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Classification_of_Business_Sectors

The document categorizes businesses into three main economic sectors: primary (extraction of raw materials), secondary (manufacturing and processing), and tertiary (service provision). It discusses the chain of production from raw material extraction to consumer sale, highlighting the shift from primary to secondary and tertiary sectors as economies develop. Additionally, it notes that while this classification aids understanding, many businesses operate across multiple sectors.

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8 views

Classification_of_Business_Sectors

The document categorizes businesses into three main economic sectors: primary (extraction of raw materials), secondary (manufacturing and processing), and tertiary (service provision). It discusses the chain of production from raw material extraction to consumer sale, highlighting the shift from primary to secondary and tertiary sectors as economies develop. Additionally, it notes that while this classification aids understanding, many businesses operate across multiple sectors.

Uploaded by

rishabhshah1108
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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Classification Using the Economic Sectors & The Chain of Production

1. Introduction
Businesses can be categorized into different sectors of the economy based on the type of
activity they perform. This classification helps in understanding the production process and
making comparisons between firms. However, it is a simplified model that does not fully
capture the complexity of modern businesses—many companies operate across multiple
sectors.

2. The Three Main Business Sectors

2.1 Primary Sector


• Definition: Involves the extraction of raw materials from natural resources (land, sea, or
air).

• Examples:

 - Farming (growing crops, harvesting plant extracts)


 - Mining (extracting minerals like silica, copper, and aluminum)
 - Fishing
 - Forestry
 - Oil drilling

2.2 Secondary Sector


• Definition: Involves processing and manufacturing raw materials into finished or semi-
finished goods.

• Examples:

 - Cosmetics: Refining oils and creating perfumes


 - Computers: Manufacturing components (CPUs, hard drives) and assembling them
 - Car manufacturing
 - Construction
 - Textile production

2.3 Tertiary Sector


• Definition: Involves providing services to consumers and businesses.

• Examples:

 - Retail (selling cosmetics in department stores or computers online/in stores)


 - Beauty salons (using cosmetic products)
 - Financial services (banks providing loans for computer purchases)
 - Hospitality, healthcare, education
3. The Chain of Production
The chain of production describes the stages a product goes through from the extraction of
raw materials to the final consumer sale.

• Primary Stage: Extraction of raw materials

 - Example (Cosmetics): Farming or harvesting plant extracts


 - Example (Computers): Mining minerals (silica, copper, aluminum)

• Secondary Stage: Manufacturing and processing

 - Example (Cosmetics): Converting extracts into perfumes or oils, then packaging


 - Example (Computers): Creating electronic components (CPUs, memory chips) and
assembling machines

• Tertiary Stage: Distribution and service

 - Example (Cosmetics): Selling finished products in stores or using them in salons


 - Example (Computers): Retailing computers online or in shops, providing after-sales
support

4. Changes in Sector Importance

4.1 Sectoral Change


As economies develop, many businesses shift their focus from primary to secondary or
tertiary activities. This shift is often driven by the potential for higher profits and added
value in secondary and tertiary sectors compared to primary production.

4.2 Less-Developed Economies


• Tend to rely heavily on the primary sector, especially agriculture.

• Examples: Ethiopia, Laos, Afghanistan

• Reasons:

 - Limited infrastructure for manufacturing (secondary sector)


 - Fewer education and training opportunities to support a robust service sector
(tertiary)

4.3 Developed Economies


• Exhibit a higher proportion of secondary and tertiary activities.

• Reasons:

 - Advanced technology for manufacturing


 - Greater demand for services (banking, healthcare, education, tourism)
 - Increased consumer spending power
5. Conclusion
Classifying businesses by economic sector provides a framework for understanding how
goods and services move from raw materials to finished products. Over time, economies
tend to evolve from a focus on primary industries to more profitable and value-added
activities in the secondary and tertiary sectors. While this three-sector model is useful for
broad comparisons, it should be recognized that many businesses span multiple sectors or
operate in ways that do not fit neatly into a single category.

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