Chapter 2: Classification of

businesses
Stages of economic activity
There are three main stages
Stage 1 : Primary stage of production. This stage involves the Earth’s
natural resources.
Activities: farming, fishing, forestry, agriculture and the extraction of
natural materials, such as oil and copper ore.
Stage 2: Secondary stage of production. This stage involves taking
materials and resources provided by the primary sector and converting
them into manufactured or processed goods.
Activities: building and construction, aircraft and car manufacturing,
computer assembly , bread baking.
 Stages of economic activity
Stage 3: Tertiary stage of production. This stage involves providing
services to both consumers and other businesses.
Activities: transport, banking, retail, insurance, hotels and
hairdressing. Travel agents, health services.
 Relative importance of
economic sectors
The 3 factors 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.
Primary Industries : such as farming and mining employ many more
people than manufacturing or service industries. These tends to be
countries often called developing countries
Developing countries: where manufacturing industry is recently
established. As most people still live in rural areas with low incomes ,
there is little demand for services such as transport , hotels and
insurance. The levels of both employment and output in the primary
sector in these countries are higher than in other 2 sectors.
 Relative importance of
economic sectors

Developed Countries: where manufacturing industries started up many

years ago, the secondary and tertiary sectors are likely to employ many
more workers than primary sector.
In developed countries: its common to find that many manufactured
goods are bought in from other countries, most of the workers will be
employed in service sector so output of tertiary is higher than other 2.
such countries are often called most developed countries.
Changes in sector importance
De-industrialisation: occurs when there is a decline in the importance of
the secondary , manufacturing sector of the industry in a country.
-it’s a process in which industrial activity in a country or region is removed
or reduced because of major ecconomic or social change
Reasons:
1- Region containing a lots of steelworks can no longer compete with
cheaper steel from abroad
2-Pollution created by industry is no longer desirable
3- No incentives are provided by government
4- As wealth of a country increases , emphasis shifts to services and more
luxury goods.
 Changes in sector importance
◦ Reasons for changes in relative importance of three sectors over time
◦ 1- sources of some primary products, such as timber, oil and gas become
depleted
◦ 2- Most developed economies are losing competitiveness in manufacturing
to newly industrialized countries such as China, India
◦ 3- As country's total Wealth increases and living standards rise, consumers
tends to spend a higher proportion of their income on services, like travel
and restaurants

◦ Results
◦ Industry shuts down, people more out of area
◦ People unable to find jobs(unemployment increases)
◦ (fall in poverty), increase in crime etc
 Mixed Economy
- A mixed economy has both a private sector and public sector.
Private sector: Businesses not owned by the government
Businesses make choices about

Aim of private sector is to make profit. It included all consumer goods

industries( TV, fridges, laptops, mobile phones)
Private held companies provide variety of goods and services.
Mcdonalds, Apple, Starbucks etc etc
© 2009 PRENTICE-HALL INC. ALL RIGHTS RESERVED. 1-9
 Public sector

Public sector: Business that are owned by the government(WAPDA)

Government decides

-Some goods and services are provided free of charge to consumer, such
as (money comes from tax-payers)

- state health -education services- emergency services( police,

military,fire )
-Electricity , Metro(public transport)
Businesses in a mixed
economy
Privatization
-When government owned business is sold to private sector.
The benefit of this
-is that efficiency may increase( as objective is profit)
-Costs will be controlled
-Private owners might invest more capital in business than government
cant afford
-Competition between Private sector businesses can help improve
product quality.
-Disadvantage:
-Might make workers unemployed than public sector to cut cost.
--Less likely to focus on social objectives.
-In many European and Asian countries water supply, electricity, and
public transport systems have been privatized.