Business Classification, Levels of Production, and Sectors of the Economy

  • There are 3 levels of economic activity, also called stages of production:
  1. Primary (Stage 1) Level of Production – This involves working with natural resources, and it involves activities such as farming, mining, fishing, agro-forestry, and animal husbandry. Basically, it involves producing the raw materials for the stage 2 level of production. These raw materials are produced from natural resources. It is also called the primary sector of the economy or industry.
  2. Secondary (Stage 2) Level of Production – This involves converting the raw materials from the primary sector into processed goods. Its primary activities include manufacturing, construction, and food processing. It is also called the secondary sector of the economy or industry.
  3. Tertiary (Stage 3) Level of Production – This is the service sector of the economy that provides services to both businesses and consumers. Its principal activities include retail or wholesale trade, insurance, banking, tourism, and transport. As expected, it is also called the tertiary sector of the economy or industry. There are also two unique levels of economic activity that fall under this sector, and they are the:
  1. Knowledge Economy – This is the intellectual activities associated with technological innovation, education, scientific research, and cultural progress. Basically, it involves all intellectual activities that are associated with knowledge production. It is sometimes considered the quaternary sector.
  2. Quinary Sector – This is the sector involved in ultimate decision-making that decides which economic activities are to be pursued, and how they are to be pursued, as well as how their output or progress are to be appraised or monitored. Key actors in this sector are the top executives in businesses, companies, and state corporations; as well as top officials in governments and universities. It is sometimes considered a sub-entity of the quaternary sector.
  • The 3 sectors of the economy make up the national economy of a nation. The relative importance of each sector to the national economy is determined by its:
  1. Proportion of its output to the total national output.
  2. Percentage of the labor force employed in the sector.
  • In developing nations, the primary sector employs most of the workforce – usually in agriculture and mining – and contributes the largest percentage of revenues to the national economy, usually larger than the secondary and tertiary sectors combined. On the other hand, in developed nations, the secondary and tertiary sectors of the economy form the largest share of the economy. In nations considered the most developed nations, the tertiary sector contributes the largest percentage of revenues to the national economy, usually larger than the primary and secondary sectors combined.
  • During the transition from a developed nation into a most developed nation, de-industrialization occurs. Deindustrialization describes the phenomenon of the decline of the output of the manufacturing sector, which results in a decline in the relative importance of the secondary sector to the national economy. In a nation that is transitioning into a most developed nation, deindustrialization occurs as the service sector gains prominence. Sometimes, deindustrialization occurs as a nation experiences economic decline which results in the primary sector dominating the national economy.
  • In a country, there are 2 sectors of the economy. These 2 sectors are based on ownership, and they are:
  1. Public Sector – This is made up of businesses that are owned or controlled by the government e.g parastatals and state corporations. Decisions are made by the government or state bodies, which also set the prices of the goods and services. The main businesses that are included in the public sector are utility companies that supply water and electricity to residents, public transport, defense, education, and healthcare services.
  2. Private Sector – This is made up of businesses and enterprises not owned nor controlled by the government. In this sector, business owners and executives make decisions regarding how to increase their output, how to do it, what products to prioritize, and most importantly, how their products are to be priced. Sometimes, product pricing is subjected to government regulations.
  • In a mixed economy, the public and private sectors co-exist together. At times, the government sells a public sector business to a private sector business, and this is called privatization. Privatization usually increases product quality and improves service delivery, but at the cost of laying off workers as part of cost-cutting measures, along with non-prioritization of social objectives.
  • The money invested in any business is called capital. Privatization allows private businesses to invest capital in privatized businesses. A privatized business is a public business that has been bought by a private business.
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