Chapter 2:- TYPES OF BUSINESS ACTIVITY Levels of Eco o!

"c Act"v"t# In order for products to be made and sold to the people, it must undergo 3 different production processes. Each process is done by a different business sector and they are: Primary sector: The natural resources extraction sector. E.G. farming, forestry, mining...(earns the least money !econdary sector: The manufacturing sector. E.G. construction, car manufacturing, ba"ing...(earns a medium amount of money Tertiary sector: The ser#ice sector. E.G. ban"s, transport, insurance...(earns the most money

Importance of a sector in a country: $o. of %or"ers employed &alue of output and sales

Industrialisation: a country is mo#ing from the secondary sector to the tertiary sector. 'e(industrialisation: a country is mo#ing from the secondary sector to the tertiary sector. In both cases, these processes both earn the country more re#enue.

T#pes of Eco o!"es ) *ree mar"et economy: +ll businesses are o%ned by the pri#ate sector. $o go#ernment inter#ention. Pros: ,onsumers ha#e a lot of choice -igh moti#ation for %or"ers ,ompetition "eeps price lo% Incenti#e for other businesses to set up and ma"e profits

,ons: $ot all products %ill be a#ailable for e#erybody, especially the poor $o go#ernment inter#ention means uncontrollable economic booms or recessions .onopolies could be set up limiting consumer choice and exploiting them / ,ommand0Planned economy:

+ll businesses are o%ned by the public sector. Total go#ernment inter#ention. *ixed %ages for e#eryone. Pri#ate property is not allo%ed. Pros: Eliminates any %aste from competition bet%een businesses (e.g. ad#ertising the same product Employment for e#erybody +ll needs are met (although no luxury goods ,ons: 1ittle moti#ation for %or"ers The go#ernment might produce things people don2t %ant to buy 1o% incenti#e for firms (no profit leads to lo% efficiency 3 .ixed economy: 3usinesses belong to both the pri#ate and public sector. Go#ernment controls part of the economy. Industries under go#ernment o%nership: -ealth Education 'efence Public transport 4ater 5 electricity Pri#atisation Pri#atisation in#ol#es the go#ernment selling national businesses to the pri#ate sector to increase output and efficiency. Pros: $e% incenti#e (profit encourages the business to be more efficient ,ompetition lo%ers prices Indi#iduals ha#e more capital than the go#ernment 3usiness decisions are for efficiency, not go#ernment popularity Pri#atisation raises money for the go#ernment ,ons: Essential businesses ma"ing losses %ill be closed 4or"ers could be made redundant for the sa"e of profit 3usinesses could become monopolies, leading to higher price Co!par" $ the S"%e of B&s" esses 3usinesses #ary in si7e, and there are some %ays to measure them. *or some people, this information could be #ery useful: In#estors 8 ho% safe it is to in#est in businesses Go#ernment 8 tax ,ompetitors 8 compare their firm %ith other firms 4or"ers 8 9ob security, ho% many people they %ill be %or"ing %ith 3an"s 8 can they get a loan bac" from a business 'a#s of (eas&r" $ the S"%e of a B&s" ess: $umbers of employees. 'oes not %or" on capital intensi#e firms that use machinery &alue of output. 'oes not ta"e into account people employed. 'oes not ta"e into account sales re#enue

&alue of sales. 'oes not ta"e into account people employed ,apital employed. 'oes not %or" on labour intensi#e firms. -igh capital but lo% output means lo% efficiency

:ou cannot measure a business2s si7e by its profit, because profit depends on too many factors not 9ust the si7e of the firm. B&s" ess )ro*th +ll o%ners %ant their businesses to expand. They reap these benefits: -igher profits .ore status, po%er and salary for managers 1o% a#erage costs (economies of scale -igher mar"et share T#pes of E+pa s"o Internal Gro%th: ;rganic gro%th. Gro%th paid for by o%ners2 capital or retained profits. External Gro%th: Gro%th by ta"ing o#er or merging %ith another business.

T#pes of (er$ers ,a - !a" .e ef"ts/: 0/ 1or"%o tal (er$er: merging %ith a business in the same business sector <educes no. of competitors in industry Economies of scale Increase mar"et share 2/ Vert"cal (er$er: *or%ard #ertical merger +ssured outlet for products Profit made by retailer is absorbed by manufacturer Pre#ent retailer from selling products of other businesses .ar"et research on customers transferred directly to the manufacturer 3ac"%ard #ertical merger ,onstant supply of ra% materials Profit form primary sector business is absorbed by manufacturer Pre#ent supplier from supplying other businesses ,ontrolled cost of ra% materials 2/ Co $lo!erate (er$er: !pread ris"s Transfer of ne% ideas from one section of the business to another 'h# So!e B&s" ess Sta# S!all: There are some reasons %hy some businesses stay small. They are: Type of industry the business is in: Industries offering personal ser#ice or speciali7ed products. They cannot gro% bigger because they %ill lose the personal ser#ice demanded by customers. E.G. hairdressers, cleaning, con#enience store, etc. .ar"et si7e: If the si7e of the mar"et a business is selling to is too small, the business cannot expand. E.G. luxury cars (1amborghini , expensi#e fashion clothing, etc.

;%ners2 ob9ecti#es: ;%ners might %ant to "eep a personal touch %ith staff and customers. They do not %ant the increased stress and %orry of running a bigger business.