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1.2 Classification of Business

Classification of business is more likely to appear as a short answer questions on Paper 1 like this example:

Past Paper Question Example  
Paper 1 (a) Define private sector  
…………...........................................................................................................................  
…………...........................................................................................................................[2]    

1.2.1 Primary, Secondary and Tertiary Sectors

Basis of business classification

The primary sector is extracting or growing natural resources to supply raw materials for business. Mining, farming and forestry are all examples.

The secondary sector is manufacturing goods from raw materials. For example, a factory producing furniture. The secondary sector is also known as the manufacturing sector.

The tertiary sector involves businesses providing services to consumers or other businesses. This could be a barber cutting hair, a shop selling clothes or a bank providing loans to small businesses.

Oil extraction is in the primary sector

Reasons for the changing importance of business classification

As countries' economies grow, the primary sector gets smaller and the secondary and tertiary sectors grow.

Between 1978 and 2017 China’s tertiary sector doubled as a percentage of Gross Domestic Product (GDP) from 25% to 50%.

The exceptions to this general rule are countries with large reserves of natural resources. Countries in the Middle East continue to have a high proportion of their GDP from the primary sector as oil and gas generates large revenues for their economies.

1.2.2 Classify business enterprises between private sector and public sector in the mixed economy

The public sector is the part of the economy owned and controlled by the government. Business activity in the public sector varies  from country to country. Often health care, postal services and the electricity network are owned and controlled by the government.

The private sector is a part of the economy owned and controlled by private individuals. Any privately owned business is in the private sector. It’s the kind of business organisation people come into contact with most day to day. McDonalds, Apple and small businesses like your local corner store, are all in the private sector.

The mixed economy describes a country with economic activity in both the public sector and private sectors. In reality, nearly all countries have a mixed economy. The variation lies in the balance between the public and private sectors in the overall economy. India has a very small public sector lower than 10% of the total economy. However, in China, estimates put government-owned activity at around 50% of the whole economy.

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Check out Unit 1 Business Activity, Topic Guides, Questions and Solutions