap between the producer of commodity and its consumers through transportation. Example, transporting books from a bookshop to the school

Possessive Utility-this refers to the transfer of ownership of good and services from one person to another. May be done through trade. Example ownership of bread may be transferred from a canteen owner to a consumer when the customer buys it.

Types of production 

Direct and Indirect Production

Direct production (substance production)

Is type of production from ones own personal consumption

Characteristics Of Direct Production 

  • Goods and services are of low quality and quantity
  • Leads to low standards of living.
  • Encourages  individualism 
  • Can  very tiring
  • Does not encourage invention and innovation
  • No one has the ability to provide all that he/she requires

b) Indirect production

Production of goods and services for sale

Characteristics of Indirect Production

  1. Lead high quality and quantity goods.
  2. Production with a view of exchange.
  3. It results in surplus production of goods and services

Level of Production and Related Occupation

Primary Level

  • This level is also called extractive level, involves extraction of goods from their natural setting.
  • The products can be used in the state they are or can be processed to make them more useful. example water, mining, fishing. Lumbering e.t.c

Secondary Level

  • Involves transformation of raw materials into finished products or more useful products including; manufacturing e.g. food processing, Construction e.g. house and roads


Tertiary Level

  • Involves provision of services. Divided into commercial and direct 

Commercial services 

Activities either trade or consist trade to take place e.g wholeselling,retailing,banking .

Direct Personal Service

Service rendered by individual direct to the consumer e.g nursing teaching and legal service.

Factors of Products and Their Rewards

Are resources/agents required in production e.g

  1. L and,
  2. Labour
  3. Capital
  4. Entrepreneurship


  • Natural resource e.g. minerals, soils etc
  • They are all the natural resources below or above the earth surface.
  • The rewards are rent, rate or royalty

Characteristics of Land as A Factor Of Production

  • It is a basic factor of production, that is, production cant take place without it.
  • Its  supply is fixed that is, we cannot add more earth service on to what nature has provided.
  • It lacks geographical mobility i.e.  it  cannot be moved from one geographical to another.
  • Quality is not homogeneous .Productivity of one piece of land will have different levels  of fertility, mineral deposits, soil textures and varying climate conditions
  • Productivity of land  can be increased by increasing quality  and quantity of capital
  • It’s subject to the law of diminishing return.
  • It’s a natural resource 


  • Human efforts are applied in production either physical or  mental
  • Not all human effort is labour.For it to become labour it must be aimed at production and be paid for.
  • Rewards are wages and salary.
  • Labour may be skilled, semi skilled or unskilled. Which is determined by the lvel of education, training and experience 



  • Refers to all the artificial resources used in the production of goods and services 
  • There are two types of capital namely fixed and operating /circulating capital
  • Fixed capital are things that stay in a business almost permanently e.g. machinery, buildings, vehicle, furniture etc
  • Working/circulating capital gets used up every time its applied in the production process e.g. raw material and money.
  • Capital is rewarded in form of interest 



  • This is an individual who identifies a business opportunity, devotes the factors of production and starts a business venture which may involve the creation of goods and service 
  • The entrepreneur pays for the services of all the other factors of production 
  • He makes important decisions in business e.g s/he decides what to produce or sell, how much to produce or sell and what methods to apply in the production process.
  • The reward for entrepreneur is profit 


Division of labour and specialization 

Division of labour

  • This occurs when the production process is split into many stages or operations 
  • Each stage involves a special task performed by one or group of workers. For example, in clothe making factory, the production process is organized in such a way that each worker performs anly a small part of the whole operation. Some cut the cloth material, others join or sew them together, others fixing buttons etc 


  • This occurs when one worker performs certain specific tasks of a job
  • It ensures that workers concentrate on doing those jobs which they are best suited in terms of skills, qualification and experience 

Advantages of division of labour and specialization 

  • Workers skills are enhanced because of performing repetitive tasks, resulting in creation of experts.
  • Workers suffer less fatigue as they concentrate on doing one task in one place 
  • New talents and inventions are developed as workers perform repetitive tasks hence one can detect and correct weaknesses in the techniques used 
  • Work is done at a faster rate due to repetitive nature of tasks and reduced movement of workers from one station to another 
  • Goods and services produced are usually of high quality since skills of workers are matched with tasks 
  • Use of machines is made possible leading to standardization of products and lower production cost, which in turn leads to higher profits 
  • Overall output increases because work is done at faster rate 
  • Planning and management of workers becomes easy which increases efficiency in organization 

Disadvantages of division of labour and specialization 

  • Workers may suffer from boredom due to monotony of doing the same thing repeatedly 
  • Individual workers cannot identify themselves in the final products since workers perform only small part of the whole process
  • Incase of loss of jobs, such workers find it difficult to get new jobs because they are specialized in a particular field only.
  • Leads to interdependence between countries, businesses or individuals which may lead to shortage of goods and services especially in times of conflict or natural calalmities 
  • Use of machines may reduce employment opportunities by replacing manual labour.
  • Workers eventually lose skills owing to the overdependce on machines 
  • Due to specialization, problem at one stage can disrupt the whole production process.

Mobility of factors of production 

  • This is the movement or the transfer of a factor of production from one geographical area to another o form one occupation to another 
  • Horizontal mobility is the movement from one office to another in the same capacity 
  • Vertical mobility is the movement from one grade to another in the same occupation 
  • Land lacks geographical mobility but highly occupationally mobile 
  • Capital – fixed capital lacks geographical mobility abd occupational mobility. Equipments, tools and money may be geographically and occupationally mobile 
  • Labour – it’s the most highly mobile factor of production whether geographically, occupationally, horizontally or even vertically.


Factors hindering mobility of labour 

  • Natural talent and ability differ from one individual to another 
  • Training involved d for one to acquire skills in new occupations can be lengthy and expensive
  • Some organizations have strict regulations barring new entrants from joining these professions e.g. law, medicine and architecture 
  • Some jobs though not well rewarding have better terms of service and pension schemes 
  • Adverse climatic conditions cause discomfort and disease discourage people from changing geographical locations 
  • Ignorance by workers on available job opportunities 
  • Geographical transfer involves transport costs, changing residence and school of ones children 
  • Security and political stability of given region 
  • Social ties that bind one to his/her community
  • Language rules on immigrations 


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