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• Economy is so big that it is hard to analyze. It can be economy of a
society, country and world. Hence the economy is divided.
• Sectors is used to divide the economy into parts.
• The way an economy is divided in terms of sectors is called the economic
structure.
The sectors in terms of which economy is organized are:
1. Primary sector: This sector makes the direct use of natural resource. Eg
Agriculture, fishing, forestry, mining, oil extraction.
2. Secondary Sector: It covers the manufacturing of goods in the
economy. It includes process the materials produced from the primary
sector and turning them into goods. Eg: food processing, clothing, steel
production etc.
3. Tertiary Sector: This is the service sector. Production of services. It
includes hospitability, transportation, banking, education etc.
4. Quaternary Sector: Consists those industries that provide information and
knowledge. Eg: Information and technology, consultancy, scientific research.
(This is a new sector that has been added)
As economy develops, they move from primary to quaternary.
In developed countries more people are involved in tertiary and quaternary.
But in developing and underdeveloped countries more people are involved
in primary.
Just fact:
One mistake developing countries are doing is they are jumping directly
from primary to tertiary. With very less manufacturing in the country. This
causes problems. As they have no production of themselves.
• Economic system: after organization, the economy bases on sectors this is the
result. It is the system by which choices and resource allocation are made in the
economy.
• Types of economic system
Mixed Economy

Command/Planned
Market Economy Economy

• Mixed economy: Firms and individuals make the resource allocation decision.
They are the ones who control the price of a product and production of
them(as in how much to produce). If people demands are more then that
product is to be product more. If they want it less, then produce it less.
Likewise, If due to high price of a product the sales is less, decrease the price. If
people are willing to by the product even if the price is high, then you can keep
the price high.
• It follows market mechanism (when decision on price and quantity are made
based on peoples demand and firms supply).
• Advantage
1. Freedom for people and firms
2. Competition between firms
3. Competition leads to better quality, quantity, more innovation etc.
Eg: Coke and Pepsi. If cokes price decreases, quantity increases, or quality
increases its sales increases. People will not buy Pepsi. So now Pepsi will also
improve quality and all. Similarly, if Pepsi produces new flavor, then Pepsi will be
famous. So, coke also doses other innovation.
• Disadvantage:
1. No rules no regulation. Production of bad products.
2. Underprivileged or new firm openers will be in disadvantage. As they will not
be able to compete with big firms in terms of production.
• Command/Planned Economy
Government makes the resource allocation decision. The government
has the central role in decision making. China is a near about example.
But not 100%.
• Advantage: (the disadvantages of the market economy)
1. There will be equality.
2. The unemployment will decrease.
3. Rules and regulations, so people can't do whatever they want. As in
produce bad products. Or let's say people demand some product
more. But it does not mean they will produce lots and lots of that
product. Likewise, if people demand for any produce no matter what
doesn't mean they can charge higher prices. SO govt keeps these
things in check.
• Disadvantage: (Advantages of market economy)
1. Less competition (so all the innovation, improvement in quality etc
decreases).
2. No freedom

• Mixed economy: Here, individuals, firms, government, private and

public all are involved in resource allocation decision.
• Advantages: (all the advantages of market and planned economy)
Note:
Mixed economy is the one followed by the countries of the world. This
is the best resource allocation as there is an opinion of everyone in the
economy.