1.2.1 Production
- Syllabus
- 2026
- Topic
- 1.2.1
- Level
- —
Learning objectives
1.2.1a Factors of productionThe factors of production:• land• labour• capital• enterprise.1.2.1b Sectors of the economySectors of the economy:• primary• secondary• tertiary.1.2.1c Changing sector importance in developed and developing economiesExplain changes over time in the employment and output shares of the primary, secondary and tertiary sectors in developing and developed economies.
Combine four factors to produce output
| Factor | Economic meaning | Example in chocolate production |
|---|---|---|
| land | natural resources used in production | cocoa, sugar, water or the land on which crops grow |
| labour | human physical and mental effort | workers harvesting, processing or selling chocolate |
| capital | human-made productive assets | machinery, factories, computers or delivery vehicles |
| enterprise | organising factors, making decisions and bearing business risk | the entrepreneur who combines resources and launches the product |
Production normally requires factors to work together: enterprise decides how land, labour and capital will be combined to create goods or services.
Capital is not simply money in this classification; it is the productive equipment and structures bought with finance. Land includes natural resources, not only plots of ground.
Classify production by primary, secondary and tertiary sector
| Sector | Production job | Examples |
|---|---|---|
| primary | extract or harvest natural resources | farming, fishing, forestry, mining |
| secondary | transform inputs into manufactured goods or construct structures | car manufacturing, food processing, house building |
| tertiary | provide services | retail, banking, transport, education, hotels |
One product can pass through all three sectors: cocoa is grown in the primary sector, made into chocolate in the secondary sector, then transported and sold by tertiary businesses.
Classify the activity, not the object alone. A mechanic servicing a car is tertiary, while a factory manufacturing the car is secondary.
Explain how sector shares change with development
As economies develop, employment and output commonly shift from primary activities toward secondary production and then increasingly toward tertiary services.
| Stage or change | Employment/output pattern | Main mechanism |
|---|---|---|
| early developing economy | primary sector often has the largest employment share | agriculture and extraction dominate, with limited capital and industrial capacity |
| industrialisation | secondary share rises | investment, urbanisation and factories expand manufacturing and construction |
| more developed economy | tertiary sector often becomes largest | higher incomes raise service demand, while productivity reduces labour needed in farming and some manufacturing |
Employment share and output share can move differently: a highly productive sector may create substantial output with relatively few workers. State which measure the evidence describes.
This is a common development pattern, not a fixed rule or exact percentage. Resource endowments, technology, trade and policy can produce different sector mixes.