The processes and methods used to transform tangible inputs (raw materials, semifinished goods, subassemblies) and intangible inputs (ideas, information, knowledge)
into goods or services. Resources are used in this process to create an output that is
suitable for use or has exchange value.
FACTORS OF PRODUCTION
Definition: Resources required for generation of goods or services, generally
classified into four major groups:
KINDS OF PRODUCTION
Direct production - When an entity is capable of producing all of the materials
necessary for their product production by using their own skill sets without focusing
on one product or requiring a staff to perform different jobs. A more economic model
than that of reproduction method.
CONSUMPTION
Definition: The process in which the substance of a thing is completely destroyed,
used up, or incorporated or transformed into something else. Consumption of goods
and services is the amount of them used in a particular time period.
TYPES OF GOODS AND SERVICES
1. Consumer Goods they are goods that are ultimately consumed rather than
used in the production of another good. For example, a microwave oven or a
bicycle which is sold to a consumer is a final good or consumer good,
whereas the components which are sold to be used in those goods are called
intermediate goods.
2. Capital Goods - consist of any tangible assets that an organization uses to
produce goods or services such as office buildings, equipment and machinery.
Consumer goods are the end result of this production process.
3. Services - economic activity where an immaterial exchange of value occurs.
When a service such as labour is performed the buyer does not take
exclusive ownership of that which is purchased, unless agreed upon by buyer
and seller.
TYPES OF CONSUMPTION
1. Immediate consumption When you can use the product or service only
once to satisfy the needs or wants.
2. Deferred consumption when you can use the product or service over and
over to satisfy the same need or want whenever it occurs.
EXCHANGE
Definition: Open, organized marketplace (such as a stock exchange) where
buyers and sellers negotiate prices. Exchanges require an almost instant (real time)
bid and ask matching mechanism, settlement and clearing, and market wide price
communication and determination.
Market: An actual or nominal place where forces of demand and supply operate,
and where buyers and sellers interact (directly or through intermediaries) to trade
goods, services, or contracts or instruments, for money or barter.
Markets include mechanisms or means for (1) determining price of the traded item,
(2) communicating the price information, (3) facilitating deals and transactions, and
(4) effecting distribution. The market for a particular item is made up of existing and
potential customers who need it and have the ability and willingness to pay for it.