Read this article to learn about the difference between production for self-consumption and for exchange!
A. Production for self-consumption:
(i) Meaning: Production is for self-consumption if the producers themselves consume the entire output they produce.
This can be clarified with the help of a few illustrations. Suppose an agriculturist produces 50 quintals of wheat on his small piece of land by putting in his own labour and using his own capital (Like bullock-cart, spade, etc.). He retains the whole quantity of wheat for consumption by his family.
He does not sell wheat in the market or even if he sells a little bit of it after consuming substantial portion of his produce, his production of wheat will be called production for self-consumption. The surplus, if any, is exchanged through barter system.
Barter system of exchange is one in which a commodity is exchanged for any other commodity. Like goods, services are also produced for self-consumption, e.g., a teacher teaching his son, a nurse bringing up her own child.
Out of three sectors of producing units (Corporate and quasi-corporate sector General government sector and Household sector) in the economy, only General Government and some Household enterprises produce for self- consumption.
(ii) A subsistence production unit is one which is able to produce that much which is just sufficient to meet his family needs:
It is called so because its production is just sufficient for subsistence or just adequate to meet the consumption needs of the producer. An economy which is dominated by subsistence production units is called a subsistence economy.
Should production for self-consumption be included in national income because its market value is not known? Yes, its imputed value should be included because it is presumed that the producer, instead of selling in the market, has sold his product to himself.
B. Production for Exchange:
Meaning: This refers to the production of goods and services which is done for sale in the market to earn profit:
Modern economies are exchange economies where production is carried on primarily for exchange or sale in the market. Corporates and quasi-corporate enterprises as well as most of Household enterprises produce goods and services for exchange to earn profit.
In other words, in production for exchange, output of producers is used by others. Inputs used by enterprises are purchased from the market. As a result, there is lot of technical and economic interdependence among enterprises. Because of more use of capital, improved technology and division of labour, volume of production has increased manifold. It needs to be noted that production for exchange results in capital formation.