In the ordinary language, the term "production" means rising of crops or making of a physical goods in factories. For example, if you make ice cream, you will say that you have produced ice- cream (goods). But from the point of view of Economics, you have not produced any new thing in the form of ice-cream; rather, you have changed the form of milk, sugar, cream, etc, and thus, have created the utility. Marshall is right to say, "Man does not produce physical (material) goods; but when it is said that he produces material goods, in fact, he only creates the utility. Even the scientists also agree that "Matter can neither be created nor destroyed." Thus, in Economics, the word "production” is used to imply creation or increasing the utility of a good so that its value is increased.


"Production may be defined as the creation of utilities. Anatol Murad

"Production is the process that creates utility in goods. A.H. Smith

"Production is the creation of value in a commodity."- Thomas

"Production is the creation of economic utility "- Ely

"Production means an increase in the value of a commodity."- Nicholson

"Production is any activity which adds to the value of a nation's supply of goods and services.” -M.J.UImer

"Production may be defined as the process by which inputs may be transformed into output" - Robert Awh

Difference between Consumption and Production

Generally, production and consumption are considered to be altogether contrary and different activities.

Consumption is the use of utility whereas production is creation of utility. In fact, their difference is not so fundamental. Both these are two different aspects of the same activity. For example, when a carpenter makes a chair, he performs an act of production by increasing the utility of log of wood. But at the same time, he has also consumed the log of wood by using its utility.

Thus, two aspects of the same activity are production and consumption. According to Prof. Mehta., "When the utility of a good is used for the direct satisfaction of want, it is called consumption, and its use for the indirect satisfactions of want is called production."

Methods of Creation of Utility

Production or creation of utility can be made by the following methods:

1) Form Utility: If by changing the form of a good, capacity to satisfy wants is created in it, it is called the form utility. Changing of wheat in the form of biscuit, changing of wood into furniture are the examples of the form utility. Dalmia Biscuit Company or Godrej Steel Furniture Company or factories changing the raw materials into goods create the form utility.

2) Place Utility: Utility is also created by changing the place of goods. It is called place utility. Collecting of the sand from the river-bank and transporting it to the construction site or transporting the coal to different parts of the country from the coal-mines are the examples of place utility. A transporter, railways, shipping companies, and airways create place utility. So, the function of transporting companies is called production.

3) Time Utility: If by an act of storage of a good for some time its utility increases, it is called time utility. Storing oranges, apples and other fruits in the cold storages until their crop season is over and their prices increase, is the example of time utility. Thus the activities of traders, who make the stock of a commodity, can also be called production.

4) Service Utility: If the service of a man satisfies our want, it is called service utility. A professor's teaching in a class, a lawyer's pleading a case, a tailor's stitching a shirt, are the examples of the creation of service utility. Therefore, a professor, lawyer or a tailor are also the producers.

5) Possession Utility: If the change of possession of a good increases its utility, it is called the possession utility. The utility of a sewing machine is not so great for a dealer in sewing machines as it is for a tailor. The utility of the machine increases by this change of possession. It will be called possession utility. Since traders or retailers are the creators of this utility, their activity is also called production.

6) Knowledge Utility: When the utility of a good increase by increasing people's knowledge about that goods, it is called knowledge utility. For example, we come to know about the qualities of LG washing machine, Lux soap or Forhans tooth paste through advertisements. We make greater demand for these goods. Thus, advertisers also help production by creating knowledge utility.

Thus, in order to know whether a man is a producer or not, it is to ensure whether an increase in utility or value is made by the work done by that man or not. It is essential that the work-done by anyone must create or increase utility.

Factors of Production

You want to produce wheat. For the production of wheat, you require land, workers, tractor, tube well, seeds, pesticides, favourable climatic conditions and fertilizer, etc. All these are called the means of production or inputs. With the help of these, we get the output or production.

"The sources of services which enter into the process of production are called factors of production. The factors are broadly classified as land, labour, capital, organisation and enterprise .M.J. Ulmer

According to Dr. Marshall, "In a sense, only nature and man are the two sources of production-" Benham has rightly remarked, "Factors of production are neither two nor four but millions." But according to modem economists and for the sake of simplicity, there are four factors of production namely: (i) land (ii) labour (iii) capital (iv) organisation and enterprise. Modem economists call all these factors as Input or resources, as under;

1. Land: Land is that factor of production which is freely available from nature. In it, not only on the surface of soil is included, but also all other free gifts of the nature below the surface and above the surface are included; for example, forests, minerals, fertility of soil, water, etc. According to Marshall, "Land means the material and the forces which nature gives freely for man's aid, in land and water, in air, light and heat." Land is also called a natural resource.

2. Labour: Labour is a human factor of production. In it all those mental and physical activities of man are included which are performed in order to earn money. The services of a carpenter, black-smith, weaver, teacher, lawyer and doctor, etc., are called labour.

3. Capital: Capital is that man-made factor of production which is used for more production. Factors like machines, tools, raw materials, buildings, railways, factories, etc., are called capital. The saving of a man when invested to earn will also be called capital.