Wednesday, 26 August 2015

Distribution of Goods and Services as one of the basic economics activities of man

Distribution also is considered as one major economic activity in addition to the three basic economic activities. It is the activity that comes after production and its job is to distribute the goods and services that have been produced during the period to their points of consumption. Goods produced does not get consumed in the local market of your region itself when productions are on large scales. So, the goods need to be transported to all corners of the market depending upon their requirements. First of all, you may need to create awareness in the market about your produce so that people come to know of it and demand it for their requirements. This involves publicity and advertisement. Then, you need the transporting facilities and storage facilities also for the goods till they get consumed.

So, distribution of goods and services involve these following major activities.

To get requirement or demand for your goods, the public should be aware that you are producing so and so goods and/ or services. This can be achieved through advertisements in all leading newspapers or broadcasts on Radio and TV. Further, awareness about your products as to their quality and functions also need to be publicised through distribution of pamphlets and TV advertisements. This will make interested people to demand for your products.

When you receive requirement for goods, you need to transport them to the required places. This can be done either with your own fleet of vehicles or through public transportation facilities available like carriers, couriers, railway freight services, cargo services, etc.

Distribution of goods may require storage space and facilities also for storing the goods at destination points or even at intermediary points till actual consumption takes place to protect them from heat and rain. You can't ship each and every requirement separately, since it will be not economical and may delay the supply also. So, storage occupies an important role in the distribution of goods.

So, from above analysis, you can see that distribution of goods is a very complex economic activity involving publicity, transportation and storage of goods also and it needs to be considered as the second major economic activity after production.

There can be exceptions, in which case there may not be the need of this distribution activity taking place. For example, food consumed directly at small roadside eateries, a hair-cut in the saloon, etc. where there is no involvement of distributing activities. It is a case of direct production and consumption.

Thursday, 6 August 2015

A study of the basic economic activity - Production and factors of production

Production is one of the basic economic activity. 
  • Production can be defined as the conversion of resources or raw materials with the help of other inputs into usable goods and services.
  • It is the process of making / producing or developing user friendly goods and services employing or utilising the various means and resources that are available in an economy.

Man can not consume goods in their raw form in most of the cases. The raw materials and resources need to be processed and tamed in order to be consumed. For example, production of cars, buses, trains, etc. require the steel to be first mined in its raw form, then burned, molted and moulded to give shapes. It requires engineering skills, labour force, finance capital for purchasing the steel and machines/ tools, and for payments to labour, etc. Further it requires the skills of efficient management for controlling the various processes as well as efficient usage of inputs.

So, production implies utilisation of resources as well as the other input factors of production. Here one should notice that only those inputs which become a part of the output or those that are consumed and used up during production process are to be treated as the factors of production..

There are four major factors of production without which you can not carry on the production activity. They are-
  • Land,
  • Labour,
  • Capital and
  • Entrepreneurship. 
Now, let me give a brief account of these factors of production as to their importance in production.

Land is one important factor of production. Land is used for cultivation to grow all food grains, vegetables and other trees and plants. The fertility of soil gets used up here in production. Again, land contains rivers and lakes which provide the water for our consumption, besides being used for fisheries and internal transportation purposes. 

Land is the base for all our minerals, oils and other resources. We mine them, process and use them in producing various goods and products that are consumed by us or further used in production of many other different varieties of goods.

Labour is required to do all physical tasks as well as skilled operations in order to produce something.
Purely physical labour includes lifting of weights, ploughing of soil for agriculture and other unskilled jobs like helpers and servants.
Skilled labour requires special talents in the field through education and training like teachers, doctors and engineers.
All of these professionals aid to the production of goods and services as their time and energy are consumed in the process.

Capital is one more important factor of the 4 factors of production. You can't do any business without capital. Production requires the accumulation of resources which are procured by paying money or equivalent before starting any production. So, you have to invest capital before starting the production or establishing any kind of business.
Even after accumulating the required resources, you have to pay for the services utilised of land, labour and other intermediary activities before you may start earning income or profits from the business. So, capital is one important factor of production.

Even after all your resources and inputs have been procured to start your production, you need some managerial skills and talents to run your production process. You need to organise everything in a systematic manner to enable  production. You need to know what to produce, how much to produce and the inputs required for the output. You should be able to calculate and predict things prudently and efficiently in order to produce maximum output with the available limited resources in order to succeed. So, entrepreneurship plays an important role in production and you can't ignore it. 

Sunday, 2 August 2015

About Four basic economic activities

Any economy is a result of and is always engaged in four basic economic activities to sustain, develop and prosper itself. They are:

  • Production,
  • Distribution,
  • Consumption and
  • Capital formation.
These are the backbone of any economy. These economic activities create the wealth and purchasing power for economy. They lead to capital formation also. 

We can't consume most of the goods in their raw form. It requires processing, refining, shaping, mixing, tanning, manufacturing, cultivating and many other procedures to make the resources consumable by human beings. All these are done through production. So, production utilises the available resources to produce the required outputs to meet the needs of people. We always need production to satisfy our needs for existence.

Distribution involves in the passage of goods and services from one hand to the other or from producer to consumer through exchange or transfer. It involves intermediary agents also in the process. It may include bequeathing of assets, transfer of charity funds, subsidies and free social welfare services, all that imply economic values.

Consumption is the result of our desires and wants and it requires the goods that are produced to satisfy its urgency levels. So, consumption implies production in most cases. There are very few uneconomic goods that can be satisfied without production activity like free water, free air.
Consumption is an unending activity. We always need something to satisfy most of our recurring wants on daily basis. So, there will be an unending consumption activity in any economy at any given point of time. It is a continuous process which again requires continuous production of goods and services.

Capital formation takes place when large quantities of goods and services are produced which may result in accumulation of stocks and wealth. Further, production uses the factors of land, labour and capital resulting in wealth distribution to these factors in return for their use or services mostly in the form of rent, wages, interest and any other form of income. This income is used for consumption and balance income is again reinvested in assets and stocks to form capital for future usage.

So, you are able to see that there are four basic economic activities in a society which impact the economic position and development of any economy in our world..

Let us have a deeper look into each of these activities in our next chapters.