3.

The different sectors of the economy

A nation’s economy can be divided into various sectors to define the proportion of the
population engaged in each sector of economic activity.

The primary sector of the economy extracts, collects or harvests products from the earth, such as
raw materials and basic foods. Activities associated with primary economic activity include
agriculture (both subsistence and commercial), mining, forestry, farming, grazing, hunting and
gathering, fishing and quarrying. The packaging and processing of raw materials is also considered to
be part of this sector.

The secondary sector of the economy produces or manufactures finished goods from the raw
materials extracted by the primary economy. All manufacturing, processing and construction lie
within this sector.

There are different categories of goods depending on who purchases those goods and
forwhat purpose. Capital goods are sold to other producers. These can either help make other goods
(like machinery in a factory, e.g., a welding equipment) or they can help provide a service to a
manufacturer (e.g., a delivery van). Consumer goods are sold to the final consumer. Some of these
are consumables, which are used up when consumed. Bread is such a product. Consumer durables,
however, last longer, their use does not lead to the disappearance of the product, e.g., a TV.

Activities associated with the secondary sector include metal working, automobile
production, textile production, chemical and engineering industries, aerospace manufacturing,
energy utilities, engineering, construction and shipbuilding.

The tertiary sector of the economy is also known as the service industry. This sector sells the goods
produced by the secondary sector and provides services to both the general population and to
businesses in all five economic sectors. Services are intangible, (i.e., they cannot be touched or held)
and are often used up at the time of consumption. Services can be provided for different categories
of customers. Services for businesses are commercial services which typically help these businesses
in the production process or in the distribution of their goods. The next category of services (direct
services) is provided to consumers, examples to these are hairdressing, restaurant meals, and
healthcare.

The third category can be provided to both businesses and consumers, financial services
(such as banking or insurance) are an example to this. Activities associated with this sector include
retail and wholesale sales, transportation and distribution, restaurants, clerical services, media,
tourism, insurance, banking, healthcare and law.

Although many economic models only divide the economy into three sectors, others divide it into
four or even five sectors. These final two sectors are closely linked with the services of the tertiary
sector. In these models, the quaternary sector of the economy consists of intellectual activities often
associated with technological innovation. It is sometimes called the knowledge economy. Activities
associated with this sector include government, culture, libraries, scientific research, education and
information technology. These intellectual services and activities are what drives technological
advancement, which can have a huge impact on short- and long-term economic growth.

Some economists further subdivide the quaternary sector into the quinary sector, which includes the
highest levels of decision making in a society or economy.
The primary sector EXTRACTS, HARVESTS or COLLECTS raw MATERIALS and basic FOODS. The
secondary sector uses these raw materials to PRODUCE, MANUFACTURE or CONSTRUCT finished
GOODS. The tertiary sector PROVIDES different SERVICES to individuals or businesses. The
quaternary sector involves providing KNOWLEDGE based services, while the quinary sector entails
the highest levels of DECISION MAKING in an economy.

TO EXTRACT - To pull or take out with force or great effort.

TO HARVEST - To gather a crop when it is ripe; to reap.
RAW MATERIALS - A basic substance used in the manufacturing of a good.
QUARRYING - To extract stone or other material from an open excavation or pit.
UTILITY (ENERGY) - Generation and transmission or distribution of electricity, gas, or water to
general public.
CONSTRUCTION - The work of building something, especially buildings, bridges, etc.
BASIC ECONOMIC PROBLEMS -> BASIC ECONOMIC QUESTIONS

What to produce?

How to produce?

For whom to produce?

Types of economic system:

1. Market economy (tržišno)

2. Planned economy (plansko)
3. Mixed economy (mješovito)

Economic system:

An organized way in which a state or nation allocates its resources and apportions goods and services
in the national community.

To allocate (rasporediti) / to apportion (za raspodjelu) = to share out according to a plan

Resources = anything that is used to produce goods and services

EMPLOYMENT IN THE DIFFERENT SECTORS OF THE ECONOMY

Comparing employment structures

The employment structure of a country shows how the labour force is divided between the various
sectors. Different countries have different employment structures. The employment structure of a
given country can tell you quite a lot about its economy. In the richest countries, for example, there
will usually be more people working in the tertiary/quaternary sector than in the primary and
secondary sectors. In the poorest countries, there tend to be more people working in the primary
sector than in either the secondary or tertiary sectors.

Changing employment structures over time

Employment structures can change over time within the same country. In the UK in 1,800 most
people would have been employed in the primary sector. Many people worked on the land and
made their living from agriculture and related products. During the industrial revolution, more
people were needed to build ships, work in steel making and with textiles. All of these jobs are found
in the secondary sector. By 1900 over half of the workers in the UK were employed in secondary
industries.

Since 1900 mechanization meant that less people were required to work on the land and in industry,
as machines could carry out most of the work that people previously did. Foreign industries also
became more competitive and imports such as coal became more affordable. As the availability of
coal declined in the UK, and also became more expensive to extract more coal was imported. This led
to a further decline in primary sector employment in the UK.
The demand for work increased in schools, hospitals and retail industries. Many people left the rural
areas in the search for jobs in the towns and cities. By the year 2000 over half of the UK workforce
were employed in tertiary industries and only a small number were employed in primary industries.
This has changed the work that people do, and also where they work. Quaternary industries are a
relatively new concept, and it is only recently that they have been added to these figures. However, it
is becoming an important and growing sector in the UK as many firms want to carry out research and
development for their products.

The rapid development of industry that occurred in Britain in the

INDUSTRIAL REVOLUTION late 18th and 19th centuries, brought about by the introduction of
machinery.

The process of starting to use machines to do something that was

MECHANIZATION
previously done by hand

RETAIL-INDUSTRY A term describing businesses that sell goods directly to individuals.

WORKFORCE/LABOUR FORCE The group of people who work in a company, industry, country, etc.

PHARMACEUTICALS - A company which makes aspirin.

EXTRACTIVE - A company which mines diamonds.
TEXTILES - A company which makes men’s suits.
TOURISM - A company which sells package holidays.
AUTOMOTIVE - A company which makes trucks.
UTILITIES - A company which distributes electricity.
RETAIL - A supermarket chain.
CONSTUCTION - A company which builds houses
HOUSEHOLD GOODS - A company which makes washing machines.
FAST FOOD - A company which sells hamburgers.
CONSUMER ELECTRONICS - A company which makes TVs.
TRANSPORT- An airline.
DEFENCE - A company which makes fighter planes.
TOILETRIES - A company which makes shampoo.
CATERING - A restaurant chain.
MEDIA - A newspaper publisher.
E-COMMERCE - A company which sells things over the internet.
TELECOMMUNICATIONS - A company which makes mobile phones.
FINANCIAL SERVICES - A company which sells investment advice.
CONFECTIONERY - A company which makes chocolate
BEVERAGES - A company which makes beer.
REAL ESTATE - A property company.
SOFTWARE - A company which writes computer programmes.
Rubber latex is extracted from rubber trees. The forest provides raw materials for wood based industries. The
sun is a source of renewable energy. Solar panels generate/harvest electricity. A successful business provides a
service that makes people’s lives better. The government made a decision to extend the road network to reach
all parts of the country. The construction of this road system took 12 years and $12 billion. Hydroelectric water
is currently the leading renewable energy source used by electric utilities to generate electric power. One of
the reasons why the labour/work force is shrinking (less and less people are employed) in the primary sector
today is that a lot of the work is done by machines, e.g., coal handling was mechanized and automated.

CAPITAL GOODS – goods that are used in producing other goods, rather than being bought by
customers.

CONSUMER GOODS – goods bought and used by consumers rather than by manufactures for
producing other goods.

CONSUMABLES – a commodity that is intended to be used up relatively quickly.

CONSUMER DURABLES – manufactured items, typically cars of household items, that are expected to
have a relatively long useful life after purchase.

INTANGIBLE – unable to be touched.

COMMERCIAL SERVICES – services that a company provides to other businesses.

DIRECT SERVICES – services provided to customers.

EMPLOYMENT STRUCTURE – explains how the workforce is divided up between the three main
employment sectors (I., II., III.)

1. What is the aim of the secondary sector?

- To process natural resources and turn them into a product.
2. Which sector employs the most people in the UK?
- Tertiary / Quaternary
3. What is the employment structure of a country?
- It is the types of jobs people do.
4. What are the key areas of employment in the primary sector?
- Farming, mining and fishing.
5. Tertiary activity refers to employment in:
- Service industries.
6. Which of these jobs is part of the quaternary sector?
- Research and development.
7. In Nepal the highest percentage of people work in which sector?
- Primary.
8. In the richest countries more people work in which sectors?
- Tertiary and quaternary.

Sectors of the Economy

THE PRIMARY SECTOR (primarni)
What?
Raw materials: making direct use of natural resources.

How?
Extracted from the ground:

- Mining: to mine (v), mine (n), miner, not minor!

- Quarrying: to quarry, quarries (v), quarry (n) e.g., stone, slate, minerals
- fishing, forestry, farming
- agriculture (subsistence, commercial)
- Packaging and processing of raw materials

THE SECONDARY SECTOR (sekundarni)

How? What?

Manufacturing: raw materials  finished goods

Building and construction industries
Utilities: companies that supply water, gas, electricity.

For whom?
Capital goods: for other producers

- Help make other goods (welding equipment)

- Provide services (delivery van)

Consumer goods: to final consumer

- Consumables: used up when consumed, e.g., bread (primjer: kruh)

- Consumer durables: last longer, e.g., TVs (primjer: televizor)

THE TERTIARY SECTOR (tercijarni)

What?
Services: intangible (neopipljive, ne možemo ih dodirnuti), often used up at the time of consumption

For whom?

- for businesses: commercial services

e.g., helping in production, distribution of goods, advertising

- for consumers: direct services

hairdressing, restaurant meals, health care

- for both
e.g., financial services (banking, insurance, etc.)

THE QUATERNARY SECTOR (kvartarni)

- Formed out of a subdivision of the tertiary sector.

What?
 - Knowledge-based services / intellectual services
- Culture
- ICT (Information and communication technologies)
- Consultancy (offering advice to businesses)
- R&D (Research and Development)
- Education
- Government

THE QUINARY SECTOR (kvinarni)

- The highest levels of decision making

- include: government officials, highest levels of researchers, business executives (primjer:
premijer Vlade)

MARKET ECONOMIES/FREE MARKET ECONOMIES – TRŽIŠNA GOSPODARSTVA

In market economies (also known as capitalist economies or free market economies) resources are
allocated automatically by the forces of demand and supply (market mechanism), which stimulates
competition. This should lead to lower costs, a wider choice of goods and services and better quality
for consumers. The role of government in a free market system is limited. Some of its main functions
are to pass laws, to provide certain essential products and services such as policing, national defence
and the judiciary, and to ensure a level playing field (fair competition) for all competitors. In market
economies, market imperfections can occur. Some goods and services are not provided by private
firms such as defence. Furthermore, private firms are not interested in services which do not make a
profit. Another implication of the working of a free market economy is that firms may choose to
sacrifice public interest in exchange for lower costs.

PLANNED ECONOMIES/COMMAND ECONOMIES – PLANSKA GOSPODARSTVA

Government has a vital role in a planned economy (also known as command economy). It plans,
organises, and co-ordinates the whole production process. This is unlike a market economy, where
planning an organising is carried out by firms. Planners encourage the production of standardised
goods with little variety and choice for consumers. Another difference is that resources in planned
economies belong to the state, and goods and services are distributed to consumers by the state. In
planned economies, there tends to be a more equal distribution of wealth and income, production is
for need rather than profit, people tend to be less motivated to work efficiently and the standard of
living is often lower compared with countries which use other types of economic systems.

MIXED ECONOMIES – MJEŠOVITA GOSPODARSTVA

In reality, no country has an economy which is entirely planned or free market. Most economic
systems in the world have elements of both. They are known as mixed economies. In mixed
economies some resources are allocated by the government (in the public sector) and the rest by the
market (in the private sector). In mixed economies the state usually provides a minimum standard of
living for those unable to work. The public sector is responsible for the supply of some public goods
and services and this is decided by central or local government. Public goods are usually provided
free when used and are paid for by taxes (e.g. roads). In the private sector production decisions are
 VERBS NOUNS
made by firms in response to the demands of consumers,
and individuals are allowed to own the means of production. Allocate Allocation
One of the roles of the government is to ensure that there is
fair competition in the private sector. All private goods and Plan Plan
services are allocated as in the market system. Organize Organization

Co-ordinate Co-ordination

Word partnerships: Supply Supply

Command Command

Compete Competition

Produce Production

Unlimited wants

Scare resources

Basic economic problem

Market mechanism

Standardized goods

Income distribution

Public/private sector