Production refers to  “the creation of utility having value-in-exchange” The process of production may create six types of utilities.

1] Form utility – Form utility is the most obvious utility added in the process of production. It refers to a change of matter or substance to a more serviceable or useful shape or form. Hence it is known as form utility. Any change in shape adds utility. This is done through manufacturing activity.                                     Eg – wood—–   furniture.   Steel —– utensils or cabinets. Clay —– pots. Etc.

2] Time utility – The actual supply is related to the time period. Production is undertaken at intervals an demand exists   throughout the year. Therefore a commodity maybe stored or hoarded or preserved in times of abundance or when less desired by consumers   and supplied or released in times of scarcity or when desired more intensely by consumers This utility is created by wholesalers, retailers etc who stock the commodity. There is no change in the form of the goods. The same goods are made available after a period of time when the demand for them is more urgent so that their sellers can sell them at a higher price. Time utility is always more in times of scarcity. Time utility is also created through trading.              Eg – Food grains stored during bumper crop and supplied during scarcity. Blood donation has time utility.   Umbrellas   in the rainy season, woolens in winter etc have time utility.

3] Place utility – Consumers need a steady supply of goods and services. Therefore storage and distribution is necessary. The process of production is incomplete till the goods and services reach the consumer. Place utility is created when goods and services are transported from the place of abundance or production to the place of scarcity or consumption. So that hey may be sold at a higher price. Place utility is created through transport and trading activities.    Eg – from   factory to market; farm to city; mines to factory or industry etc.

4] Ownership utility (possession utility ) – Commodities are meant for consumption and satisfaction of wants. Producers or middlemen possess goods till consumers purchase them. A change in ownership therefore creates utility. The goods are then transferred from wholesalers to retailers to consumers. The buyer therefore enjoys ownership or possession utility.          Eg  a book bought by a student.

5] Service utility – Service utility is created by those who render personal services to consumers. Professionals create this  utility. It is distinct from the utility created by tangible goods. Advice  knowledge  and other services provides satisfaction to consumers who demand these services and are willing to pay for them. This utility does not result in production of material or tangible goods.                 Eg – services of doctors, lawyers, consultants, teachers  chartered accountants actors bankers etc.

6] Knowledge utility – Due to research and technology knowledge about  goods and new uses of various goods will be discovered. Increase in knowledge  therefore will increase utility.      Eg  when one dos not know how to use a cell phone or computer its utility is less, but when he acquires the knowledge the utility of the operation of both their utility will increase.

Tagged with: , , , ,
Posted in General Economics