Meaning of production 

Production is concerned with all legal activities, which are directed towards the satisfaction of human wants.  Human wants are many but they can broadly e divided into two ; material wants and non material wants.  Material wants can be classified as goods while non material wants can be classified as service. 

The production production process may involve physical conversation of raw materials and semi finished goods into tangible goods to satisfy human material wants. Example of such tangible goods includes rices, yams, tables ,chairs, cloths ,shoes, cars, radio, TV set, houses etc.  The production process may also involve the provision of services to produce intangible goods to satisfy non material human wants.  Example of intangible goods (services) are the services provided by doctors, teachers, lawyers, bankers ,postal workers, musicians,etc. All this activities are regarded as productive because each of them satisfy a specific type of human want.  

Production can  therefore be defined as the making of tangible goods and provision of services (intangible goods)  for the satisfaction of human wants or need. 

factor of Production

Commerce  and production

Before buying, selling and distribution take place, goods must be available for the purpose. 
If they are agricultural produce like yam, groundnut, cocoa, and cassava etc.  The farmers must have produce them.  That is, production of these products must have taken place.  Production is the process of creating goods as services and along them available to satisfy human wants. 

However ,the process of production continues until the goods services produced get to the final consumer. The goods and services get to the final consumers through distribution, buying and selling activities, which we call commerce. That is, it is commerce that makes the goods and services produce available to the final consumers ,therefore, completes the production process by bringing the goods and services produce to the final consumers. 

Types of production 

Production had been described as those activities directed at making goods and services available for the satisfaction of human wants. 
Human wants can be satisfied with agricultural products, mineral resources, manufactured goods or even with such services as a service of a doctor ,a teacher, a lawyer etc.  The types of production is closely associated with the types of products and the level at which it is produced.  For example, farmers produce farm produce from the soil, manufactured goods passes through processing before they are created etc. 

Production can therefore be classified into four based on the production process each product passes through before it can satisfy any form of human wants.  Thus, we have the primary production, secondary production, which includes manufacturing and construction industries and the tertiary production. 

Primary production 

Primary production  is concerned with the extraction of food crops from soil;  such crops includes yams, beans, cassava ,cocoa, groundnut, rubber etc.  All for human consumption and as raw materials for manufacturing industry . It also involves the extraction of minerals resources from the soil and seas to be used as raw materials in the manufacturing and construction  industries .

Such natural resources includes crude oil, coal, gold, iron and tin. All these activities ,which provide farm products for food and as raw materials manufacturing ,natural resources as raw materials for man ,are referred to as primary production. 

Extractive industry 

The extraction of farm products from the soil and natural resources from both soil and sea qualities these activities to be called an extractive industry.  An industry is a combination of all firms providing similar goods. In this case, the extractive industry is a combination of activities whose products come from nature.  It includes agriculture, fishing, forestry and mining products. 

Agriculture produces crops such as yam, cocoa, beans, for food and as raw materials.  The products of fishing activities can be used as food and as raw materials ,forestery products like timber can be used as raw materials for making furniture.

Mining products such as coal, crude oil, iron etc are used as raw materials for the manufacturing industry. Because primary production performs activities that force nature to release it's natural resources for the purpose of satisfying human wants, it is referred as extractive industry. The industry provides food for human consumption, and raw materials for the manufacturing and construction industries. 

Secondary production 

Secondary production makes use of the products of the primary production (the extractive industry) to produce further goods for consumption, secondary production consist of the manufacturing and construction industries. 

The manufacturing industry 

The manufacturing industry uses the products of the extractive industry as raw materials or semi finished goods to produce finished goods.
The raw materials obtained from the extractive industry such as leather, wood, cocoa, crude oil would be processed into finished goods. For example, a carpenter would obtain wood or timber as process it into doors, tables, chairs, home funitures etc. A flour mill would obtain wheat and corn, which are from primary agricultural production and process them into flour for making cake and bread.  The refinery would obtain crude oil from extractive industry and process it into petrol, kerosene etc. 

The construction industry 

The construction industry is concerned with the construction of roads, factories, bridges, airports. It make uses of products of primary production like granite, woods, timber and also products of the manufacturing industry such as iron rods ,cement, vehicles, machines, to perform it's own construction work. 

The construction industry is the industry that provides the necessary infrastructure for the good living of people . It constructs roads, railways, bridges etc,  to facilitate the movement of people and goods when performing their economic activities . The Industry is also responsible for the building of machines  equipment, ships.  Companies in the construction industry in the world includes Julius Berger, Taylor woodrow, capos plc, rcc Nigerian limited etc. 

The tertiary production or commercial services

The tertiary production is often refers to as commercial services. This is the stage where the goods as services produced at the primary production (extractive industry) and secondary production (manufacturing and construction industries ) stages are taken to the final consumers. It is the stage that makes it possible for the goods produces to reach the Final consumers.  As we said earlier , the process of production is not completed until what is produced gets to the people who desired and make use of them therefore the final consumers. It is the tertiary production or commercial activities performed that helps to complete the production process.  These activities include distribution, buying and selling and all other activities that aid trade such as banking, storage,or warehousing, transportation, advertising ,insurance and communication. 

Commercial  services 

There are other personal services that directly or indirectly influenced production of goods and services and effective distribution of such to the final consumers. 

Direct personal services 

These are activities which people perform that does not lead directly to the production of goods and services but facilitate their production and efficient distribution, buying and selling.  Such activities include the services of teachers ,accountants doctors, etc.  For example, teachers activities make people to become educated. An educated man will work better and be productive in his or her work. 

Indirect services 

Indirect services are those activities performed in the economy ,which create a conducive environment for the production and distribution of goods and services . The activities do not have direct impact on the production of goods and services but they ensure that production Tara place and the products get to the final consumers without disturbance. Examples are the services of police, soldiers and civil servants. 

Effects of production on the environment 

Every stage of production affects the environment either positively or negatively.  The environment is the place in which people living and work including all the physical and natural conditions that affect them such as air, water, rivers ,ocean and land. 

Production has the following positive effects on the environment or society:
  1. Production makes goods as services available for the satisfaction of human wants 
  2. As a result of the above, it makes us enjoy better standard of living 
  3. It provides employment to the people especially the youths 
  4. The factories and big offices makes our environment look beautiful and admirable 
  5. The serve as learning environment for students who usually come for excotion. 

Negative effects of production 

Production on the other hand causes pollution. Pollution is the process of damaging the air, water, land, with chemicals and other dangerous substance, which negatively impact on the life of man. Each stage of production had it's own negative effects on the environment. The stages of production are the extraction production (industry), the secondary production (manufacturing and construction industries) and the tertiary production (trade and services) 

Types  of Production
production industry

extractive industry 

At the  extractive industry level, production has the following effects on the environment and society at large:
  1. Mining of a mineral deposit in a places, for example coal ,gold ,bitumen etc.  May lead to the relocation of the whole community out of its natural environment. 
  2. The extraction of minerals resources in a place may destroy the land on which people farm. This may lead to hunger and starvation because they will have no place to farm. This is  the situation in the Niger delta where crude oil is been extracted for the whole country .The oil spills on the farm lands and the seas. They can no longer do farming or fishing. Oil spillage has completely destroy their ecosystem. 
  3. As a result of the above, oil exploration has made them to become unemployed and hence suffer from hunger and deprivation. 

Manufacturing industry 

At the manufacturing level ,the factories send out some wastes. The wastes are indiscriminately dumped over places. 
  1. industrial wastes from factories are injurios to the health.
  2. The wastes will destroy the land and kill the fishes in the rivers. 
  3. The factories also emit some gaseous fumes, which, if breathed by people, may cause death or leads to serious health problems 
  4. Some factories produce dangerous chemicals or products, which are injurious to the health of the worker and can cause death of the people in general. Example are the production of cement, germicide and pesticides.

Tertiary industry 

Production activities at the tertiary level have their own negative effects on the environment :

  1. vehicles used in transportation of goods from the factories to the wholesalers and to the final consumers emit some gaseous fumes which are dangerous to health. 
  2. The vehicles cause a lot of accidents which lead to the destruction of life and property 
  3. The heavy vehicles destroy our roads earlier than expected.

What are the factors of production? 

The factors of production are the basic resources or agents used for producing goods and services. They make it possible for goods to be produce in the required quantity and quality. The factors of production are resources that must be present to enable production to take place. The factors are land, labour, capital and entrepreneurship .


Land refers to the resources provided by nature to aid the production of goods and services .It is  a gift of nature to aid production. It comprise all the resources provided by nature and used by man in the process of production. Example of land are farmland,rivers,seas, and fishes in them, forestery minerals such as coal, crude oil ,iron etc. Others are the climatic conditions like rain ,sunshine, animals and wild plants. Land is a important factor of production because all economics and commercial activities are carried out on lands. The reward to land as a factor of production is rent. 

Distinguish features of land; 

The following are the main features that distinguish land from other factors of production :
  1. The supply of land is fixed and limited.  The total surface area of land is fixed. But now a days, this   fact has being contested that the supply of land had "increased"by taking or remaining land from the sea, rivers, lakes, and dessert. A good example is the marina in Lagos which was reclaim Fri the sea.  The supply of land can also be reduced trough erosion .
  2. Land is a gift of nature and therefore had no cost of of production. Land is said to be a free gift of nature and nobody did anything to bring land into existence. This is true if we talk only of the physical existence of land.  But if we take land to mean fishes from the seas or mineral resources like, coal, crude oil, etc.  Then there must be cost because to extract coal or crude oil from the ground, labour and capital have to employed at a cost. 
  3. Land is completely immobile. Human being cannot change the location of any piece of land.  For example, the location of New York cannot change, Abuja will remain where it is as long as it remain in Abuja etc. 
  4. The value of land varies from one location to another. Land varies in quality from one place to the other.  A piece of land may be good for planting yams while another may be good for planting cocoa ,crude oil is found in the Niger delta region, and other places around the globe, there is gold in Ghana and South Africa, other are blessed with grazing land for cattle rearing  , while others are use for the cultivating crops. 
  5. Land is subject to the law of diminishing returns.  The law can be explained thus that if extra units of labour and capital are applied to a fixed amount of land ,there will be a point all things being equal ,St which the extra out put produced will be less than proportional to extra input of labour and capital. This law applies not only to agricultural production but also to the manufacturing industry. 

Importance of land to the economy 

Land is an important factors in the development of an economy. It's importance can  thus be expressed.
  1. Land is a major factor in agricultural production, Land is used for all types of farming crops, poultry, fish, snail etc. Farming employs about 70% of the working in the globe. 
  2. The construction  industry also requires land for it's operations. All construction activities are carried out on land. Roads railways, bridges, airport, seaport, etc. Are constructed on land. 
  3. The manufacturing industry performs it's activities on land in factories ,yard etc. 
  4. The tertiary industry commercial activities  performs it's operations on land.  Offices, banks, warehouses etc. Require land to carry out their activities. 
  5. Land is used for recreational purpose parks and garden, halls, hotels stadium etc. 
  6. Seas and ocean are used by ships ,boats,  and ocean liners to convey goods ,passengers,crude oil and petroleum products to and from different countries of the world. 
  7. Important minerals resources like, oil,natural gas ,iron and gold are obtained from land or seas and used in manufacturing and construction industries 


Labour is the mental or physical effort of man which is directed towards the production of goods and services. It's the human effort expended in the processes of production. It is a very vital human effort, which makes the production if goods and services possible. 

Quite interesting, it is also the human element that consumes what it produce. Example of labour are the work farmers ,carpenters, teachers, bankers, labourers, musicians,and policesmen . The work of a farmer and a labourers is physical while the work of a teacher and lawyer in mental in nature.  There is no production activity that can take place without the active participation of labour in one form or the other .Wages and salaries are the reward to labour. 

Distinguishing features of labour 

As a factor of production, labour has some characteristics that make it different from other factors of production. 
  1. As a factor of production ,labour cannot be easily increased in number and quality.  It takes a long time to train a doctor or a lawyer .It will even takes at least 15 to 18 years from birth for a person to be legally qualified to work as an unskilled workers or factory hand. 
  2. Because of family or friendship ties, labour is immobile. It does not like to move away from its immediate environment for reasons if social or emotional attachment. 
  3. As a human factors of production ,labour cannot be stored away as you can keep a piece of land for future use or store away a machine for some years and later repair or services it again for use. 

Importance of labour as a factor of production 

Labour is a very important factor of production for the following reasons :
  1. labour had a mind of its own and therefore it's consent has to be obtain before it is employed 
  2. Land or capital can remain in a particular location for years without been used, but labour cannot remain dormant in a place for long.  It had to be doing something at least to survive. 
  3. Labour is an active factor of production, it is responsible for the production of goods and services. It is also the consumer of the goods and services that is produced .
  4. Labour controls other factors to effects the production of goods and services. 


Capital refers to the stock of goods or wealth made or produced by man not for immediate consumption but set aside for further production of goods. Capital is the stock of goods or assets produced by man not for immediate consumption but set aside  to produce more goods in the future. It  also includes money saved now to aquire assets for future use or meant for running a business . Example of capital are machines, tools ,factory, building, hoes, roads as airport. The reward of capital is interest .

characteristics of capital 

The distinguishing features of capital includes the following :
  1. It is the only factor of production created by man through the previous process of production but not consumed immediately. 
  2. Capital is a product of self denial on the part of an investor . An investor saves part of his income for some time to enable him buy new machines which will produce more goods and services in the future. 
  3. It is a factor of production that can be used as one of the determinant of economic development. For example, it is a general belief that under development is the natural consequences of low level of capital accumulation and vice versa. 

Importance of capital 

Capital is an important factor of production.  It's importance can be explained in the following ways:
  1. Capital is required in any production activity. For example, in farming you need cutlass ,hoes, tractors,  and seeds to plant and reap the produce in the future.
  2. The amount and quality of capital input in any production activity dictate the quantity and quality of output. therefore the type of output you get from your productions activities depends on the level of capital input. 
  3. Inadequate capital breeds poverty in an economy. for example, when income is low, savings will be low ,only little capital will be available for investment and therefore production will be low, consumption will fall leading to low standard of living.


The factors of production land, labour, and capital cannot on their own combine to produce goods and services.  Someone had to combine these factors in the right time to produce the right quantity and quality of goods. 

The person who combines the other three factors to produce goods is the entrepreneur .
An entrepreneur is the person who combines land, labour, and capital in the right proportion  and at the right time and place to produce goods in the right quantity and quality.  It is he or she who decides on what to produce, how to produce, and for whom to produce.  He bears the risk of any decisions he or she takes.

In a small business, the entrepreneur may be the owner and manager of the business. In large organizations ,the functions of an entrepreneur are usually performed by the paid manager . The rewards of the entrepreneur is the profit. 

Functions of the entrepreneur 

  1. An entrepreneur decides on what to produce, how to produce and for whom to produce 
  2. He decides on the quantity and quality of the available tacklers to produce the required quantity and quality of goods and services 
  3. He bears the risk of loss of capital through fire accident, theft ,flood etc. 
  4. He also bears the risk of unexpected fall in prices or unwholesome competition which may result in the loss of revenue and profit 
  5. He provide the required capital for the business 
  6. He manages both the human and material resources employed in the business 

also read:

Functions and skills of a manager

The following are the distinguish features of an entrepreneur :
  1. An entrepreneur is a human being like labour who has a mind of his own but unlike labour who has to give consent before employment, and entrepreneur takes his own decisions to produce or not to produce 
  2. He is not employed by anyone, he employs labour 
  3. He makes capital available for production whereas labour only provides physical or mental effort for production of goods. 
  4. He manage or coordinates the factors of production land, labour, and capital  to achieve the desired result 
  5. He takes all the profit if the business succeeds and bears all the losses if the business fails. Labour is entitled to his wages whether the business makes profit or loss. 

Also read :

Why entrepreneurship is important

In summary In economics, the meaning of production is the question of what factors of production (land, labor, capital) are used to produce goods and services. The factors of production are the inputs used to produce outputs.

Outputs in economics are often divided into two categories: final goods and services. Final goods are items that are used to satisfy consumer demand. Services are intangible items that are not used to satisfy consumer demand, such as labor.

The factors of production are the inputs used to produce outputs. The three main inputs are land, labor, and capital.

Land is the most important factor of production. It is the source of all the other inputs, and it can be used to produce both final goods and services.

Labor is the second most important factor of production. It is the source of physical energy, and it can be used to produce both final goods and services.

 Capital is the third most important factor of production. It is the source of financial resource.

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