Classification
of Businesses
Primary, secondary and tertiary sectors, the chain of production, structural change, and the difference between private sector and public sector organisations.
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
- 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.
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.
🌾 Farmer grows wheat
🍞 Baker turns wheat into bread
🏪 Supermarket sells bread to consumers
🃏 Click each card — which sector?
Changing Importance of Sectors
As economies develop, the relative importance of each sector changes. In developed economies, the secondary sector declines while the tertiary sector grows.
- Primary sector is dominant (agriculture, mining)
- Large proportion of workforce in farming
- Secondary sector growing as industrialisation occurs
- Examples: parts of Africa, South Asia
- 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
- 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
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
An economy where both privately owned businesses and government-owned organisations operate side by side.
- 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
- 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
- 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 |
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
Extracts raw materials — farming, mining, fishing, forestry.
Manufactures/processes — car making, construction, food processing.
Provides services — banking, retail, transport, healthcare. Largest in developed economies.
As economies develop: primary → secondary → tertiary dominance.
Both private and public sector organisations operate together.
Owned by individuals/shareholders. Main aim = profit.
Owned by government. Main aim = essential services. Funded by taxation.
Public → Private ownership. E.g. BT (1984).
Private → Public ownership. E.g. banks in 2008 crisis.
Fatima runs a small fish farming business in a developing country. She catches fish from a local lake and sells them directly to households. She employs 3 workers and all income comes from fish sales.
- Knowledge (K): Fatima’s business belongs to the primary sector (1 mark)
- Application (App): because it involves extracting natural resources (fish) directly from the environment (1 mark)
- Analysis (An): this sector is dominant in developing economies where natural resources are the main source of income (1 mark)
TeleCom National was a government-owned telephone company. In 2010, the government sold 70% of its shares to private investors and it is now listed on the stock exchange.
- Knowledge (K): TeleCom has undergone privatisation (1 mark)
- Application (App): it moved from the public sector to the private sector (1 mark)
- Analysis (An): the government may have done this to raise funds and improve efficiency through competition (1 mark)
Topic Complete!
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