Production – Form Two Business Study Notes

This is first topic of business study in form two class. It is topic based on production. It encourages students and leaners to prepare themselves in production issues.

1.0 Demonstrate mastery of business knowledge

1.1 Demonstrate mastery of the concepts, theories and principles of Business Education

1. Explain the concept of production (meaning, types, factors and importance)

PRODUCTION

THE CONCEPT OF PRODUCTION

• Meaning of production

Production is the process of creating goods and services to satisfy human needs and wants. It involves transforming raw materials into finished products or offering services that improve people’s lives.

To produce these things, one requires factors of production such as 

• Land 

• Capital 

• Labour 

• Entrepreneurship 

It is important to know that taking care of the environment can be easy and good for environment.

For example:

— Farmers in Mbeya and Iringa grow maize, which is processed into flour.

— Factories in Dar es Salaam produce textiles from cotton grown in Shinyanga and Mwanza.

— The tourism sector in Zanzibar and Arusha provides services to both local and international visitors

• TYPES OF PRODUCTION

Production can be classified into direct production and indirect production based on how goods and services are created and used.

1.     DIRECT PRODUCTION

Direct production refers to a situation where an individual or a family produces goods and services for personal consumption rather than for sale or trade. Or is the creation of goods and services for consumption.

 It is also called subsistence production because the producer consumes what they produce. For example, can grow a vegetables or a carpenter can make a bed for personal use.

CHARACTERISTICS OF DIRECT PRODUCTION

• Goods and services are not for sale

The producer consumes what they produce. For examples, a farmer in Mwanza growing maize only for family consumption.

• It is usually a small-scale production

Usually involves small amounts of output, using limited resources. For example, a family in Tanga weaving baskets for home use.

• Use of traditional methods

Relies on simple tools and techniques, often passed down through generations. For example, a Maasai herder using traditional methods to rear cattle.

1.     Self-sufficiency

People depend on their own production for survival, reducing reliance on the market. For example, a fisherman in Zanzibar catching fish to feed his household.

1.      Limited specialization and division of labour

A person performs multiple tasks instead of focusing on one skill. For example, a farmer in Kigoma grows crops, rears animals, and builds their own shelter.

2. INDIRECT PRODUCTION

Indirect production refers to producing goods and services for exchange (trade or sale) rather than personal consumption. It involves specialization, use of modern technology, and production on a larger scale.

Examples of Indirect Production

— Commercial Farming 

— Fishing for Sale

— Manufacturing Industries

— Tourism Services – Hotels and tour companies in Zanzibar

— Retail and Wholesale Trade 

CHARACTERISTICS OF INDIRECT PRODUCTION

• Production is for sale or exchange

Goods and services are produced for trade, profit, or commercial use. For example, a factory in Dar es Salaam producing textiles for sale.

• It is usually a Larger scale production

Uses advanced tools, machinery, and modern techniques to produce large quantities. For example, a Large-scale coffee farming in Arusha for export.

• It involves specialization and division of labour

Workers focus on specific tasks, improving efficiency. For example, in a bakery in Dodoma, one worker mixes flour while another bakes the bread.

• Use of modern methods

This involves using machines, tools, and technology to produce goods or services rather than doing everything by hand. For example, at Bakhresa Food Products, wheat is processed into flour using modern milling machines instead of grinding it manually.

• Helps the country to develop

When people produce goods and sell them, they create jobs and bring money into the country. This helps businesses grow and improves people’s lives. For example, the Tanzanite mining industry in Manyara provides jobs and brings money to Tanzania when the gemstones are sold in other countries.

 LEVELS OF PRODUCTION

Production is classified into three levels: Primary, Secondary, and Tertiary. Each level plays a crucial role in transforming raw materials into finished goods and services.

• PRIMARY PRODUCTION

This is the first stage of production, where natural resources are extracted or harvested from the environment. It involves activities that provide raw materials for further processing.

Examples:

— Agriculture: Farmers grow crops like maize, rice, and coffee — Fishing: Fishermen catch fish from lakes, rivers, and oceans — Mining: Extraction of minerals like gold, coal, and diamonds.

— Forestry: Cutting down trees for timber and paper production.

• SECONDARY PRODUCTION

This level involves processing raw materials from the primary sector into finished or semi-finished products. It includes manufacturing and construction industries.

Examples:

— Manufacturing:

• Cotton from farms is processed into fabric and used to make clothes.
• Timber from forests is turned into furniture.
• Iron ore from mines is refined into steel for making buildings and cars. — Construction:
• Building houses, roads, bridges, and other infrastructure.

• TERTIARY PRODUCTION

This level involves the provision of services that support primary and secondary production, as well as direct services to consumers.

Examples:

— Transport: Trucks transport farm produce to markets.

— Banking: Banks provide loans to farmers and businesses.

— Retailing: Shops sell finished goods like clothes, electronics, and food items.

— Education: Teachers provide knowledge and skills.

— Tourism: Hotels, tour guides, and airlines serve tourists.

• IMPORTANCE OF PRODUCTION

Production is very important because it helps people, businesses, and the country grow. Here are some reasons why production matters:

• Satisfies human wants and needs

Production helps create the goods and services people need and use every day, such as food, clothes, houses, and transport services. Without production, these things would not be available, and life would be very difficult.

1. Creates employment opportunities

BY demanding the workforce which led to job creation. Production activities generate jobs in various sectors, reducing unemployment and poverty. For example, the tea plantations in Iringa employ thousands of workers in farming, processing, and distribution.

1. Increases government income

When businesses produce goods and services, they pay taxes to the government. The government collects taxes from factories, farms, companies, and workers. This money is used to provide important public services such as building schools, roads, hospitals, and supplying clean water.

1. Facilitates trade and foreign exchange earnings

If a country produces more goods than it needs, it can sell them to other countries and earn foreign money. This is called exporting. For example: Tanzania exports cashew nuts, coffee, and cloves from Zanzibar, earning income from international markets.

1. Improves living standards

When businesses produce more goods and services, they become cheaper and more available. This helps people afford the things they need, improving their quality of life.

1. Promotes technological advancement

Businesses invest in technology and innovation to improve production efficiency and product quality. For example, the use of modern irrigation systems in Kilimanjaro improves agricultural output.

1. Supports government revenue through taxes

Businesses and individuals engaged in production pay taxes, which fund public services like education and healthcare. For example, companies like Tanzania Breweries Ltd (TBL) contribute to government revenue through corporate taxes.

1. Reduces dependence on imports

A country that produces more can rely less on imports, saving foreign exchange and promoting self-sufficiency. For example, the production of textiles in Mwanza reduces the need to import clothes from abroad.

1. Enhances resource utilization

Production ensures efficient use of land, labour, and capital, preventing waste of natural resources. For example, the fishing industry in Lake Victoria utilizes water resources to supply fish to local and export markets.

1. It boosts economic development.

Through job creation payment of revenue. When more people have job they earn income which they spend on goods and services. And the tax revenue funds the public services like education, healthcare and infrastructure

• FACTORS OF PRODUCTION

Factors of production are the resources used to produce goods and services. They are the basic inputs required for economic activities. Without these resources, production would not be possible.

There are four main factors of production:

• Land – Natural resources used in production.

• Labour – Human effort (physical and mental) used in production.

• Capital – Man-made tools, machines, and money used to produce goods and services.

• Entrepreneurship – The ability to organize the other three factors to start and manage a business.

1. LAND AS A FACTOR OF PRODUCTION

Land refers to all natural resources that are used in the production of goods and services. It includes soil, minerals, forests, rivers, and climate—everything provided by nature that is useful in production. Unlike other factors, land is a free gift of nature. 

FEATURES OF LAND AS A FACTOR OF PRODUCTION

• Free gift of nature

Land is not created by human effort; it is naturally available. For example, Tanzania’s fertile land, rivers, and minerals were not made by humans but exist naturally.

• Fixed supply

The quantity of land is limited—it cannot be increased or decreased. Although its use can change (e.g., farmland turning into urban areas), the total land available remains the same.

• Variation in quality

Different regions have different land qualities. Some areas have fertile soil (e.g., Ruvuma and Mbeya for maize farming), while others are dry and less productive (e.g., Dodoma).

• Passive factor of production

Land alone cannot produce anything—it needs labour, capital, and entrepreneurship to be useful. For example, a gold mine in Geita requires miners, machines, and investors to extract gold.

• Can be used for different purposes

The same piece of land can be used for farming, construction, tourism, or mining, depending on economic needs.

• Value depends on location and use

Land in Dar es Salaam city center is more valuable than land in a remote rural area. Also, land used for commercial purposes has more value than idle land.

• Subject to diminishing returns

If land is overused without proper management, its productivity declines. For example, continuous farming without fertilization leads to soil exhaustion.

• It is immobile

Immobility of land refers to the inability of land to move from one place to another. Unlike other factors of production such as labor or capital, land is fixed in location and cannot be transported or relocated.

2. LABOUR AS A FACTOR OF PRODUCTION

Labour refers to human effort—physical or mental—used in the production of goods and services. It includes workers, employees, and professionals who contribute their skills, energy, and time to economic activities. Unlike land, which is a natural resource, labour depends on human effort and skills.

For example, 

— a farmer in Morogoro cultivating maize, 

— a teacher in Dar es Salaam educating students, and a 

— fisherman in Zanzibar catching fish are all engaged in labour.

TYPES OF LABOUR

Labour is classified into three main types:

1. Skilled labour
2. Unskilled labour 
3. Semi-skilled labour

• SKILLED LABOUR

This type of labour requires special training, education, or experience. Skilled workers perform complex tasks that demand expertise. Examples of skilled labour includes, doctors and nurses, engineers, teachers and lecturers and pilots.

• UNSKILLED LABOUR

This involves workers who perform manual or physical work without requiring special training. They rely on physical effort rather than specialized skills.  Examples unskilled labour includes farm workers, fishermen, construction workers and porters. 

• SEMI-SKILLED LABOUR

Semi-skilled labour refers to workers who have some training or experience but do not require advanced education or expertise. They perform tasks that need basic technical skills, often gained through short-term training or on-the-job experience. 

Examples of semi-skilled labour includes, 

— factory workers, 

— construction workers, 

— drivers, 

— food service workers, 

— machine operators, 

— retail assistants, 

— warehouse workers and — security guards.

FEATURES OF LABOUR AS A FACTOR OF PRODUCTION

• Labour is the most mobile factor of production

Mobility of labour refers to the ability of workers to move from one job, industry, or location to another in search of better opportunities or improved working conditions.  Labour mobility can be either 

• Geographical mobility, where workers move from one place to another, or 

• Occupational mobility, where workers change their profession or skillset.

• Labour cannot be stored

Unlike capital (machines, money), labour cannot be stored for future use. A day lost at work cannot be recovered, making effective time management crucial.

• Labour cannot be separated from the labourer

A labourer is the one who contributes their energy, skills, and time to any productive activity, making it impossible to separate the concept of labour from the person who performs it (Labourer). For example, a teacher provides labour through their teaching effort, and that effort is inseparable from him/her.

• Labour Productivity Varies

Some workers are more productive than others due to skills, training, and motivation. A highly trained engineer at TAZARA Railway is more productive than an unskilled road construction worker.

• Labour Requires Motivation

Workers perform better when given good wages, job security, and a comfortable working environment. For instance, companies in Tanzania offer housing, transport, and bonuses to increase worker productivity.

• Labour can be technologically dependent 

This is because the efficiency and productivity of workers often rely on the tools, machines, and technology they use. For example, farmers in Tanzania using modern tractors and irrigation systems can produce more crops than those relying on traditional farming methods.

SPECIALIZATION AND DIVISION OF LABOUR

SPECIALIZATION

Specialization occurs when individuals, businesses, or countries focus on producing a specific good or service rather than making everything themselves. This improves efficiency, quality, and productivity.

For example:

— In a bakery, one worker specializes in baking cakes, another in decorating them, and another in handling sales. This ensures better quality and faster service.

— Tanzania specializes in producing coffee and exports it to other countries, while importing cars from Japan, which specializes in automobile manufacturing.

DIVISION OF LABOUR

Division of labour happens when a production process is broken down into smaller tasks, and each worker focuses on a specific task. It increases efficiency, reduces errors, and speeds up production.

For example:

— In a restaurant, the chef cooks, waiters serve customers, and cashiers handle payments. This allows smoother operations and better customer service.

Specialization leads to division of labour. When people or businesses specialize in a specific skill, the production process is divided into tasks, with each person handling a specific role.

ADVANTAGES OF SPECIALIZATION AND DIVISION OF LABOUR

• Increased productivity

Workers become skilled in a specific task, leading to faster and more efficient production. For example, in a textile factory, one worker specializing in cutting fabric and another in stitching speeds up production.

• Improved quality

Specialization allows workers to perfect their skills, resulting in higher-quality products. For instance, a tailor who specializes in suit-making produces better suits than a general tailor.

3. Efficient use of resources

Countries and businesses can focus on what they do best, reducing waste and maximizing output. For example, Tanzania focuses on coffee production while importing electronics from China.

• Lower production costs

Mass production through division of labour reduces costs, making goods more affordable. For instance, car manufacturers produce vehicles more cheaply using assembly lines.

• Encourages innovation

Experts in a field develop new techniques and better methods to improve efficiency. For instance, software developers specializing in AI create better applications.

DISADVANTAGES OF SPECIALIZATION AND DIVISION OF LABOUR

• Monotony and boredom

Repeating the same task daily can make work dull and reduce motivation. For example, a worker in a shoe factory stitching only soles may lose interest over time.

• Overdependence on others

If one specialist fails, the whole process may slow down or stop. For example, if a mechanic in a car assembly plant goes on strike, production delays occur.

• Job Insecurity

Workers with highly specialized skills may struggle to find jobs if their industry declines. For example, a typewriter repair specialist may become jobless due to the rise of computers.

4. Lack of flexibility

Specialized workers may find it difficult to adapt to new tasks. For example example, a worker trained only in welding may struggle to switch to electrical work.

5. Unequal economic development

Some regions may develop faster than others due to specialization, creating economic imbalance. For example, cities with industries grow rapidly, while rural areas may lag behind.

3. CAPITAL AS A FACTOR OF PRODUCTION

Capital refers to man-made resources used in the production of goods and services. Unlike land, which is a natural resource, capital is created by humans to assist in production. It includes money, tools, machinery, buildings, and equipment used to produce goods and services.

FEATURES OF CAPITAL AS A FACTOR OF PRODUCTION

• Man-Made Resource

Unlike land, which is a natural resource, capital consists of human-made tools, machines, buildings, and equipment used in production.

• Used to produce other goods

Unlike land, which exists naturally, capital is used to create more goods and services (e.g., a printing machine is used to produce books).

• Can be increased or decreased

Unlike land, capital can grow through investment. Businesses can buy more machines to expand production.

• Depreciates over time

Capital goods wear out or become obsolete with time (e.g., old machines need repairs or replacement).

• Requires initial investment

Capital is created through investment in machinery, tools, and infrastructure, requiring financial resources to accumulate. For example, buying buses for public transport.

• Improves Productivity

Capital increases efficiency in production. For example, a farming tractor allows farmers to cultivate more land than using traditional hand tools.

• Mobile and Transferable 

Capital can be moved from one location or use to another, such as transferring machinery from one factory to another.

4. INTERPRENEURSHIP AS A FACTOR OF PRODUCTION

Entrepreneurship refers to the ability to organize and manage the other factors of production (land, labour, and capital) to create goods and services while taking financial risks. Entrepreneur is a person who organizes the other factors of production.

FEATURES OF ENTREPRENEURSHIP AS A FACTOR OF PRODUCTION

• Innovation and Creativity

Entrepreneurs develop new products, services, or business models to stay competitive. For example, The Zanzibar spice tourism industry attracts tourists through innovative cultural experiences.

• Risk-Taking

Entrepreneurs invest their own money and time, accepting the possibility of loss. For example, a person starting a coffee export business in Kilimanjaro risks financial loss if prices drop.

• Decision-Making Ability

Entrepreneurs make key business decisions regarding production, marketing, and investment. For example, a Dar es Salaam supermarket owner decides which suppliers to buy from and which products to stock.

• Resource Organization

Entrepreneurs combine land, labour, and capital efficiently to run a business. For example a fishing business in Zanzibar needs boats (capital), fishermen (labour), and the ocean (land).

5. Profit Motivation

Entrepreneurs aim to maximize profits by producing efficiently and meeting market demands. For example, a sunflower oil producer in Dodoma looks for ways to reduce production costs and increase sales.

• Flexibility and Adaptability

Entrepreneurs adjust to market trends and economic changes. For instance, during the COVID-19 pandemic, many entrepreneurs in Tanzania shifted to online businesses.

• Contribution to Economic Growth

Entrepreneurship creates jobs, increases tax revenues, and boosts industrial development. For example: The growth of small businesses in Kariakoo Market provides employment to many Tanzanians.

THE REWARDS OF FACTOR OF PRODUCTION

The rewards of factors of production refers to the income or payment received by each factor for its contribution to the production process. Since production requires land, labor, capital, and entrepreneurship, each factor earns a specific type of income as compensation for its role.

• Reward for Land is Rent

Land earns rent, which is the payment made for using natural resources such as land, forests, and minerals. For example, businesses pay rent for office spaces or farmland.

• Reward for Labour is wages or salaries

Labor receives wages or salaries, which compensate workers for their physical or mental efforts. Skilled professionals, factory workers, and service providers all earn wages based on their work.

• Reward for Capital is Interest

Capital generates interest, which is the return earned by those who invest in tools, machines, or money used in production. Banks and investors, for instance, earn interest when they lend money to businesses

4. Reward for Entrepreneurship is Profit

Entrepreneurship earns profit, which is the financial gain after covering all production costs. Business owners take risks, organize resources, and manage operations to generate profit.

1.0 Demonstrate mastery of business knowledge

1.1 Demonstrate mastery of the concepts, theories and principles of Business Education

1. Describe sources of capital for small businesses (loans, savings, deferred payments, funds from family and friends)
2. Describe the role of microfinancing and cooperatives in facilitating business formation and operations