1.2 Classification of businesses

Question 1

What are the three main stages of economic activity?

Answer 1

Primary, secondary, and tertiary.

Question 2

What is the primary stage of production?

Answer 2

The primary stage involves the extraction and use of natural resources (e.g., farming, fishing, forestry, and material extraction like oil and copper ore).

Question 3

What is the secondary stage of production?

Answer 3

The secondary stage involves converting raw materials from the primary sector into manufactured or processed goods (e.g., construction, manufacturing, baking).

Question 4

What is the tertiary stage of production?

Answer 4

The tertiary stage provides services to consumers and businesses (e.g., transport, banking, retail, insurance, and hospitality).

Question 5

What role does the primary sector play in economic activity?

Answer 5

The primary sector extracts and uses Earth’s natural resources to produce raw materials for other businesses.

Question 6

What role does the secondary sector play in economic activity?

Answer 6

The secondary sector manufactures goods using the raw materials provided by the primary sector.

Question 7

What role does the tertiary sector play in economic activity?

Answer 7

The tertiary sector provides services to consumers and other sectors of industry.

Question 8

Example of activities in each sector:

Answer 8

Primary: Rice farming in Vietnam, fishing

Secondary: Clothes production in China, car manufacturing

Tertiary: Retailing in Kenya, banking, hotels

Question 9

How are the sectors of the economy compared?

Answer 9

The percentage of the country’s total workforce employed in each sector.

The value of output of goods and services and its proportion of total national output.

Question 10

Which sector tends to be the most important in developing countries?

Answer 10

The primary sector (e.g., farming and mining) tends to be more important, employing many more people due to the country’s lower industrialization.

Question 11

What characterizes the economy of most developed countries in terms of sectors?

Answer 11

In developed countries, the secondary and tertiary sectors (manufacturing and services) employ more people than the primary sector, and the output from the tertiary sector often exceeds that of the other two sectors combined.

Question 12

What is de-industrialisation?

Answer 12

De-industrialisation occurs when there is a decline in the importance of the secondary, manufacturing sector of industry in a country.

Question 13

Why has the importance of manufacturing decreased in the UK and other developed economies?

Answer 13

The importance of manufacturing has decreased since the 1970s due to the rise of the tertiary sector (service industries), leading to many workers losing their jobs in factories and struggling to transition to service industry work.

Question 14

How has the relative importance of sectors changed in China and India since the 1980s?

Answer 14

The secondary sector (manufacturing) has increased, but the tertiary sector (services) is now expanding more rapidly than both the primary and secondary sectors.

Question 15

What are some reasons for changes in the relative importance of the sectors over time?

Answer 15

Depletion of primary resources like timber, oil, and gas.

Loss of manufacturing competitiveness to newly industrialized countries like Brazil, India, and China.

As wealth and living standards rise, consumers spend more on services than on manufactured products.

Question 16

What is an example of de-industrialisation?

Answer 16

The decline in the importance of the secondary sector in the UK, where over 75% of workers are now employed in the tertiary sector.

Question 17

What is a mixed economy?

Answer 17

A mixed economy is an economy that includes both a private sector and a public (state) sector.

Question 18

What does the private sector include?

Answer 18

The private sector consists of businesses not owned by the government. These businesses make their own decisions about production, pricing, and profit-making, though they are often subject to some government controls.

Question 19

What does the public sector include?

Answer 19

The public sector consists of government-owned and controlled businesses and organisations. The government decides what to produce and how much to charge for these goods and services, which are often funded by taxes and provided free of charge to consumers (e.g., health and education services).

Question 20

Which industries are typically in the public sector?

Answer 20

In many countries, the government controls industries such as:

Health
Education
Defence
Public transport
Water supply
Electricity supply

Question 21

What is privatisation?

Answer 21

Privatisation is the process of selling public sector businesses (owned by the government) to private sector businesses. This has occurred in industries like water supply, electricity, and public transport in many European and Asian countries.

Question 22

Why do governments privatise public sector businesses?

Answer 22

Governments privatise businesses because private sector businesses are often seen as more efficient, with a profit motive that drives cost control and investment. Competition in the private sector can also improve product quality.

Question 23

What are some potential disadvantages of privatisation?

Answer 23

Some disadvantages include:

Private sector businesses may reduce employment to cut costs.

Private businesses are less likely to focus on social objectives, prioritizing profit over public welfare.

Question 24

What is capital in a business?

Answer 24

Capital refers to the money invested into a business by the owners.