Topic 2.1: Economic Sectors

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What are primary sector businesses?

Primary sector businesses are businesses that engage in the extraction of natural resources so that they can be used and processed by other firms.

• E.g. farming, fishing, oil extraction and all other

What are secondary sector businesses?

Secondary sector businesses are businesses that manufacture and process products from natural resources

• E.g. computers, brewing, baking, clothes-making and construction.

What are tertiary sector businesses?

Tertiary sector businesses are businesses that provide services to consumers and other businesses

• E.g. retailing, transport, insurance, banking, hotels, tourism and telecommunications.

What are quaternary sector businesses?

Quaternary sector businesses

Name two important features of the classification of business activity by economic sectors?

1. Changes over time

2. Variations between different economies.

What is the relative importance of each sector measured in?

The relative importance of each sector is measured in terms of:

• Employment levels

• Output levels as a proportion of the whole economy.

What is industrialisation?

Industrialisation is the term used to describe the growing importance of the secondary-sector manufacturing industries in developing countries.

Give five advantages of industrialisation

1. Total national output (gross domestic product) increases and this raises average standards of living.

2. Increasing output of goods can result in lower imports and higher exports of such products

3. Expanding manufacturing businesses will result in more jobs being created

4. Expanding and profitable firms will pay more tax to the government

5. Value is added to the country’s output of raw materials, rather than just exporting these as basic, unprocessed products

Give three disadvantages of industrialisation

1. The chance of work in manufacturing can encourage a huge movement of people from the countryside to towns, which leads to housing and social problems

2. Imports of raw materials and components are often needed, which can increase the country’s import costs

3. Much of the growth of manufacturing industry is due to the expansion of multinational companies which can have a negative impact on the economy too.

What is deindustrialisation?

Deindustrialisation is the term used to describe the decline in the relative importance of the primary and secondary sectors and the increase in relative importance of the tertiary and quaternary sectors

What are two possible causes for deindustrialisation?

1. Rising incomes associated with higher living standards lead consumers to spend much of their extra income on services rather than more goods

   • There has been growth in tourism, hotels and restaurant services, financial services and other services.

   • Spending on physical goods has risen more slowly.

2. Manufacturing businesses in developed countries face much more competition as a result of increasing global industrialisation.

   • These rivals tend to be more efficient and use cheaper labour.

   • Therefore, rising imports of goods are taking the market away from the domestic secondary sector firms

Give four consequences of deindustrialisation

1. Job losses in agriculture, mining and manufacturing industries

2. Movement of people towards towns and cities

3. Job opportunities in service industries – tertiary and quaternary sectors

4. Increased need for retraining programmes to allow workers to find employment in service industries.

What are the two sectors of the economy?

1. The public sector

2. The private sector

What is the public sector of the economy?

The public sector: comprises organisations accountable to and controlled by central or local government (the state).

What is the private sector of the economy?

The private sector comprises businesses owned and controlled by individuals or groups of individuals.

What are the three types of economies?

1. Mixed economy

2. Free-market economy

3. Command economy

What is a mixed economy?

A mixed economy is an economy where economic resources are owned and controlled by both private and public sectors.

• In a country with a mixed economy, most business activity is in the private sector

What is a free market economy?

A is an economy where economic resources are owned largely by the private sector with very little state intervention.

• In countries with a free-market economy the public sector is very small

What is a command economy?

A command economy is an economy where economic resources are owned, planned and controlled by the state

• Countries with a command economy have very few private sector businesses

Who provides important goods and services in mixed economy countries and why?

In most mixed-economy countries, important goods and services are provided by government-owned or state-run organisations

• It is argued that they are too significant to be left to private businesses.

• E.g. health and education services, defence, and public law and order (police force)

What are public corporations?

Public corporations are the important strategic industries that are owned and controlled by the state

• E.g. energy, water supply and public transport

Why does the public sector provide products and services rather than the private sector?

The public sector provide products because of the existence of public goods

• Public goods are goods and services that cannot be charged for

• Therefore it is impossible for a private-sector business to make a profit from producing them

Give three advantages of public corporations

1. They are managed with social objectives rather than solely with profit objectives.

2. Loss-making services might still be kept operating if the social benefit is great enough.

3. Finance is raised mainly from the government

Give three disadvantages of public corporations

1. There can be a tendency towards inefficiency due to lack of strict profit targets

2. Subsidies from government can also encourage inefficiencies

3. Government may interfere in business decisions for political reasons, for example by opening a new branch in a certain area to gain popularity.

What are the three types of business ownership?

1. Sole trader business ownership

2. Partnerships

What is a partnership?

A partnership is a business formed by two or more people to carry on a business together, with shared capital investment and, usually, shared responsibilities.

Why are partnerships formed?

Partnershipsare formed in order to overcome some of the drawbacks of being a sole trader.