UNIT 2.

SECTORS OF THE ECONOMY

What is an Economic Sector?

An economic sector is an area of the economy made up of businesses with similar
characteristics. Dividing the economy into different sectors allows economists to more
efficiently analyze economic activity and measure how different types of jobs contribute
to the gross domestic product (GDP).
Business activities sometimes divide into the public or private sector—the public sector
includes businesses under direct governmental control, while the private sector comprises
privately owned businesses. However, economists typically divide the economy into three
main sectors: primary, secondary, and tertiary—each classified by how they relate to the
raw materials for production. Finding that the three-sector model didn’t adequately capture
modern jobs, economists added the quaternary sector, which sometimes gets further
distilled into the quinary sector.
In financial markets, investors break down economic sectors even further. Common
investment sectors include health care, technology, energy, real estate, and
telecommunications.
Sector vs. Industry
An industry refers to a specific group of businesses, whereas a sector is a much broader
categorization of business activities with similar characteristics. For example, agriculture
and mining belong to the primary sector but are two different industries. They belong to
the same sector because they both produce and harvest natural resources. However, the
specific activities performed in agriculture and mining differ significantly and, therefore,
make up different industries.
4 Sectors of the Economy
transportation - information technology - automobile production - agriculture
1. Primary sector: The primary sector comprises businesses that produce or collect natural
resources. This includes (a)_________,
agriculture mining and quarrying, forestry, and the oil and gas
industry.
2. Secondary sector: Businesses in the secondary sector process raw materials into finished
products. All processing, construction, and manufacturing jobs fall into this sector,
automoblie production
including aerospace manufacturing, (b)_________, textile production, shipbuilding,
chemical, and engineering industries,
3. Tertiary sector: Also known as the service sector, the tertiary sector comprises service
providers, including retail sales, (c)_________,
transportation insurance companies, restaurants, tourism,
entertainment, legal services, health care, and financial services.
4. Quaternary sector: The quaternary sector includes businesses related to intellectual
information technology
activities, such as education, government decision-making, (d)_________, research and
development, and entertainment. Some classifications include a fifth sector, called the
quinary sector, as either a separate category or a subsector of the quaternary sector.
However, economists debate over the exact definition of the quinary service sector. Some
say it applies only to high-level decision-makers inside government, education, science,
technology, media, and health care. Others say it includes domestic activities, nonprofits
and charities, and human care services.

Questions
1. Do you think the classification of economic activities into different sectors is useful?
Explain how.
Dividing the economy into different sectors allows economists to more
efficiently analyze economic activity and measure how different types of jobs contribute
to the gross domestic product (GDP).

2. What is the largest sector of the economy? / What are the approximate proportions of
the different sectors in your country? How do you expect these proportions to evolve in the
future?
service sector

3. What is meant by sector rotation?

Is manufacturing industry important? Is its decline in the advanced countries inevitable?
Explain the change in the importance of different sectors?