Chapter 2 - Classification of Businesses

Sectors of Business Activity

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Primary = developing countries (low income - little demand for services)

• people who extract materials / resources from the Earth
• basic production
• eg :aggriculture, forestry, mining, fishery

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Secondary = Developed countries

• Manifuctures goods using raw materials
• eg: factories, industries, construction craft

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Tertiary = Most developed countries (manufactured goods are imported due to cost efficiencies - high incomes = higher demand for services)

• provides service to consumers, businesses & other sectors of the industry
• eg : trade, banks, transport, eductaion, culture, health

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Relative importance to economic sectors

• Precenatge of country’s total number of workers employed in each sector

• Value of output, goods, services and their proportion of total national output

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Changes in sector importance

De-industralisation occurs when there is a decrease in the importance of the secondary (manufacturing sector) of industry in a country

The two sectors of industry

1. @@Private sector@@

   Business in the private sector are owned by private individuals. They keep any profits

2. @@Public Sector@@

   These consist of organisations, that are owned by local or national government. Profits are used within the organisations.

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The Government controls:

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Healthcare

• provide health services to everyone
• consistent standards in all areas
• improve health of the population

Education

• raise education standards
• provide to everyone
• consistent in all areas

Defense

• prevent private armies
• control of defense in times of danger
• maintain high standards
• to meet threats from other countries

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Public Transport

• to offer them in all areas
• increase mobility of the population
• reduce private car use by keeping fares low

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Water Supply

• whole country access to clean water
• keep high standards of water
• prevent monopolies making high profits

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Electricity

• control essential service
• ensure continuous supplies
• prevent monopolies from making high profits
• supply of essential goods

Types of economy

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Free market

• low tax rates
• minimal regulations on businesses
• no tariffs
• only few restrictions on investments

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Mixed

• Nearly every country in the world has a mixed economy
• Consists of both private sector and public sector (state-owned) sector

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Command/ Planned

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==Privatisation==

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This is when the government sells state-owned businesses to new owners in the private sector

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%%Advanatges of privatisation%%

• new owners - profit motive - business efficiency
• increases competetion - efficiency/low prices
• Govt needs cash - new owners have additional cash to invest - improved service offered by the business
• decision making changes - based on efficiency & not on govt subsidies
• Sale - money for the government

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==Disadvantages of Privatisation==

• Loss making services closed - private firms mainly run for profit - some people in rural areas may lose services
• Job Losses - umeployment benefits extra cost to government
• Risk of monopoly - higher prices
• Benefits only new owners whereas public sector entities will benefit the whole country

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