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Chapter 2 - Classification of Businesses

Sectors of Business Activity

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

  • people who extract materials / resources from the Earth

  • basic production

  • eg :aggriculture, forestry, mining, fishery

Secondary = Developed countries

  • Manifuctures goods using raw materials

  • eg: factories, industries, construction craft

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

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

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.


The Government controls:

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

Public Transport

  • to offer them in all areas

  • increase mobility of the population

  • reduce private car use by keeping fares low

Water Supply

  • whole country access to clean water

  • keep high standards of water

  • prevent monopolies making high profits

Electricity

  • control essential service

  • ensure continuous supplies

  • prevent monopolies from making high profits

  • supply of essential goods


Types of economy

Free market

  • low tax rates

  • minimal regulations on businesses

  • no tariffs

  • only few restrictions on investments

Mixed

  • Nearly every country in the world has a mixed economy

  • Consists of both private sector and public sector (state-owned) sector

Command/ Planned


Privatisation

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

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

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

AA

Chapter 2 - Classification of Businesses

Sectors of Business Activity

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

  • people who extract materials / resources from the Earth

  • basic production

  • eg :aggriculture, forestry, mining, fishery

Secondary = Developed countries

  • Manifuctures goods using raw materials

  • eg: factories, industries, construction craft

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

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

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.


The Government controls:

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

Public Transport

  • to offer them in all areas

  • increase mobility of the population

  • reduce private car use by keeping fares low

Water Supply

  • whole country access to clean water

  • keep high standards of water

  • prevent monopolies making high profits

Electricity

  • control essential service

  • ensure continuous supplies

  • prevent monopolies from making high profits

  • supply of essential goods


Types of economy

Free market

  • low tax rates

  • minimal regulations on businesses

  • no tariffs

  • only few restrictions on investments

Mixed

  • Nearly every country in the world has a mixed economy

  • Consists of both private sector and public sector (state-owned) sector

Command/ Planned


Privatisation

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

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

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