1. Economics
Chapter 3
Production

2. Production
Activity that turn resources or input into goods or services.
A process through which resources are transformed into goods or services.
From input to output
To use resources to create value

3. Production Land Plowing Seedling Watering Market Transporting
Harvesting

4. Production Sea Oil drilling Storage Petroleum Refilling Car
Transporting

5. Classification of output
By form:
Goods
Tangible / visble
touchable
be used for consumption or production
e.g. T-shirt, hamburger, house
Services
Intangible / invisible
activities
directly satisfy wants
help with production
e.g. bank-saving, insurance, medical check

6. Classification of output
By use:
Consumer goods
directly satisfy human wants
e.g. car, computer, tennis racket, TV at home
Producer goods
capital goods
goods are used to
produce other goods
help provide other services
e.g. bus, ATM, Roadshow TV on the bus

7. Classification of output
By rivalry and excludability
Private goods
rival, same unit can be used to serve only one person or household
excludable, to prevent others from enjoying it
e.g. T-shirt (can’t be wear by more than one person at a time)
Public goods
non-rival
can serve different consumers at the same time
doesn’t matter how many consumers
non-excludable
can’t / difficult to prevent others from enjoying it
e.g. National defense, traffic lights, postbox

8. Private Goods vs. Public Goods
Typical example
Book:
Private
consumed by one person only  rival and excludable
Knowledge:
Public
can be shared with all people  non-rival and non-excludable

9. Private Goods vs. Public Goods
Internet
Public: can be used by many users at the same time
Private: net congestion, rivalry in consumption
Fireworks on National Day
Public: everyone can enjoy the show
Private: limited space, rivalry in occupying a place for enjoying the show
Mobile network
Public: can serve many customers
Private: congestion during typhoon day, rivalry in consumption
Private: a number can serve only one customer, excludable

10. Types of production Primary production Primary producers
direct use of natural resources
extract from nature
output: food and raw materials
e.g. farming, fishing, husbandry, mining
Primary producers
people who engage in primary production
e.g. farmer, fisherman, husbandman, miner

11. Types of production Secondary production Secondary producers
process turning raw materials to goods
value-added
output: finished / semi-finished goods
e.g. manufacturing, construction, supply of electricity
Secondary producers
people who engage in secondary production
e.g. factory workers, manufacturer

12. Types of production Tertiary production Tertiary producers
all kinds of services
value-added
e.g. education, transport, banks, retailing
Tertiary producers
people who engage in tertiary production
e.g. teachers, bus-drivers, bank managers, salesperson

13. Types of production Relationship Interrelated Interdependent
Output of one type = Input of another type

14. Types of production Example: Fish Example: Oil drilling
Primary production: fish (fisherman catches fish from the sea, from nature)
Secondary production: a dish of steamed fish (chef cooks the fish, make raw fish into seasoned fish)
Tertiary production: serve the dish of fish the table (waiter takes the dish to customer, service provided)
Example: Oil drilling
Tertiary production: fund raising (banker finds potential investors to invest)
Secondary production: build oil driller (making of captial goods)
Primary production: petroleum drilling (extract raw material from the nature)

15. 4 Factors of production Land natural resources
fixed in supply: land / petroleum / mines
change in supply: sunshine / rainfall / wood
decrease: mining / lumbering
increase: planting / volcano eruption
no production cost, but opportunity cost of different usage

16. 4 Factors of production Capital man-made resources
tools: machinery / infrastructure / equipment
production cost
interest involved: capital owner earn interest

17. 4 Factors of production Capital Capital formation
creation of capital goods
a kind of investment
increase productivity, future income and consumption
interest rate is the cost
exchange of present consumption to future consumption

18. 4 Factors of production Capital  Interest rate  Interest
Mechanism
 Interest rate
 Interest
 Cost (investment means give up more interest returns on loans)
Less investment
 Less capital formation

19. 4 Factors of production
Capital - Depreciation and Capital accumulation
Depreciation (also named as capital consumption)
wear and tear
obsolescence
Capital accumulation
Rate of capital formation > depreciation
Depreciation and Capital accumulation are very important items to be listed in accounting balance sheet.

20. 4 Factors of production Labour human resources provide man-power
mental or physical efforts
earn wages

21. 4 Factors of production Entrepreneurship human resources
founders or directors of entrepreneur / firm
decision-makers
risk-bearers, losses because of wrong investment / decision
investors, aim at profit making

22. 4 Factors of production Similarity Both Entrepreneur and Labour are
human resources
bear risk of job losing

23. 4 Factors of production Difference Entrepreneur Labour earn profits
bear risk of business losses
Labour
earn wages
no need to bear the risks of loss, protected by law (is it always true?)

24. Production resources in HK
Natural
Strength:
Harbour, natural shelter
Geographical location
Weakness:
farmland
mine
fishing port

25. Production resources in HK
Man-made
Strength:
infrastructure, e.g. airport, transportation network
finance market
legal system
Weakness:
factories, because of high cost

26. Production resources in HK
Human
Strength
hard-working
well-educated
high working population
willingness to start business
Weakness
high wages
labour with low occupational mobility

27. The relationship between the factors of production, production & output
Factors of production (Input)
Goods & services
Consumer goods & producer goods
Private goods & public goods
Land
Capital
Labour
Entrepreneurship
Types of production
Primary production
Secondary production
Tertiary production