Economics Year 1

SECTION

4 PRODUCTION
SECTION 4 PRODUCTION

FIRMS’ INNOVATIVE DECISION MAKING

Production of Goods and Services

INTRODUCTION
This section covers the production of goods and services. It highlights various factors
of production and how they relate and differ from one another. It also shows how a
producer will have to combine these factors to produce goods and services. Factors
of production are also traded in a market and serve as a major source of income.
Goods and services are produced using the four factors of production—land, labour,
capital, and entrepreneurship. The section also deals with the rewards of the factors
of production and shows the relationship between productivity and production. It
explores the topic of location and the localisation of industry as well as the division of
labour and specialisation.

At the end of this section, you should be able to:

• Explain the meaning of factors of production.

• Identify the rewards for each factor of production.
• Relate the concepts of production to productivity.
• Investigate location and localisation of Industries.
• Justify Division of Labour and Specialisation in production.

Key Ideas
• Factors of production are the resources used to create goods and services to satisfy human
wants. They are grouped into land, labour, capital and entrepreneurship. Each factor of
production receives a reward for contributing to the creation of goods and services.
• Production then is the act of combining resources (land, labour, capital and entrepre-
neurship) for the creation of goods and services to satisfy human wants.
• Productivity is important because it helps you to know the quantity of goods and services
that can be produced with a given amount of resource(s). For example, productivity
is high when labour uses fewer resources to produce higher quantities of goods and
services.
• Location and localisation are not the same, even though they are related. Location of
a firm refers to the siting of a firm in a particular geographical area or location, whiles
localisation of industry is the concentration of a number of industries at the same
location or place.
• Division of labour is necessary in the production process because it helps in breaking
down work into simple or convenient tasks so that each task can be performed by a
different person. Specialisation refers to the concentration of a worker’s (labour’s) effort
on performing a particular task that matches their skills or ability.

1
SECTION 4 PRODUCTION

PRODUCTION
Farmers employ resources in the production of crops. Resources might be in the form of
their own thinking and organisational skills and physical labour, tools like a machete,
hoe, plough, money for fertilisers and so on. The farmer clears the bushes, tills the
land, sow the seeds, weeds around the seeds, applies fertilisers, and later harvests the
crops when they are mature. These activities end up in the provision of food for people
to eat. Also, Kente and Fugu (smock) weavers use their own energy, weaving loom,
a pair of scissors, tread, needles, shed stick, warp yarn to weave Kente or smock for
people to wear.
The series of actions or activities that the farmers or weavers take to combine various
resources (both natural and human-caused) to create the commodity that will satisfy
human wants are examples of Production.
Production therefore refers to the process of combining resources to create goods
and services that will satisfy human wants.

THE FACTORS OF PRODUCTION

The factors of production are the essential inputs used in creating goods and services.
These can be natural or artificial resources. Each of those factors are important and
are used hand-in-hand to produce a commodity. Different economies have different
quantities and qualities of these factors. The economic development of a country
depends on the quantity and quality of these factors in the country, as well as how they
are efficiently allocated. Factors of production are grouped into land, labour, capital,
entrepreneurship.
In addition to the four groups, producers apply technologies (modern and scientific
knowledge, innovation, technical skills) to add value to the factors of production. This
helps to improve productivity and increase output, which will speed up the growth and
development of a country.
1. Land: This includes any kind of natural resource that is employed to produce
goods and services. Land is said to be a gift of nature which means that human beings
did not do anything about how land is formed. It is nature that formed land.
This means that, land includes not just the bare land but all the natural resources
such as gold fields, the soil, the trees, the sea, rocks, and mineral deposits. Different
countries are endowed with different land resources. Ghana is blessed with abundant
quantities of Cocoa and Gold, Nigeria is blessed with much oil.

2
SECTION 4 PRODUCTION

Figure 4.1: Picture Showing Examples of Land (Some Natural Resources)

Land serves as a major source of raw materials for industries. It also provides sites
where factories are built. Also, land provides food and protein that gives energy and
healthy living for the population of a country.
2. Labour: This refers to the human efforts or abilities in terms of the mind and
physical energies that workers apply to the production of goods and services.
A person can be described as skilled labour when they have undergone lengthy training
and education. Skilled labourers apply more thinking skills and use less physical
strength to produce goods and services. For example, teaching, navigation and banking.
A person is an unskilled labourer when they have not gone through much training and
education. Unskilled labourers apply more of physical and less of the mind to produce
goods and services. For example, porters, truck pushers, and cleaners.
3. Capital: This Includes any durable goods that are produced by human beings
and are used as resources or inputs to further the production of other goods
and services.
Capital can be grouped under physical (assets such as factory buildings, machines,
tractors, roads,) or financial/money capital (the amount of money that is invested in a
business).
To the carpenters, capital includes the saw, planes, hammers, nails, polish and bench
as well as their workshop. To the farmers, capital includes machetes, hoes, tractors,
wheelbarrow and farm buildings. To the dress makers, capital includes, the sewing
machine, pair of scissors, tape measures, the fabric, and the thread used to sew the
dress.

3
SECTION 4 PRODUCTION

Fig. 4.2: Pictures Showing Some Capital Goods: Factory Buildings

Capital in economics is therefore more than only money but also, physical assets that
are employed to produce goods and services. Capital helps to speed up the production
of goods and services.
4. Entrepreneurship: This refers to the act of organising resources (land,
labour, and capital) to produce goods and services. The person who organises
and combines the various resources to produce goods and services is called an
entrepreneur.
Entrepreneurs take all the initial decisions about what to produce, where to produce,
method of production, whom to produce and means of distribution.
They provide the capital for the business enterprises to produce goods and services.
Capital can however be sought out of personal savings or other sources.
Entrepreneurs bear all risks or disasters that will occur within the enterprise. In times
of flooding, fire outbreaks, bankruptcy or raw material shortages it is the entrepreneur
who bears all the risk.

Activity 4.1

Explain capital as a factor of production. Ask your friend to explain one more
factor of production.

4
SECTION 4 PRODUCTION

Activity 4.2

State the factors of production that are employed to produce goods and services
on a cocoa farm and carpentry workshop.

Activity 4.3

Complete the table below by grouping the following resources below into the four
factors of production.

LAND LABOUR CAPITAL ENTREPRENEURSHIP

Laptop, economics teacher, rain, air, projector, school building, money, windows
applications, time management, savings at the bank, school nurse, photocopy
machine, school farm, creating a new product, negotiation ability, crude oil,
organisational skills.

THE REWARDS OF THE FACTORS OF

PRODUCTION
From the previous week, you learned that there are four factors of production. These
factors of production are land, labour, capital and entrepreneurship. When these
factors of production are linked to economic activities, they earn rewards. A reward is
something given or received in return for effort, achievement, or to give encouragement.
In Economics rewards can be in cash (wages) or have another value like enjoyment,
or nutrition. The rewards for factors of production are rent, wages, interest, and profit.
The balance between these rewards is essential for maintaining a stable and thriving
economy that benefits both producers and consumers.
For example, these rewards help individuals to meet their basic needs such as food,
shelter, and clothing. They also help them to access education, healthcare, and leisure
activities. The level of rewards will affect the types of goods and services that they will
buy. When individuals receive higher wages for example, their standard of living will
increase because they have extra money and they be motivated to spend this money.
This increased spending power will influence economic growth and development of
the country. One impact of this is firms and businesses will have money to invest in
new products and make more profit. These rewards are shown in figure 1 below.

5
SECTION 4 PRODUCTION

Land Rent / Royalties

LABOUR Wages / Salaries

CAPITAL Interest

ENTREPRENEURSHIP Profit / Dividend

Fig. 4.3: Rewards To Factors of Production

1. Rent: The reward for the factor of production “land” is rent. Rent is the reward for
the factor of production land and other natural resources which are fixed in supply.
To the people who own, rent is the total amount of money that they receive when
the land they own is used for farming, shops, factories, or houses.
2. Wages: The reward for the factor of production “labour” is wages. The amount
of money that is paid to labour services is called a wage. Workers receive wages
in return for their time, skills, and effort they put into the production of goods or
services. Wages can be paid on a daily, weekly or monthly basis depending on the
contract agreement between the workers and their employers.
3. Interest: The reward for the factor of production “capital” is interest. People save
part of their income to form capital. Their aim is to invest the capital to earn
rewards. Investing capital could be letting a third party like a bank to use the capital
for a fee, or reward. The reward they earn from investing their capital is called
INTEREST. The interest received depends on the size of the capital sum. Large
sums of capital can earn a lot of interest.
4. Profit: The reward for the factor of production “entrepreneurship” is profit.
Entrepreneurs earn profit in return for taking risks, organising resources (land,
labour, and capital), and successfully producing and selling goods or services in
the market. They incur some costs (expenses like labour and raw materials) for
producing the commodity and sell the products to generate revenue. They do all
these things with the aim of gaining profit as a reward for their efforts.
Profit is the amount of money left when total costs are deducted from total
sales over a set period of time.
The level of profit entrepreneurs make depends on productivity and efficiency of factors
of production, ability of the entrepreneur to see opportunities and how the customers
(buyers) are satisfied.

6
SECTION 4 PRODUCTION

Activity 4.4

Use arrows to match the various factors of production with the appropriate
rewards.

FACTORS OF PRODUCTION REWARDS

capital Wages
labour Profit
land Rent
entrepreneurship Interest

Activity 4.5

Study this scenario carefully and discuss it with a friend and your group members.
Unis B, the town Chief, Solomon, and Alisa are the players in this scenario.
Unis B, a factory owner, wants to start a new furniture business in a town called
Integrity. The Chief of the town agrees to lease a piece of land to Unis B for a
new furniture business charging a small fee. Solomon, an investor, has provided a
loan of additional capital to support the new business. Solomon expects to make
money when his capital is returned. Solomons loan has helped to give a high
furniture output because more workers can be employed. Unis B also employs
Alisa as a skilled secretary.
Complete the table by writing the rewards (wages, profit, rent, interest) each
person will get from the furniture business:
Table 4.1

Owner of UNIS B
The Chief
Solomon
Alisa

RELATING PRODUCTION TO PRODUCTIVITY

This section deals with two closely related concepts, ‘production’ and ‘productivity.’
Production: This refers to the act of combining factors of production (resources)
to create goods and services that will satisfy human wants. For example, at a bakery,
bread production involves the steps of mixing some ingredients such as flour, sugar,
salt, yeast, margarine and water until the flour is converted into a paste or dough. The

7
SECTION 4 PRODUCTION

dough is then moulded into the required shapes and baked in an oven into loaves of
bread. The loaves are then sold to customers at the market. All these activities from the
mixing of ingredients through the baking to the sales of the loaves at the market is the
concept of production.

Fig. 4.4: Bread making in Ghana

Productivity: This refers to the amount of output that is produced with a given number
of inputs. It is the quantity of goods and services that are produced per unit of input.
Productivity explains how efficiently factors of production (land, labour, capital, and
entrepreneurship) are used. For instance, a baker’s productivity is measured by how
many loaves of bread they produce using a set of inputs (labour - workers and capital
– ovens and other equipment) in a period of time. If the baker buys another oven and
employs another person to help in the production process, then more loaves can be
produced in the same amount of time. The baker’s productivity increases as a result.
He might make 200 loaves rather than 150 in one day. He will make more profit if he
sells the extra loaves.
Productivity is high when more output is produced with the same or more inputs. This
will add to the economic growth and development of a country. Productivity is low
when fewer outputs are produced with the same number of inputs. This will reduce
economic growth in the long run.

8
SECTION 4 PRODUCTION

What are the Factors that Determine Productivity?

Productivity depends on the following factors:
1. Human capital (high level of skills, education, and experience of workers means
tasks done faster, reducing errors and waste.)
2. Technology and equipment (modern tools and technological resources available to
automate processes making output faster)
3. Work environment (building fit for purpose, safe and well organised – space,
good lighting, seating, temperatures, low noise all reduce tiredness and improve
concentration)
4. Worker engagement (motivated and involved with their work – higher effort and
dedication with tasks, produce high quality work with attention to detail)
The size and growth of an economy depends on levels of productivity. Higher
productivity enables more goods and services to be created and sold to generate income.
This in turn might decrease prices of goods and services, increase profits for businesses,
increase wage rates and improve the standard of living of the people.

Activity 4.6

Kindly pay a visit to a carpentry shop or tailoring shop in your community and
perform the following activities.
i. Observe the production process and list the stages involved from start to
finish.
ii. Identify the inputs (e.g., raw materials, labour, machine, equipment) used in
the production process.
iii. Measure the efficiency of the production of the product (e.g., chair or shirt)
by asking how long it will take to finish a chair or a shirt.
Ask the producer any relevant questions to derive the information.
Additionally, you can go online to research the information.

Activity 4.7

Welcome to another interesting case study.

ABC Furniture Company produces beds. The company has 15 employees and each
of them works for 8 hours a day. The production target for each day is 120 beds.
The current situation in the company has revealed the following information: The
company produces 90 beds per day. Each worker produces 6 beds. The company
continues to use traditional tools and methods.
1. Calculate the current productivity of ABC Furniture Company.

9
SECTION 4 PRODUCTION

NB: Use this formula: Productivity = Output ÷ Input.

Output = Number of beds
Input = Number of workers
2. Identify the factors affecting the productivity in the company.
3. Suggest to the owners of ABC Furniture Company (one of your classmates)
three means by which productivity in the company can be improved.

LOCATION AND LOCALISATION OF INDUSTRIES

The location and localisation of industries is the geographical distribution and
concentration of economic activities within a particular area or region. The location
of an industry refers to the physical location of industrial facilities or manufacturing
facilities. It concentrates on choosing certain sites for constructing factories, plants,
or other industrial facilities. Businesses must carefully consider the location of their
industries because it can have a big impact on their productivity and performance.
Industry localisation, which is also referred to as industrial localisation or concentration,
describes the tendency of industries or business types to group together in particular
geographic areas or regions, often they are related in some way like chemicals and oil
refining or cement manufacture and concrete structures. In other terms, it refers to the
concentration of businesses in a location that is in the same or related industries. This
occurrence can take place on a variety of scales, including local, national, and even
global ones.

Location of Industry
This refers to the act of setting up a particular industry at a specific site or location.

Transportation Land

Factors
that affect
Labour Market
LOCATION OF
INDUSTRY

Raw Material Power

Figure 4.5: Factors that affect location of industry

1. Natural Resources: Locating next to the source of raw materials reduces

transportation costs and ensures a steady supply of the product – for example to
make cement large quantities of rocks (limestone, shale, and gypsum) are needed.
To reduce transport costs cement is made close to where the rocks are found or in
the case of Ghana where they are imported.

10
SECTION 4 PRODUCTION

2. Labour Force: Availability of specialized or skilled and affordable labour can

attract industries to locate in a particular area – for example car assembly workers
need to be skilled engineers so factories locate near other engineering works where
they can take advantage of labour that does not need training.
3. Infrastructure: Good transportation, communication, and utilities support
efficient production and distribution - for example processing and packing fresh
food like meat needs good infrastructure so it can be delivered quickly to markets
otherwise it will spoil.
4. Market Proximity: Being close to markets reduces distribution costs and ensures
quicker delivery to customers – for example fast food and takeaway outlets need to
be close to customers.
5. Government Policies: Favorable policies, such as tax incentives and subsidies,
attract industries to locate in particular areas – for example, the Tema Export
Processing Zone (EPZ), located near the port city of Tema benefits from tax free
exports and imports.
6. Clustering Effects: Industries benefit from being near each other through shared
services, suppliers, and a skilled labour pool – for example, the many industries
in the Tema Industrial Area share essential services such as supply and delivery
services, maintenance, and security, reducing costs and improving efficiency.
7. Historical Factors: Established industrial regions often have existing infrastructure
and a skilled workforce – for example Kumasi is well known for its historical
significance as the capital of the Ashanti Empire and has a long tradition of craft
and artisanal industries, particularly in textiles and woodwork.
8. Socioeconomic Factors: Local economic conditions, such as income levels and
consumer demand, influence industrial location – for example areas with high
tourist traffic, like Accra and Cape Coast, have seen growth in hotels, restaurants,
and related services, driven by the socioeconomic benefits of tourism.

Localisation of Industry
This refers to the siting or concentration of
many industries at a particular geographical
location. For example, in Ghana, our
first President, Dr Kwame Nkrumah
developed Tema to be a localised industrial
town where industries such as Cocoa
Processing Company Limited (CPC), Volta
Aluminium Company Limited (VALCO),
Tema Oil Refinery (TOR) were sited. The
figure below shows part of the localised
industrial zone in Tema.
Figure 4.6: Part of the localised
industrial zone in Tema.

11
SECTION 4 PRODUCTION

Advantages of Localisation of Industry

1. Access to labour market: A localised industry will attract both skilled and
unskilled labour to the site. Labour with a variety of skills can migrate to that
locality looking for employment. This will result in the development of a large
market for skilled and unskilled labour both in the industries and other enterprises
which provide goods and services for the labour. Firms may have access to labour
services at a cheaper cost.
2. Development of Financial institutions: A localised industry will attract other
allied industries such as financial institutions to the locality. Bank, and Micro
Finance institutions can provide financial services. This might enable the industry
to receive benefits from easy access resulting in cheaper credit facilities.
3. Development of Subsidiary companies: The localised industry will attract the
other related industries. The by-products from the localised industry will be put to
use by attracting additional industries and creating more employment opportunities.
4. Improvements in communication and transport network: Localised industries
need to make and distribute goods and services quickly and efficiently over both
long and short distances. New roads, railways and communication networks are
vital to the success of localised industries so they can deliver goods and services to
all parts of the country.
5. Government taxes: An area of localised industry is a major source of government
revenue. The government could use the tax revenue to develop the roads and other
communication networks in the locality. This will attract further industries and
increase the productivity of the economy.

Challenges of Localisation of Industry

1. Changes in the economy: If one industry is suffering from a downturn in market
conditions then all the others tend to suffer – for example if car production falls
industries supplying parts like engines and tyres will also suffer.
2. Natural Disasters: Floods, fires, earthquakes and other natural disasters will
affect all localised industries as they are all in the same place.
3. Labour: Competition between industries for skilled labour can result in shortages
Localised industry discourages the mobility of labour so industries in other locations
find it hard to get workers.
4. Congestion and pollution: Large concentrations of industries in one area can
cause congestion problems on roads when vehicles cannot meet supply chain
demands. High levels of atmospheric pollution can cause workers health problems.
This in turn affects attendance at work and productivity. Local soil and water
sources can become polluted.

12
SECTION 4 PRODUCTION

Activity 4.8

Here are two industries in Ghana.

Oil refining and Cement Production

INDUSTRIES LOCATION LOCATION FACTORS

Oil refining
Cement Works
1. Copy the table above and identify the location of each industry in Ghana.
2. For each industry research, find the location factors and add them to the
table.
3. Create a PowerPoint presentation to summarise your research and use it to
explain to your friends at school or at home why these two industries are
sited at these specific areas.

Activity 4.9

Identify an area in Ghana where industry is localised. List the factors which have
resulted in a number of industries being concentrated in this area.

Activity 4.10

Define ‘location’ and ‘localisation’ of industry in your own words.

Activity 4.11

Research the effect that location and localisation of industry has had on the
economy of Ghana. Present your findings in a written report.

13
SECTION 4 PRODUCTION

DIVISION OF LABOUR AND SPECIALISATION IN

PRODUCTION
Division of Labour: Division of labour is an economic concept that refers to the process
of breaking down the production of goods or services into smaller tasks, with each
task assigned to specific individuals or groups. For example, construction of a house
consists of different activities such as architectural designing, block laying, carpentry
works, electrical works, plumbing works, and painting. Each task is done by different
individuals or groups. For example, block laying works are done by masons, carpentry
works are done by carpenters while plumbers do the plumbing work.

CARPENTRY WORKS BLOCK LAYING WORKS

PAINTING WORKS
CONSTRUCTION ELECTRICAL WORKS
OF HOUSE

ARCHITECTUURAL
PLUMBING WORKS DESIGNING

Figure 4.7: Division of labour in a house construction

Specialisation: Specialisation is where different tasks are assigned to specific

individuals or groups to improve efficiency and productivity. For example, in house
construction, one person in a specific group of workers might specialise in a particular
area. Carpenters can do a variety of jobs when building a house. However more than
one carpenter might be employed during house construction. One carpenter might
make only roofs, another might only fit doors, another might only board floors. Each
carpenter becomes skilled at the one task, taking less time and resulting in the house
being finished faster.

Advantages of division of labour and specialism:

1. Increased Productivity: When tasks are divided among individuals or groups, each
can focus on specific aspects of production, becoming more skilled and efficient in
their specialised area. This specialisation leads to increased productivity as workers
can perform their tasks more quickly and accurately, ultimately contributing to a
higher overall output.
2. Skill Development: By specialising in a particular task or set of tasks, individuals
can acquire specialised skills and knowledge, becoming experts in their respective
fields. With time and practice, workers can develop efficiencies, innovative tech-
niques, and problem-solving abilities that further improve productivity and quality.

14
SECTION 4 PRODUCTION

3. Time Savings: The division of labour allows workers to concentrate on specific

tasks, reducing the time spent moving between different activities. Specialised
workers become more skilled at performing their tasks, resulting in time savings
throughout the production process.
4. Economies of Scale: Specialisation enables businesses to achieve economies of
scale by focusing on producing a limited range of goods or services. By producing
on a larger scale, businesses can benefit from lower average costs.
5. Efficient Resource Allocation: Specialisation helps with the allocation of resources.
Different tasks require varying levels of expertise, equipment, and resources. By
assigning specialised workers to tasks needing specific resources there is no need to
worry about other workers wanting to share and make production slower.
6. Interdependence and Cooperation: The division of labour fosters interdepen-
dence among workers and promotes cooperation within the production process.
Each worker’s output becomes a necessary input for another worker or department,
fostering collaboration and teamwork.
7. Increased Output Variety and Quality: Specialisation allows businesses to
diversify their production and offer a wider range of products or services. Moreover,
specialised workers’ expertise contributes to higher quality output as they focus on
perfecting specific tasks and processes.

Disadvantages of division of labour and Specialization.

1. Monotony: As a worker must do the same work again and again, the task may
become boring in nature. Workers who will start losing interest and pleasure in the
work and productivity declines.
2. Lack of responsibility: Under division of labour, the final product is not the output
of a single person but the work of several workers. This implies that individual
workers cannot be held responsible in case anything goes wrong.
3. Lack of Craftsmanship: Division of labour does not make workers craftsmen.
The workers are trained to perform only a part of the job instead of whole products.
A worker cannot take pride in the final output because each worker does not know
all the processes used to produce a product. Traditional craftsmanship declines.
4. Too much Interdependence: Division of labour leads to a situation where one
worker depends on the others to the extent that when a worker is absent the entire
work may not continue. Also, if one worker does a poor job it may spoil the quality
of the entire product.
5. Redundancy of Workers: In division of labour, a worker may be redundant
if his skill is no longer needed. Because the worker can perform only one task,
transferring them to perform another task they are not trained to do is difficult. If
they are then made unemployed, they might find it difficult to get a new job.

15
SECTION 4 PRODUCTION

Activity 4.11

Describe the processes of division of labour in the construction of a house or any

other production process you have studied.

Activity 4.12

Explain in your own words how division of labour is related to specialization.

16
SECTION 4 PRODUCTION

REVIEW QUESTIONS

Review Question on Factors of Production

1. CASE STUDY: The Pineapple Drink Stand
Situation: Sarah decides to start a pineapple drink stand in her neighbourhood.
She wants to sell pineapple drinks to make some extra money.
Questions:
a. Land: What would be an example of the land factor of production in
Sarah’s pineapple drink stand?
b. Labor: Who would provide the labour for Sarah’s pineapple drink stand,
and what would they do?
c. Capital: What are some examples of capital that Sarah would need to run
her pineapple drink stand?
d. Entrepreneurship: How does Sarah demonstrate entrepreneurship in
this case?
2. i. Which of the following is considered a factor of production?
A. A book
B. A factory worker
C. A car
D. A piece of clothing
ii. What does the ‘land’ factor of production refer to?
A. The tools and machines used in production
B. The natural resources and physical space used in production
C. The money needed to start a business
D. The people who run a business
iiii. Which of the following best describes ‹capital› in factors of production?
A. The raw materials like iron or cotton
B. The entrepreneurs who start businesses
C. The cash or investments used to buy machinery
D. The workers who provide labour
iv. Who would be considered an entrepreneur in the context of factors of
production?
A. A person who starts a new business and takes financial risks

17
SECTION 4 PRODUCTION

B. A person who works in a factory

C. A machine that makes products
D. The land where a business is located
v. Which of the following is an example of ‹labour’ in factors of production?
A. The natural resources like water
B. The tools used in a workshop
C. The financial investment in a new company
D. The skills and work done by a chef in a restaurant

Review Questions on Rewards to Factors of Production

1. Factors of production received rewards for their contribution to the creation of
goods and services to satisfy human wants.
a. What are rewards for factors of production?
b. Describe the reward paid to each of the following factors of production.
i. Land
ii. Labour
iii. Capital
iv. Entrepreneur
2. The table below has specific examples of factors of production. Complete the
table by writing in the spaces provided against each example the kind of reward
they receive.

Example of factors of Rewards

production
Opening a savings account at a
bank
School bus driver
10 plots for new school building
proprietor of a provision shop.

Review Questions on Production and Productivity

1. Give a definition of production and productivity.
2. Describe two factors that influence productivity.
3. Explain how productivity and production are linked to economic growth in a
country.

18
SECTION 4 PRODUCTION

Review Questions on Location and Localisation of Industry

1. Describe at least four factors that are important in the location of industry in
Ghana.
2. Explain the difference between location and localisation of industry.
3. Identify and list three examples of industries that have experienced localisation
or clustering in Ghana. Explain why they have chosen to concentrate on those
areas.
4. List the factors that led to the location of a cement works on the Ghanaian coast
at Tema. Explain each factor.

Review Questions on Division of Labour and Specialisation

1. a. Explain the difference between division of labour and specialisation.
b. In what way are division of labour and specialisation as economic concepts
related?
2. State any two advantages and two disadvantages of division of labour and
specialisation to the entrepreneur.
3. i. What happens when tasks are divided among workers in a production
process?
a. Each worker does all the tasks.
b. Each worker specialises in one task.
c. Workers change tasks daily.
ii. How does division of labour lead to specialisation?
a. Workers do multiple tasks.
b. Workers focus on one task, becoming experts.
c. Workers work alone.
iii. What is the relationship between division of labour and specialisation?
a. Division of labour leads to workers specialising on a single task
b. Division of labour leads to workers doing multiple tasks.
c. Specialisation leads to workers doing multiple tasks.
iv. What is the benefit of a worker specializing in a single task?
a. Improved productivity
b. Increased errors
c. Decreased quality.

19
SECTION 4 PRODUCTION

ANSWERS TO REVIEW QUESTIONS

Answers to Review Questions on Factors of Production

Answers to review question 1
a. Land: The space where Sarah sets up her pineapple drink stand, like a spot on
her front lawn.
b. Labor: Sarah herself, or any friends or family who help her make and serve the
pineapple drink.
c. Capital: The table, cups, pineapple drink pitcher, and any other tools or supplies
used to make and serve the pineapple drink.
d. Entrepreneurship: Sarah shows entrepreneurship by coming up with the
idea for the pineapple drink stand, organising it, and taking the risk to invest in
the supplies and manage the stand.
Answers to review question 2
i. B. A factory worker
ii. B. The natural resources and physical space used in production
iii. C. The cash or investments used to buy machinery
iv. A. A person who starts a new business and takes financial risks
v. D. The skills and work done by a chef in a restaurant

Answers to Review Questions on Rewards of Factors of

Production
Answer to review question 1
1. a. Rewards for factors of production are the incentives or motivation given to
factors of production to drive them to contribute to the creation of goods
and services to satisfy human wants. Examples of the rewards given to
factors of production are rent for land; wages for labour; interest on capital;
and profit for the entrepreneur.
b. The following are the rewards received by land, labour, capital, and
entrepreneurship.
i. Rent: This is paid to owners of land for commercial, agricultural, and
industrial purposes.
ii. Wages: Wages are paid to people who offer or supply their physical
and effort to produce goods and services to satisfy.

20
SECTION 4 PRODUCTION

iii. Interest: Interest is paid to owners of capital such as financial

institutions (e.g., banks) who give out loans to business owners, as
well as investment in savings.
iv. Profit: Profit is received by entrepreneurs for taking risks to invest in
businesses, organising other factors of production, and applying their
managerial skills to ensure that the business succeeds.
2.
Factors of production   Rewards (factor income)
Opening a savings account at a bank interest
School bus driver wages
10 plots for new school building rent
proprietor of a provision shop. profit

Answers to Review Questions on Production and Productivity

Answer to Review Question 1
• Production - Production in Economics refers to the process of creating goods
and services using various inputs or factors of production such as land, labour,
capital, and entrepreneurship.
• Productivity – Productivity in Economics is a measure of the efficiency with
which resources are used in the production process. It relates the output of
goods and services produced to the inputs or factors of production that are used
in creating that output. For example: quality of input, availability of resources,
production methods, employee skills.
Answer to Review Question 2
Any two from human capital, technology and equipment, work environment
employee engagement, communication, time management. Answer must describe
how each influences productivity, for example:
• Human Capital - high level of skills, education, and experience of workers
means tasks done faster, reducing errors and waste.
• Technology and Equipment - modern tools and technological resources
available to automate processes making output faster.
Answer to Review Question 3
Production involves the creation of goods and services using various inputs, while
productivity measures how efficiently inputs are used in this production process.
High productivity is crucial for economic growth, competitiveness, and improving
the overall standard of living. By aiming for increased productivity, economies can
achieve higher wage levels, improved health, and happiness.

21
SECTION 4 PRODUCTION

Answers to Review Questions on Location and Localisation of

Industry
Answer to review question 1
Any four from the eight listed in the LM/TM: Natural Resources, Labour
Force, Infrastructure, Market Proximity, Government Policies, Clustering Effects,
Historical Factors, Socioeconomic Factors. There must be a description of each
factor not just a list.
Answer to review question 2
Location of Industry: Refers to the specific site or place where an industry is
situated. This choice is influenced by factors such as availability of raw materials,
labour, transportation, and market proximity.
Localisation of Industry: Refers to the concentration of multiple firms from the
same industry in a particular area. This clustering allows businesses to benefit from
shared services, suppliers, and a skilled labour pool.
Answer to review question 3
a. Food Processing Industry in Tema
Reason for Concentration: Tema is strategically located near the Tema Port,
providing easy access to both raw materials and export markets. The availability
of infrastructure, such as cold storage facilities and transportation networks,
supports the efficient processing and distribution of food products.
b. Textile and Garment Industry in Kumasi
Reason for Concentration: Kumasi has a rich cultural heritage in textile
production, with a skilled labour force experienced in traditional weaving and
garment making. The city’s historical significance and established market for
textiles make it an ideal location for the industry.
c. Oil and Gas Industry in Takoradi port
Reason for Concentration: Takoradi’s proximity to offshore oil fields and the
presence of the Takoradi Port make it a hub for the oil and gas industry. The
city’s infrastructure and support services, such as logistics and maintenance,
are well-developed to cater to the needs of this industry.
Answer to review question 4
The key factors that led to the location of a cement works on the Ghanaian coast at
Tema:
a Proximity to Raw Materials: Tema’s coastal location allows easy access to
imported raw materials like limestone, clay, and gypsum, which are essential
for cement production.
b. Port Access: The presence of the Tema Port facilitates the import of raw
materials and the export of finished cement products, reducing transportation
costs and improving logistics.

22
SECTION 4 PRODUCTION

c. Infrastructure: Tema has well-developed infrastructure, including roads,

utilities, and industrial facilities, which support efficient cement production
and distribution.
d. Market Proximity: Being close to Accra, Ghana’s capital, and largest city,
provides a significant market for cement, ensuring high demand and easy
distribution.
e. Government Support: The Ghanaian government has historically supported
industrial development in Tema, providing lower tax incentives and
infrastructure investments to attract industries.
f. Skilled Labour: The availability of a skilled labour force in Tema, due to its
industrial history and educational institutions, supports the operational needs
of the cement industry.

Answers to Review Questions on Division of Labour and

Specialisation  
Answer to review question 1
a Division of labour is the process of breaking down work into convenient tasks,
with each task being performed by workers or departments with specific skills.
Specialisation on the other hand is the concentration of a worker’s efforts
(mental or physical) on the performance of a particular task.
b Division of labour and specialisation are closely related. It is through division
of labour that specialisation is made possible. It must also be noted that division
of labour has become necessary because of the need for businesses to practice
specialisation.
Answer to review question 2
a. Two advantages of division of labour and specialisation are:
i. Division of labour and specialisation saves time and improves efficiency.
ii. The concepts also help to improve productivity.
b. Two disadvantages of division of labour and specialisation are:
i. It is expensive to practice division of labour and specialisation because more
workers are needed.
ii. Division of labour and specialisation can also slow down productivity
during the absence of a worker.
Answer to review question 3
a. Answer (B)
b. Answer (B)
c. Answer (A)
d. Answer (A)

23
SECTION 4 PRODUCTION

EXTENDED READING
1. https://www.economicsdiscussion.net/production/production-meaning-definition-types-
and-factors
2. https://www.askdifference.com/location-vs-localization/
3. https://studymind.co.uk/notes/specialisation-and-the-division-of-labour-a-level-
economics/
4. https://youtu.be/RSyvcANRaOE?si=ovAvwQucD_xQgORv
5. Economics Textbooks (division of labour and specialisation)

REFERENCES
• Arrow, K.J (1962). The economic implications of learning by doing. Review of economic
studies 29 (3)
• Baye, M.R. (2010). Microeconomics and business strategy. New York, NY: McGraw-Hill
Irwin
• Robbins, Lionel. An Essay on the Nature and Significance of Economic Science. London:
Macmillan
• https://images.app.goo.gl/BP5eUZTpsbrvZUFM8
• www.steemit.com

GLOSSARY (key words)

WORD MEANING

A Bond: This is a fixed-income investment in the form of a loan that an investor lends to
a borrower, usually corporate or government agencies.
An Economy: How resources are allocated for the production, distribution and consumption
of goods and services in a particular country.
Inputs: These are the resources that are combined to produce goods and services.

Output: These are the quantity of goods and services which are produced out of the
process whereby a firm combines factors of product.
Producer: This is a person or a business unit that creates and supply goods and services by
combining factors of production.
Task: A piece of work to be done

24
SECTION 4 PRODUCTION

ACKNOWLEDGEMENTS

List of Contributors
Name Institution

Charles Sarpong Sunyani SHS, Sunyani

Danso-Abeam Frank Presec, Legon

Eunice Bentil St. Thomas Aquinas SHS, Accra

Isaac Ansah Jinjini SHS, Jinjini

25