IGCSE LEVEL – 1

BUSINESS STUDIES

CHAP 2 - CLASSIFICATION OF BUSINESS

STAGES OF ECONOMIC ACTIVITY:

In order for products to be made and sold to the people, it must undergo 3 main
production stages. These stages are similar for all production activities and they
are called levels of economic/ business activity.

The three main stages of economic activity are:

1. Primary sector: The primary sector of industry extracts and uses the
natural resources of Earth to produce raw materials used by other
businesses.
E.g.: Fishing, farming, forestry and extraction of resources from the
earth’s surface such as coal, minerals, iron ore etc.

2. Secondary sector: The secondary sector of industry manufactures goods,

using the raw materials provided by the primary sector.

Eg: Car manufacturers and other factories, construction of dams,

buildings, baking, etc.

3. Tertiary sector: The tertiary sector of industries provides services to the

consumers and other sectors of the industry.

Eg: transport, banking, communication, health services etc.

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RELATIVE IMPORTANCE OF ECONOMIC SECTORS

Every country is unique, so the term importance is relative to the needs of each
particular country.

The three sectors of the economy are compared by:

THE NUMBER OF WORKERS EMPLOYED IN EACH SECTOR

OR

THE VALE OF OUTPUT OF THE GOODS AND SERVICES

In developing countries, people mostly engage themselves in primary sector

industries such as farming and mining and they employ more people in these
industries. Most people live in rural areas with low incomes as a result of which
there’s little demand for services such as transport, hotels, insurance etc.

In developed countries, the manufacturing industries started many years ago, as

a result of which the secondary and tertiary industries employ more workers
than the primary sector. The level of output in the primary sector is quiet low.
Most wealthy countries import many manufactured goods from other countries.
The service sector employs the most number of workers.

CHANGES IN SECTOR IMPORTANCE:

Decline in the importance of manufacturing industry / secondary industry many

workers lost their jobs and factories were closed down.

De-Industrialisation occurs when there is a decline in the importance of the

secondary, manufacturing sector of industry in a country.

Reasons for changes in the relative importance of the three sectors are:

 Most sources of primary products are depleting such as natural gas,

timber (wood), oil etc.
 Most developed countries are losing out on their competitiveness as most
countries are setting up industries and becoming manufacturing countries
such as India, China etc.

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  Due to increase in wealth and living standards of the people, a higher
proportion of their wealth is spent on services such as travel and tourism
than the other two sectors.

MIXED ECONOMY:

A mixed economy has both a private sector and a public (state) sector.

Public sector – businesses and organisations that are owned and controlled by
the government or state. Government and other public sector authorities takes
decisions relating to what to produce and how much to charge the consumers.

Private sector – businesses and organisations not owned and controlled by the
government. The businesses will make their own decisions regarding what to
produce, how to produce and at what price. Their main aim is to make profit.

RECENT CHANGES IN MIXED ECONOMIES

Many governments have changed the balance between the private and public
sector in their economies.

When a public sector businesses – owned and controlled by the government,

sells some of their businesses to the private sector businesses it’s known as
Privatisation.

Benefits of Privatisation:

 Profit is the main objective of private sector business and therefore cost
can be controlled.
 Private sector businesses invest more capital (capital is the money
invested into a business by the owners) in the business than the
government sector.
 Competition helps to improve the quality of the products.

Limitations of Privatisation:

 In order to cut costs more workers will lose their jobs in the private sector
compared to public sector.
 Private sector less likely to concentrate on social objectives.

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