Chapter 2: Types of business activity
Levels of economic activity
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)
• Secondary sector: The manufacturing sector. E.g. construction, car
manufacturing, baking... (earns a medium amount of money)
• Tertiary sector: The service sector. E.g banks, transport, insurance...
(earns the most money)
Importance of a sector in a country:
• no. of workers employed.
• value of output and sales.
Industrialisation: a country is moving from the primary sector to the
Deindustrialisation: a country is moving from the secondary sector to
the tertiary sector.
In both cases, these processes both earn the country more revenue.
Types of economiess
Free market economy:
All businesses are owned by the private sector. No government
• Consumers have a lot of choice
• High motivation for workers
• Competition keeps prices low
• Incentive for other businesses to set up and make profits
Cons: • Not all products will be available for everybody, especially the poor
• No government intervention means uncontrollable economic booms or
• Monopolies could be set up limiting consumer choice and exploiting
All businesses are owned by the public sector. Total government
intervention. Fixed wages for everyone. Private property is not allowed.
• Eliminates any waste from competition between businesses (e.g.
advertising the same product)
• Employment for everybody
• All needs are met (although no luxury goods)
• Little motivation for workers
• The government might produce things people don't want to buy
• Low incentive for firms (no profit) leads to low efficiency
Businesses belong to both the private and public sector. Government
controls part of the economy.
Industries under government ownership:
• public transport
• water & electricity
Privatisation involves the government selling national businesses to the
private sector to increase output and efficiency.
• New incentive (profit) encourages the business to be more efficient
• Competition lowers prices • Individuals have more capital than the government
• Business decisions are for efficiency, not government popularity
• Privatisation raises money for the government
• Essential businesses making losses will be closed
• Workers could be made redundant for the sake of profit
• Businesses could become monopolies, leading to higher price