Unit 2: Classification of business

Question 1

1st classification: Division by sectors

Answer 1

• Primary sector: extracts and uses the natural resources to produce raw materials. Employ many more people than the other industries. Often in developing countries.
• Secondary sector: manufactures goods using the raw materials. During a recession it would be the sector that suffers the most, as manufactures can’t lower their prices too much because they need to buy raw materials.
• Tertiary sector: provides services to consumers and other sectors of industry. Its output is higher than the other two combined. Countries with most people employed in this sector are called most developed countries.

Question 2

De-industrialization

Answer 2

occurs when there is a decline in the importance of the secondary sector. Tertiary sector industries are expanding quickly in some countries because:
• Sources of primary products such as oil or gas might have become depleted.
• Some developed countries are losing competitiveness to the newly manufactured countries
• In more developed countries, people tend to spend a higher proportion of their incomes on services.

Question 3

Mixed economy

Answer 3

has both a private sector and a public sector.

Question 4

Private sector

Answer 4

businesses not owned by the government. Will aim to run profitably.

Question 5

Public sector

Answer 5

state owned businesses such as: health, education, defence, public transport, water. Money to maintain them come from the tax payer. 3 reasons to exist:

1. To develop economies in areas of low development or to offer what private businesses do not provide.
2. To modify conditions in the market. For example to prevent a monopoly.
3. To offer jobs.

Question 6

Privatisation

Answer 6

Selling some public sector businesses to the private sector.
Advantages: Private businesses tend to be more efficient as their main objective is to profit. Also their investors might invest more capital into them. The competition between the private businesses can help to improve the product quality.
Disadvantages: private businesses might make more worker unemployed and are less likely to focus on social objectives.