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UNIT 2: CLASSIFICATION OF BUSINESS

Stages of economic activity


Stage 1 (primary stage) involves the earths natural resources. Activities
include farming, fishing, forestry and the extraction of natural materials (oil
and cooper)
Stage 2 (secondary stage) involves taking the materials and resources
provided by the primary sector and converting them into manufactured or
processed goods. Activities include building and construction, aircraft and car
manufacturing, computer assembly, bread baking
Stage 3 (tertiary stage) involves providing services to consumers and
businesses. Activities include transport, banking, retail, insurance, hotels and
hairdressing
Relative importance of economic sectors
The most important sector of industry in a country is decided depends on:
Percentage of the countrys total number of workers employed in each
sector
Value of output of goods and services and the proportion this is of total
national output
Developing countries where manufacturing has only recently been
established by people live in rural areas with low income, little demand for
services. Primary sector is higher than other sectors
Developed countries second and tertiary employ more worker.
Manufactured foods come from other countries output on tertiary is the
highest.
Changes in sector importance
The decline in the manufacturing or secondary sector of industry is called
de- industrialization.
Reasons for changes in relative importance of three sectors:
Sources of primary products become depleted
Developed countries are losing competitiveness in manufacturing to
the newly industrialized countries like Brazil, India and China
Countrys total wealth and living standards rise, thus consumers tend
to spend more part of their income on services (travel, restaurants, )
than on manufactured produced from primary products.

Mixed economy
Private sector businesses not owned by the government. They
will make their own decision about the natural resources, products
and their prices. Most of them will aim to run profitably. However,
there are some government still controls over these decisions. Free
market economy
Public sector government or state- owned and controlled
business and organizations. They make decisions about the natural
resources their products and their prices. Some goods and services
(state health, education, ) are produced free of charge to the
consumer. Money for these comes from taxpayer. Command or
planned economy
Objectives of private- sector and public- sector businesses
are often different.
Mixed economy recent changes

When government sells some public sector business owned and


controlled by the government to private sector business is
called privatization.
Advantages:
Private sector businesses are more efficient because their main
objective is profit. Therefore, costs must be controlled.
Their owners can invest more capital in the business.
Completion between private- sector businesses can help to
improve products quality.
Disadvantages:
Cause more workers unemployed in order to cut costs
Less likely to focus on social objectives