Theory of production

Production can be defined as the transformation of raw materials into finishing goods and the distribution and provision of goods and services in order to satisfy human wants.

Production also refers to as creation of utility, while is the ability of any commodity or services to satisfy human want. Production is not regarded as complete until what is produced reached the final consumers.


  1. Consumer Goods: These are goods and services that can satisfy the consumer’s immediate wants. These goods do not need further process of producing for their use by the consumer e.g. Milk, Bread, Television, Radio, the services of a teacher, lawyers Barber, etc
  2. Producer or capital Good: These are goods and services meant for production of further goods and services. E.g Machines, Radio materials.


  1. DIRECT PRODUCTION: Direct production is the type of production in which an individual produces goods and services only for family use or consumption and not for sale. For example, a farmer who plants maize and yam for himself and family.
  2. INDIRECT PRODUCTION: Indirect production is the types of production in which goods and services are produced in large scale, mainly for sales or exchange for other needs.


  1. PRIMARY PRODUCTION: This involves the extraction of raw material from the soil or sea e.g mining, farming, fishing, etc.
  2. SECONDARY PRODUCTION; This is a stage where raw materials are processed and transformed into finishing good, i.e utility is added to the raw materials of the primary production.
  3. TERTIARY PRODUCTION: this is the stage where the goods and services made available at the two earlier stages are taken to those who are in need of them i.e tertiary production is concerned with the provision of commercial and professional services to the people.


  1. LAND: Land as a factor of production is a free gift of nature and it is fixed. Land in economics does not only include land surface of the earth but all other free gifts of nature or natural resources like forest, mineral resources, rivers, oceans, atmosphere etc. the reward for Land is RENT.\
  2. LABOUR: Labour refers to all human effort which may be physical or mental, skilled, or unskilled scientific or artistic used in the productive process, usually for a reward. In other words, labour refers to both physical and mental efforts of man directed to production. It reward is WAGE or SALARY.
  3. CAPITAL: Capital can be defined as wealth reserved or set aside for the production of more wealth. They are also referred to as investment goods or producer goods. Example of capital a machine tools, factory, buildings, raw materials, fuel, money etc. the reward for capital is INTEREST
  4. THE ENTREPRENEUR: An entrepreneur can be defined as the factor of production that co – ordinates and organises other factor of production (land and capital) in order to produce goods and services. The reward for entrepreneur is PROFIT OR LOST


  1. The sizes of market
  2. Level of technical knowledge
  3. Amount of capital
  4. Availability of raw materials
  5. Storage facilities
  6. Efficiency in the use of factors of production
  7. Extent of development of infrastructural facilities

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