O Level Revision : Commerce - Human needs and wants

Human needs and wants

• Humans require goods and services to satisfy their needs and wants.

Needs are:

• for survival
• stated and quantifiable
• defined at rational minimum levels e.g. poverty datum line ,inflation
• defined in relative and absolute terms
• Basic  needs/necessities  are  food,  shelter,  healthcare,  education,  security  and clothing.

Wants are:

• desires
• infinite

Goods are tangible. Houses, vehicles and pots are tangible and durable; these last long.  Potatoes and bananas are tangible and perishable.

Services are intangible. Medical, legal, financial, educational are services provided by both private and public businesses.

What is production?

• Production is the provision of goods and services to satisfy human needs and wants.
• Production are the processes and methods used to transform, make and provide tangible  inputs, namely raw materials, semi-finished goods and intangible inputs like ideas, information and knowledge into goods and services to satisfy human needs and wants.
• Consumer goods are used or consumed by individuals or households to satisfy their needs and wants.
• Bread, furniture and vehicles are consumer goods.
• Capital goods are used in the production of other goods.
• Machinery, school buildings and dams are capital goods.
• Education, training and experience are important forms of human capital.
• Capital goods permit and cause production instantly and in the future.

Divisions of production

Primary, secondary and tertiary sectors are the three sectors of production; they complement each other in the provision, production and distribution of goods and services.

Primary or Extractive

-      Primary or extractive industries obtain and provide raw materials and products of nature.

-     Farming, fishing, mining, forestry and quarrying provide raw materials.

-     Soya beans, fish, diamonds, timber and quarry or stones are examples of raw

materials.

-     Gold panning, tin mining, rice farming and fishing are occupations.

Secondary (Manufacturing and Construction)

-     Secondary production converts raw materials into semi-finished or finished

products e.g. bricks into usable wholes like houses and bridges.

-      Construction involves putting parts into whole units e.g. building houses with bricks, sand and cement, and bridges with quarry, iron rods and cement.

-     In the construction and manufacturing industries are house builders, factory

workers and other employees ranging from office assistant to managers.

Tertiary

-     Commerce is trade and aids to trade.

-     It facilitates the distribution of goods and services from producers to consumers.

-     Trade is buying and selling of goods and services at home and abroad.

-      In home trade, wholesalers and retailers buy goods from producers and sell to consumers.

-      Foreign trade is global. Countries trade between or amongst themselves by exporting and importing goods and services.

COMMERCE                                          

The divisions of commerce

(i)   Advertising

(ii)  Banking

(iii) Communication

(iv) Insurance

(v)  Transport

(iv) Warehousing

Advertising, banking, communication, insurance, transport and warehousing are the aids to trade; they facilitate trade.

a) Advertising: Traders inform and remind customers of existing and new goods and services and persuade consumers to buy. Television, radio, phones and newspapers are the electronic and print media used to advertise products.

b) Banking: Banks receive deposits, pay interests on deposits, keep money safely, lend money by giving loans and allowing overdrafts; charge interest on the loans.

Banks issue cheque books and levy a monthly fee on deposits.

Debtors may use cheques, standing orders or credit transfers to pay creditors. Banks provide information on foreign currency exchanges.

c) Communication: Traders contact consumers through phones, letters, fax, teletext, WhatsApp, Facebook and Twitter, Viber, Instagram, Skype, etc.

-     Traders transmit and receive information from other traders and consumers.

d) Insurance: covers risks of trade like fire, theft, loss of goods in transit and injury to workers.

-     The insured or beneficiaries claim indemnity in the event of a loss

e) Transport: Traders use sea, road, rail, pipelines, or air to ferry or carry raw material and finished Traders and their workers use some of these modes to travel to and from work, and on business.

f) Warehousing: stores various types, sizes, qualities and quantities of goods.

-     Ensures constant or even supply of goods.

-     Reduces fluctuation of prices.

-     Stores seasonal goods.

Forms of production

1. Direct production

• Produce for own use.
• Make own goods or perform own service to satisfy own needs.
• Cooking own food, building own hut or house and designing own clothes are examples of direct production.
• Goods are customised, unique and single.
• Goods call for minimal trade.

Benefits

• Produce specific quantities for specific consumers.
• Tap and use available resources.
• Lead to self-satisfaction.
• Become skilled.
• Start of small enterprises.
• Produce to meet own needs and tastes.

Challenges

• Lack of initial capital.
• Mere experimentation.
• Shoddy goods are produced.
• Goods may not satisfy basic needs.
• Lack of variety.
• Lack of relevant and related skills.

2. Indirect production

• People have varied skills to produce varieties of goods.
• Each person focuses on one occupation.
• Goods are produced in large quantities.
• Engages in trade i.e. buying of goods produced by others and selling goods one produces.
• Production is for the market not necessarily for own use or consumption.
• One spends most of the time doing the job one is best proficient at.
• The quality of a product is standardised.
• An individual works in co-operation with other workers, probably with the help of capital equipment, in the production of goods.

3. Mass production

• Goods are made in large quantities.
• Services are provided on a large scale.
• Both home and foreign trade grow.

Division of labour

Division of labour is when the production of a commodity is broken down into a number of separate processes or tasks. Each task is performed by a different individual e.g. Labelling, storing and selling a product. A worker develops a skill; becomes an expert in the specific job.

Specialisation is a result of the division of labour. All productions of goods and services qualify for specialisation at individual up to global level.

Advantages of specialisation

-       Workers become  fast, efficient and effective experts.

-       Increased output per worker; minimise costs and maximise output resulting in lower production costs.

-       Improves standard of living.

-       Allows the   use of modern technology; computers and robots replace manual production.

-       Leads to greater skill amongst workers; workers repeatedly perform the same processes and become specialists.

-       Enables specialists to be employed gainfully and economically.

-       Saves time in training since focus is on one production activity.

-       Is economic in the use of tools; the tools are used continually.

-       Allows the use of specialist machinery on each production activity.

-       Increases total volume of a standardised type of good, thus it promotes mass production.

-       Generates a surplus that needs to be exchanged, thereby creating both home and foreign trade links.

-       Creates  jobs  for  both  unskilled  and  skilled  workers  on  simplified and  highly

technical tasks respectively.

Disadvantages of specialisation

-       Creates monotony, boredom for the operatives.

-       There is loss and decline of craftsmanship, and alienation of workers.

-       Work stoppage at any level disrupts effectiveness of specialisation.

-       Fall in demand for a product or service results in unemployment.

-       All the products are the same or standardized - no variety.

-       Creates greater risk of redundancy due to increased use of robots, computers and development of new processes and techniques.

-       A greater risk of occupational disease may evolve.

-       Absenteeism disrupts production since workers are interdependent.

Factors of production

The factors of production are capital, entrepreneurship, labour, and land. They ensure the provision of goods and services to satisfy needs and wants.

1. Land

-      All the natural and human-made resources.

-      Farming, mining, forestry and fishing are primary sources of raw materials.

-      Minerals, farm products, timber and fish are the outputs.

-      Rent is paid to owners of the land.

2. Capital

-      Capital is wealth, particularly money used to produce more wealth or starting a business.

-      Equipment, machines, buildings and vehicles are fixed forms of capital.

-      Capital causes production of other goods.

-      Interest is paid to capital owners.

3. Labour

-      It refers to all forms of human effort directed at the provision of goods and services to satisfy human needs and wants.

-      The effort is paid for in cash or kind or both.

-      Labour receives wages for the effort.

4. Entrepreneurship

-      Also known as enterprise or organisation.

-      Conceive ideas and transform them into activities to produce goods and services.

-      Entrepreneurs put cash or kind or both into the business to effect provision of goods and services

-      Entrepreneurship earns profit or loss from the business.

Factors that influence the location of production units

1. a) Climate

-      rainfall, temperatures, sun , wind are suitable

-      rivers flow perennially

-      dams  are constructible

1. b) Topography

-      flat or hilly, fertile, alluvial, …

-      dams are constructible

-      water flows on canals

1. c) Markets

-      final consumers, retailers, wholesalers, and manufacturers and producers are

contactable

-       prices of products are competitively low

1. d) Transport

-      close to good transport networks

-      available, cheap, efficient

-      good road, rail, air and water network system

-      ready specialised carriage facilities

-      fast distribution of goods to consumers

-      enables buyers and sellers to carry the goods

1. e) Labour

-      available skilled and unskilled for production and distribution

-      reduce the cost of production and sell the goods at competitive prices

1. f) Government policy

-      promote production and consumption of the product

-      inject financial resources

-      provides incentives for the location of a firm in an area to decentralise business

activities, promote growth of selected zones and create employment for locals

Group project

Visit a commercial area near your home or school. This can be a growth point, business centre or shopping centre. You will need a notebook and pen for this task.

1. As you walk down the street, list all the services provided.
2. Go back to school and classify the services you have seen. Draw up two columns like this:

3. Now go through each column and say whether the services or activity is primary

(P), secondary (S) or Tertiary (T). Fill in P, S or T in your table.

4. Which level of business activity is the most dominant, and why?

Multiple choice questions

1. banking, farming and manufacturing.
2. communication, transport and warehousing.
3. construction, insurance and mining.
4. fishing, retailing and wholesaling.
5. Goods used to produce other goods are
6. transitory goods.  B.   tangible goods.
7. secondary goods.  D.   capital goods.
8. Which is an advantage of specialisation?
9. Boredom and monotony  B.   Extreme proficiency at an operation
10. High degree of interdependence  D.   Loss of craftsmanship
11. Rent is the reward for
12. capital.  B.   labour.
13. land.  D.   organisation.

6. Capital owners earn
7. profit.  B.   wages.
8. interest.  D.   rent.
9. In which production sector are goods made for sale?
10. Direct  B.   Indirect
11. Subsistence  D.   Tertiary

Essay questions

1. Show how a company manufacturing shoes might benefit from aids to trade.
2. Explain the advantages of specialisation.
3. What are the disadvantages of specialisation?
4. Explain the factors of production.
5. Distinguish between direct production and indirect production.
6. Why is commercial services part of production?
7. What factors influence the location of a manufacturing firm?