ch. 2: classification of business activity

• Primary Sector

  • An industry which extracts and uses the natural resources to produce raw materials used by other businesses. For example farming, mining, fishing, forestry, oil extraction.
  • Primary sector tends to account for a large percentage of the output and employment in developing countries (LEDCs).
• Secondary Sector

  • An industry that operates in manufacturing and processing goods using raw materials provided by the primary sector. For example, construction, building, car manufacturing, and food processing.
• Tertiary Sector

  • An industry that sells or provides services to consumers and other sectors of the economy. For example hairdresser, transportation company, banking, retailer, recruitment agency.
  • Tertiary sector tends to account for a large percentage of the output and employment in developed countries (MEDCs).
• • Developing Countries: Countries that have a lower average income and lower standard of living and most of employment and income is generated from the primary sector.
  • Developed Countries: Countries that have a higher average income and higher standard of living and most of employment and income is generated from the tertiary sector.
  • De-industrialization: occurs when there is a decline in the importance of the secondary “manufacturing” sector of industry in a country.
  • Industrialization: the growing importance of secondary sector and declining importance of the primary sector.
• There are several reason for the changing importance of the three sectors of overtime:

  • Sources of primary sector products have depleted.
  • An a country's total wealth and standard of living increases, consumers tend to spend a higher proportion of their incomes on services than on manufactured products produced from primary products.
• • Mixed Economy: an economy that has both the private and public sector and businesses are owned by both the state and individuals.
• Business enterprises in the private and public sectors:

  • Private sector: business activities are owned and controlled by individuals not by the government for profit motive.
  • Decisions regarding what to produce are determined by consumer choice, how to produce through firms wanting to make a profit as they decide the best way of production with least cost, for whom to produce depending on customers buying power and having money to afford the price of the product.
• Business enterprises in the private and public sectors:

  • Public sector: business activities that are owned and controlled by the government for example utilities, health provision, education, transport.
  • Decisions regarding what to produce, how to produce, and for whom to produce are made by the government. some goods and services are provided free of charge to the consumers.
• Aims of public sector enterprises:

  • Free access for all.
  • Minimum standard of provision.
  • Provide essential services.
  • Control production of certain products.
  • Meet (quality/profit)target set by the government.
  • Protect or create employment in certain areas.
• • Privatization: selling some public sector businesses owned and controlled by the government to private sector businesses.