Meaning of Production

Human want is the starting point of all economics activities. Wants are satisfied through the consumption of goods and services. Some of the goods required by us like sunshine, air etc. are given by nature as free gifts. Human effort is not necessary to produce or acquire these things, nor do we pay a price to purchase them. Therefore the term ‘Production’ in economics excludes all free gifts of nature.

Human being requires both material and non-material goods to satisfy his wants. Material goods are visible, tangible and can be given a shape. Chairs, books, houses, pen, dress etc. are the examples of material goods. Non-material goods are invisible, intangible and cannot be given a shape. We can feel their existence. They have the capacity to satisfy human wants. Services of doctors, engineers, scientists, teachers etc. are the examples of non-material goods, both material and non-material goods are required because they have utility and can give us satisfaction. Therefore production can be defined as any economic activity resulting in addition or creation of utilities.

The classical economists had a very narrow view regarding the meaning of the term, production. They considered creation of material goods as production. But this is not accepted today. Man cannot create material good. He can only change the form of matter to make it more useful. For example when a carpenter makes a chair from a log of wood, he does not create the log of wood. He with his equipments and labour merely adds utility to the log of wood by changing its form, Therefore the process of creation or addition of utility in existing good is called production in economics. Defined in this way, Production refers not only to the transformation of physical input into physical output, but also to transporting, wholesaling and retailing of goods.