Overview

The production process involves combining an input of resources or 'factors of production' to produce an output of goods and services. Producers may use any combination of resources of different types in the production process. Productivity is measured by the input of resources divided by the output of commodities.

Types of Resources

All resources can be classified as natural resources, capital resources or human resources.

  • Natural resources come directly from nature and have been extracted or harvested by the primary sector.
  • Such resources may be renewable if they can be replaced within a life time or non-renewable if they take a long time to be replaced naturally.

  • Recycling helps to re-use non-renewable resources in the production process.

  • Capital resources are goods that have been manufactured or processed by the secondary sector.
  • They are human-made resources that are used to make other goods and services, although some may also be sold to the consumer as a final good, such as flower for baking.

  • Depreciation occurs in capital resources when they age or become outdated.

  • Increasing the stock of capital resources is known as investment and it involves contribution of money from the financial sector.

  • Capital-intensive production involves more capital resources than human resources.

  • Human resources are the services of humans in the production process.
  • Labour is the most common human resource and involves using skills and time to complete a task. This is exchanged for wages.

  • Entrepreneurship is the risk-taking organization of what and how to produce that is essential to every producer. This is usually considered a human resource, although some class it as a resource in itself. This is exchanged for profit.

  • The tertiary sector relies upon human resources to provide services.

  • Labour-intensive production involves more human resources than capital resources.

Services Industries

All firms require services to complete production processes. Firms may provide these services for themselves, but they usually use other businesses in services industries in the tertiary sector. Firms rely on these services industries to provide the services needed for the production process, while the service industries require the spending of these firms. Therefore, the firms and service industries are interdependent. Ironically, most producers in service industries are firms themselves and also require the services of other service industries.

Service industries used by firms include:

  • transport.

  • finance.

  • accounting.

  • communications.

  • marketing.