Section 1.2 📝 Revision Notes

Classification
of Businesses

Primary, secondary and tertiary sectors, the chain of production, structural change, and the difference between private sector and public sector organisations.

4 Key Topics

11 Self-Test Qs

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Economic Sectors

Businesses are classified into three sectors based on what stage of production they operate in.

🌿 Primary Sector

Extracting or harvesting natural resources directly from the earth.

Farming, fishing, mining, forestry, oil extraction, quarrying

🏭 Secondary Sector

Processing or manufacturing raw materials into finished or semi-finished goods.

Car manufacturing, construction, food processing, furniture, steel

🛍️ Tertiary Sector

Providing services rather than producing physical goods. Outputs are intangible.

Banking, retail, healthcare, education, transport, tourism, insurance

Key Facts Per Sector

Primary: deals with raw materials — the basic inputs for all other production. Dominant in developing economies.
Secondary: transforms primary outputs into products. Often large-scale with significant machinery and capital use.
Tertiary: largest sector by employment in most developed economies. Outputs cannot be touched or stored.

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Exam Tips:

Classify a business into its sector AND justify your answer.
Some businesses span more than one sector — e.g. a forestry company that also makes furniture is in both primary and secondary.

Chain of Production

The three sectors are linked — primary outputs become secondary sector inputs, and tertiary firms support both.

Primary

🌾 Farmer grows wheat

→

Secondary

🍞 Baker turns wheat into bread

→

Tertiary

🏪 Supermarket sells bread to consumers

🃏 Click each card — which sector?

Farmer 🌾

Car Maker 🚗

Bank 🏦

Oil Driller ⛽

Steel Maker 🔧

Teacher 📚

Changing Importance of Sectors

📖 Structural Change / Deindustrialisation

As economies develop, the relative importance of each sector changes. In developed economies, the secondary sector declines while the tertiary sector grows.

🌍 Developing Economies

Primary sector is dominant (agriculture, mining)
Large proportion of workforce in farming
Secondary sector growing as industrialisation occurs
Examples: parts of Africa, South Asia

🏙️ Developed Economies

Tertiary sector is dominant — most jobs in services
Primary and secondary sectors decline (deindustrialisation)
Rising living standards increase demand for services
Examples: UK, USA, Japan

Key Reasons for Sectoral Shift

Why Sectors Change Over Time

Technology & automation: machines replace manual labour in farming and manufacturing
Rising incomes: wealthier populations spend more on services (healthcare, travel, entertainment)
Cheaper imports: manufactured goods imported from lower-cost countries, reducing domestic secondary sector
Government policy: investment in growing specific sectors
Natural resource depletion: primary resources run out, shrinking that sector

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Exam Tips:

Deindustrialisation = decline of the secondary sector in developed economies.
Always use country examples: UK (dominant tertiary), Ethiopia (dominant primary).

Private Sector vs Public Sector

📖 Mixed Economy

An economy where both privately owned businesses and government-owned organisations operate side by side.

🏢 Private Sector

Owned by: individuals, shareholders or families
Main objective: to make a profit for owners/shareholders
Funded by: private investment, bank loans, retained profits, share capital
Examples: Apple, McDonald’s, sole traders, law firms

🏛️ Public Sector

Owned by: the government (on behalf of citizens)
Main objective: to provide essential services — not primarily profit
Funded by: taxation, government borrowing
Examples: NHS (UK), state schools, police force, public hospitals, postal services

Why Governments Run Public Sector Organisations

Reasons for Public Provision

Essential services: defence and law enforcement must be available to everyone — private sector would not provide them fairly
Prevent monopoly exploitation: without government provision, some firms could charge excessive prices
Social equality: ensures all citizens regardless of income can access healthcare and education
Market failure: private firms would not provide certain goods/services because they are not profitable enough

Privatisation vs Nationalisation

Term	Definition	Example
🔄 Privatisation	Transfer from public → private sector	British Telecom (BT) privatised in 1984
🏛️ Nationalisation	Transfer from private → public sector	Some banks nationalised during the 2008 financial crisis

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Common Exam Mistakes:

Private sector ≠ private limited company (Ltd) — private sector includes ALL types of privately owned businesses.
Public sector ≠ public limited company (PLC) — PLCs are listed on a stock exchange and are in the PRIVATE sector.
In a mixed economy, BOTH sectors coexist — the government does not control everything.

Quick Revision Summary

Primary Sector

Extracts raw materials — farming, mining, fishing, forestry.

Secondary Sector

Manufactures/processes — car making, construction, food processing.

Tertiary Sector

Provides services — banking, retail, transport, healthcare. Largest in developed economies.

Structural Change

As economies develop: primary → secondary → tertiary dominance.

Mixed Economy

Both private and public sector organisations operate together.

Private Sector

Owned by individuals/shareholders. Main aim = profit.

Public Sector

Owned by government. Main aim = essential services. Funded by taxation.

Privatisation

Public → Private ownership. E.g. BT (1984).

Nationalisation

Private → Public ownership. E.g. banks in 2008 crisis.

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