Chapter 2 : Classification of businesses
Business Studies IGCSE
Ms Nelly
Stages of economic activity
Primary sector
Primary sector of industry extracts and uses the natural resources of Earth to produce
raw materials used by other businesses. Activities in the primary sector of industry
include farming, fishing, forestry and the extraction of natural materials such as oil and
copper ore.
Secondary sector
Secondary sector of industry manufactures goods using the raw materials provided by
the primary sector. Activities in the secondary sector of industry include building and
construction, aircraft and car manufacturing, computer assembly, bread making.
Tertiary sector
Tertiary sector of industry provides services to consumers and the other sector of
industry. Activities in tertiary sector of industry include transport, banking, retail,
insurance, hotel, and hairdressing.
Relative importance of economic sectors
Which sector of industry is the most important?
The sectors of economy are compared by :
- Percentage of the country’s total number of workers employed in each sector
- Value of output of goods and services and the proportion this is of total
national output.
Developing countries – higher percentage in primary sector
Developed countries – higher percentage in secondary and tertiary sector
Changes in sector importance
De-industrialization occurs when there is a decline in the importance of the
secondary, manufacturing sector of industry in a country,
Reasons for changes in the relative importance of the three sectors over time
are:
- Sources of some primary products become depleted.
- Most developed economies are losing competitiveness in manufacturing to
newly industrialised countries.
- As a country’s total wealth increases and living standards rise, consumers
tend to spend a higher proportion of their incomes on services such as travel
and restaurants than on manufactured products produced from primary
products.
Mixed economy
A mixed economy has both a private sector and a public (state) sector.
Private sector : not owned by the government. These businesses make their own decision
on what to produce and aim to make a profit.
Public sector : government (state) owned and controlled businesses and organisations.
These businesses aim to provide public facilities to the citizens.
Many government sell some public sector businesses to private sector businesses. This is
called privatization.
Privatization happens because private sector businesses are more than efficient than
public sector businesses as their main objective is profit and therefore costs must be
controlled. Private sector owners might invest more capital in the business than the
government can afford and competition between private sector businesses can help to
improve product quality.
Some limitations of private sector are increased in unemployment to cut costs and private
sector businesses are less likely to focus on social objectives.
