COMMERCE

CAMBRDIGE O LEVEL (SECOND EDITION)

MARY TRIGWELL-JONES

CHAPTER 1: CHAIN OF PRODUCTION

WHAT IS PRODUCTION?
- Production is the creation of utility
- Production takes place because products are made to satisfy needs
- Stages of production is the another name for chain of production
- Production is the act of producing, of making something that was not there
before or was not in the same form
- Production can be divided into two branches- industry and services

WHAT DOES PRODUCTION TAKES PLACE?

- Production of goods and services is necessary to satisfy people’s needs and
wants
- They need or want what is produced, if they do not demand a product,
production will stop

NEEDS:
- They are essential
- We cannot survive without needs
For example: Food to eat, water to drink, shelter such as housing
- They are limited

WANTS:
- Wants are unessential
- We can always live without wants
For example: Cars, air conditioner, holiday
- Wants are things that people would like to have that makes their life more
pleasant
TWO TYPES OF PRODUCTION:
1. DIRECT PRODUCTION:
- When a person tries to provide all the needs by his own efforts
- When an entity is capable of providing all of the materials necessary for their
product production by using their own skills
- It is the production of goods and services by an individual for their own use
For example: Planting a small vegetable farm for home use

2. INDIRECT PRODUCTION:
- This covers most kinds of production
- It is when a person concentrates on one occupation and produces a surplus
- It is the production of major goods and services
For example: Machinery for construction use.

STAGES OF PRODUCTION:
1. PRIMARY PRODUCTION:
- This is the first stage of production
- It is concerned with obtaining as extracting natural resources from the Earth
For example: Minerals, fuel and raw materials, and food
- Sometimes known as extractive production
- The economic operations of a primary sector are usually dependent on the
nature of that particular place

Primary industry can be divided into two types:

EXHAUSTIVE INDUSTRIES:
- These are the industries that take resources from nature that are not replaced
- Non-renewable
- Farmers, coal miners, and hunters are among the workers in the primary sector.
It is a well-known truth that as a country develops, its dependence on primary
industry decreases, and its dependence on secondary and tertiary industries
increases.
- For example: Oil, coal, mining, quarrying and drilling
NON-EXHAUSTIVE INDUSTRIES:
- These industries take resources that are renewed from time to time
- Renewable
For example: Farming, forestry and fishing

2. SECONDARY PRODUCTION:
- Second stage of production
- This changes raw materials into finished goods
- Natural resources are taken from a primary producer and their form is changed
using labor, machinery and technology
- Manufacturing, construction and processing are all forms of secondary
production
- Adds value to raw materials
- Dependent on primary production

There are three types of secondary production:

MANUFACTURING:
- Manufacturing usually takes place in a factory
- It takes a small amount of product that is partially processed or is a raw
material to create products
For example: Car manufacturer, textile mills, furniture, steel making

CONSTRUCTION:
- Construction involves building or assembling manufactured parts into a finished
product
- Process on a large scale that involves heavy and large facilities, equipment,
areas, machine tools, and complex and large-scale infrastructure.
- It needs high capital investment
For example: House making, boat building, road making

PROCESSING:
- Processing is when raw materials are changed into semi- manufactured goods
For example: Tuna, fish, food, oil refining
3. TERITIARY PRODUCTION:
- It involves the provision of services
- This type of production is the creation of intangible goods
- Consists of direct and indirect services
- Tertiary industry is the services sector of an economy, encompassing medical
providers, educators, financial services, haircuts, and personal trainers

Two general kinds of tertiary production:

INDIRECT 0R COMMERICAL SERVICES:

- Also known as “Aids of trade” or commercial activities
- These services are concerned with distribution
- They help distribute the raw materials from primary production and the goods
from secondary production
- Related with distribution of goods and raw materials or finished goods
For example: Marketing services, advertising, insurance

DIRECT SERVICE:
- This service is given directly to the person receiving them with no other service
provider involved
- Services that are directly given to consumers
- These services are given to make people healthy, happy, more secure to amuse
them
- Help people to work more productively
For example: Teaching, nursing, police officer, doctor, lawyer, singer

PRODUCERS AND CONSUMERS:

- Producers provide goods and services for consumers. They manufacture goods
and provides services to consumers to fulfill needs of people and to satisfy their
needs
- Consumers are the final users of goods and services. They buy goods and
services to satisfy their needs and wants and not to resell. Without consumers,
there would be no need for production. They are the main assets of a business
CHAIN OF PRODUCTION
- Chain of production are the various stages through which production passes
- Different stages of making, distributing and selling a good or service from the
initial production of parts, through to the final product through to distribution
and sale of product
- It includes not only industrial production but also commercial services necessary
to link production to consumers
- Manufacturer --- wholesaler ---- retailer ---- consumer
- Interdependence is the way in which countries are dependent on one another.
Countries are becoming more interdependent as they often specialize in
producing a few products and import what they do not produce

SHORT ANSWER QUESTIONS:

1. What is production?
Production refers to providing goods and services to satisfy human needs
and wants. It is also defined as the act of producing, of making something that
was not these before or was not in the same form

2. Explain why construction is a secondary industry?

Construction is a secondary industry beacuse it adds value to raw materials
for example; car manufacturing

3. How does a person giving a direct service differ from one providing a commercial
service?
A person who provides direct services has no other third person involved, for
example; a teacher provides direct services to students and no other person is
involved. Commercial or indirect services like advertisement have many people
involved in the process

4. What is the difference between wants and needs ?

Wants are the things that people would like to have that make life more
pleasant such as a television or a car. Needs are the things human beings need
for survival such as food, water and shelter
5. Using examples, explain why some human wants are needs for some people?
A photographer needs DSLR to take pictures, which is basically a want but
for him it is a need

6. Explain two ways in which the production of spades satisfies human needs and wants
Spades are used to dig the ground to grow vegetables, which are a needs for
most people. They may be used in a garden to cultivate flowers, which may be a
human want. They help people who are employed in gardens and make work
easier

MULTIPLE CHOICE QUESTIONS:

1. What is the meaning of production?
A: Creation of utility
B: Exchange of goods and services
C: Extraction of raw materials
D: Manufacture of finished goods

2. The satisfaction of human wants and needs is best achieved when people
A: buy all they need
B: make all they want
C: produce goods and services
D: purchase goods on credit

3. Which industry is wrongly paired with its type of production?

Industry Production type
A: Farming Primary
B: Car making Secondary
C: Boat building Primary
D: Banking Tertiary

4. Primary, secondary, tertiary activities are all part of?

A: direct production
B: division of labor
C: the chain of distribution
D: the chain of production
5. In which branch of production would be tractor be used?
A: Primary
B: Secondary
C: Tertiary
D: Direct service