transforming resources into goods and services

Transforming resources into goods and services

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Resources (inputs)

Factors of production

Labour

Capital Enterprise

Land


LandAs well at the businesses’ location, this includes all the natural resources that can be used for production e.g. coal, oil, livestock etc.

LabourThis describes both the physical and mental effort involved in production. For example, accountants, window cleaner and those providing manual effort in producing finished goods


Capital (this can have different meanings, be aware!)

This means goods that are made in order to produce other goods and services. For example, machinery, computer systems, shelving and lorries etc.

EnterpriseThis is the act of bringing together the other factors of production in order to create goods and services. It is carried out by the entrepreneur, who makes decisions and provides finance.

Improving the efficiency of the factors of production

Improving the fertility of land

Using renewable or recyclable resources

Greater education and training of the workforce

Increasing the level of investment capital equipment

Improvements in entrepreneurial skills and risk taking

Combining the factors of production in a balanced way

Extending the overall scale of production

The nature of output

The process by which inputs of factors of production are transformed into outputs is known as production• Customers may be other businesses• Customers may require a service rather than a good• The vast majority of production in the UK is in the

form of services

Inputs Transformation process

Outputs

Feedback

The transformation process

• Some inputs are used up however other may remain intact- raw materials are used up, capital equipment remains intact

• Land , labour and enterprise will remain active

• The business must be careful not to over these resources as it may lead to lower efficiency

• In the tertiary sector it focuses directly on the consumer- no physical product emerges

Classifying outputs

• Natural resources• Semi-finished goods • Services

These are referred to as primary, secondary and tertiary production

Production in the Primary sector

• Natural resource

• Transformation process is quite simple

• Example: agriculture- the converting seeds into crops

• Can involve extraction, e.g. gold or coal

• Extraction of some resources can be expensive

Production in the Secondary sector

• Converting primary goods into finished goods

• These finished goods may act as an input for other businesses

• For example- Michelin purchases a primary product- rubber- as the main component in making tyres, subsequently these tyres may be one of the inputs into a car made by Volkswagen

Production in the Tertiary sector

• Services- commercial or personal (sometimes can be both e.g. banking)

• Transformation processes produce goods and services e.g. a restaurant

• As well as goods/services the production process can lead to undesirable outputs such as waste and pollution

Measuring output

Example:Toyota produces a car that is sold for £12,000- the value of its output is £12,000?

The parts of the car may have been manufactured by another company, therefore the true value of the car is its selling price minus the value of the goods/services bought in by Toyota. This is known as added value

Adding value

• Production is seen to be a major factor in adding value

• Marketing can also add value- USPs or an attractive mix of design, function, image and service

• Brand awareness and consumer loyalty

• In order to make a profit, businesses need to add value!

transforming resources into goods and services

Business