Production

Production is the economic process of combining resources to create goods and services that people use. This process involves transformation: materials that existed before—land, labor, machinery, knowledge—are converted into things of new value.

Production is not limited to factories. Farming, fishing, construction, transportation, education, and banking all constitute production, since they create things people need. Economics typically divides production into three categories: primary production (extraction of raw materials), secondary production (manufacturing), and services.

The factors of production

Economists commonly identify the factors of production as essential: land and natural resources, human labor, capital (the tools and structures used in production), and management or business organization that coordinates these factors. How these factors are divided and who owns them are among the most significant questions in economic policy.

Employment and productivity

The relationship between inputs and outputs is measured by productivity. For example, production per hour of work shows how much workers produce in a single hour. Productivity typically increases when new technology is adopted, workers are trained, or work processes are improved.

Measurement at national level

At the national level, overall production is commonly measured by gross domestic product (GDP), the market value of all goods and services produced within a country over a given period. This measure does not account for unpaid work such as housework or subsistence farming, which represents ongoing value creation.