– a process of creating goods and services for which are people ready to pay
The pourpouse of producton is to satisfy human desires.
Production is classified into three categories:
1) Primary production: includes industries producing raw meterials either by extracting them from ground or growing them.
2) Secondary production: includes industries producing finished or semi-finished goods
3) Tertiary production provide services of all kinds to both firms and individuals. In market economies tertiary production generates major part of the GNP and also majority of work force is emloyed in tertiary production.
– provides legal framework: „rules of the game“ – private ownership, rules of business…
– helps redistribute income: helps chidren, aged, disabled, unemployed, etc. Government provides transfer payments (no goods or services are required in return)
– provides public goods and services: they benefit society as whole: roads, dams, education, defence, healthcare, etc., for these and other activities goverment gets money taxation – tax revenue
– compensates for market failures: handles with negative externalities (side effects of human activities like pollution or noise, cause market would not force firms and individuals to deal with them
o persuation: activities used to stop people to behave in ways that harm others
o taxation: government can levy taxes on firms that cause pollution
o subsidies: paid to individuals or firms as reward for using methods that are not harming environment
o legislation (regulation): some methods or materials are concerned to be illegal, or there are standards to protect employees or environment