Subsistence output refers to the output which is produced mainly for consumption/use by the producer. It is sometimes called non-marketed output or household’s own account output.
Subsistence economy refers to an economy in which production is mainly for own consumption by the producers. It is not market oriented and the standard of living is limited to basic needs or necessities life such as food, shelter and medical care.
Subsistence sector refers to that part of the economy where production is mainly for own consumption by the producers.

1.2 Characteristics of subsistence production

Production is not profit motivated but self-satisfaction (but mainly undertaken to satisfy needs of the family).
Mainly involves use of simple and rudimentary traditional tools such as sticks, pangas, hoes, axes etc
Mainly practiced in the agricultural sector and mainly in the rural areas.
Use of mainly family labour–usually self-employed and mainly employs unskilled labour.
Produces generally low output since producers aim at meeting their domestic requirements.
Produces mainly/generally low quality of output
Exchange is mainly limited to barter system.
Poor standards of living among the people and dominance of traditional beliefs and ways of life. The standard of living is limited to basic needs or necessities of food, shelter, medical care.
Limited capital investment in production, low incomes and rampant poverty among producers.
Mainly uses labour intensive techniques of production.
High conservatism and traditionalism among the population and hence limited innovations and inventions in production.
There is no specialization in production as the individual tries to provide everything on his own.
Terms of services or conditions of work are not provided for such as there is no agreement, provision for housing and medical care.
There is accidental marketing of output to meet the major cash needs of the household such as clothes, salt, utensils etc.
The law of diminishing returns is more prevalent

1.3 Advantages of subsistence production

Creates employment to the majority of the rural poor people (those who are unskilled and semi-skilled). This reduces pressure on government by the would-be job seekers.
The producer is able to meet the basic needs of the family such as ensuring production of food for the family.
The management of the sector is simple since it is organized on small holdings/scale and few workers are employed.
The method of production is cheap since no training is required, uses abundant family labour, and the simple tools are easy to acquire.
Contributes a small percentage to the gross national product (GNP).
It is not inflationary since there is no use of money as a medium of exchange.
Production is flexible. The producers easily change from one item to another since it is undertaken on small scale.
There is little wastage of resources since whatever is produced is consumed and surplus is sold off.
There are no transport costs incurred between the producer and the consumer. This is because the producers are at the same time the consumers and production is within their locality.

1.4 Disadvantages of subsistence production

Discourages specialization and division of labour hence advantages foregone. For example, there is failure to increase labour skills.
Leads to low levels of output and poor-quality products. This is due to poor tools and small-scale operations.
The sector generates low levels of income and poor standards of living. This is because most of what is produced is consumed leaving little for sale.
Retards/ limits the development of infrastructure such as roads, schools, medical facilities always associated with commercial production. This undermines economic development.
Leads to underutilization of resources especially land and labour (producing at excess capacity). This is due to inadequate capital and skills.
Experiences the disadvantages of barter exchange such as problem of valuation and indivisibility of some commodities to be exchanged.
Limits the development of entrepreneurial ability among the people involved. This is because it isolates them from economic influences like price, demand and supply.
Leads to technological backwardness and stagnation because it is associated with conservatism. This also undermines economic development.
Makes computation of national income statistics difficult leading to over or under estimation. It is difficult to value the real contribution of this sector to national income.
Does not employ many people and it is much associated with disguised unemployment. The marginal productivity of labour in this sector is very low and at times zero or negative. (It is therefore difficult to break the vicious circle of poverty with such a sector).
Narrows the tax base and therefore low tax revenue to government. This is because on limited value added on products and the producer being generally poor (with low taxable capacity).
Limits foreign exchange earning capacity of the country, since production is mainly for self-satisfaction or consumption.

1.5 ASSESSMENT

Qn. Account for the need to reduce the size of subsistence sector in an economy

To increase productivity of factors of production. –individuals to produce in excess of their needs.
It is a step towards monetization of the economy.
To improve the standards of living of especially the rural people.
To improve the quality of final goods/output, since commercial production promotes competition.
To generate more employment opportunities and thus check on disguised employment.
To reduce income inequality between the rural people and those engaged in commercial and formal sectors.
To widen the tax base due to increasing commercial production.
To accelerate rural transformation into modern sector.
To increase/promote innovation and creativity in production due to competition.
To increase capital accumulation in the economy.
To expand the industrial sector since it leads to expansion of the market for industrial output, some of which are used as inputs in the agricultural sector.
To reduce government expenditure especially on social services.
To improve on the country’s balance of payment position.

S.5 ECONOMICS

LESSON 1

1.1 Subsistence production

1.2 Characteristics of subsistence production

1.3 Advantages of subsistence production

1.4 Disadvantages of subsistence production

1.5 ASSESSMENT