Author: Jim Riley Last updated: Sunday 23 September, 2012
External Environment: Economic sectors
Business activity is the process of transforming inputs into outputs by adding value. There are three main sectors of business activity:
Primary sector Involves the extraction and production of raw materials, such as coal, wood and steel. A coal miner and a fisherman would be workers in the primary sector.
Secondary sector Involves the transformation of raw materials into goods e.g. manufacturing steel into cars. A builder and a dressmaker would be workers in the secondary sector.
Tertiary sector Involves the provision of services to consumers and businesses, such as cinema and banking. A shopkeeper and an accountant would be workers in the tertiary sector.
Goods move through a “chain of production”. The chain of production follows the construction of a good from its extraction as a raw material through to its final sale to the consumer. So a piece of wood is cut from a felled tree (primary sector), made into a table by a carpenter (secondary) and finally sold in a shop (tertiary).
Some businesses have elements of all sectors in their chain of production. Others businesses choose to specialise. Specialisation occurs when a producer concentrates on making a small number of products, or on providing a narrowly defined service.
Examples of specialisation:
Baker only baking bread
Machinery that only cuts sheet metal
Lawyer dealing only with criminal law
Advantages of specialisation
Producer becomes more efficient because they learn the best way (all the short cuts) to produce at the lowest cost
A producer may be able to charge a higher price from a customer – the customer is prepared to pay more for expert/specialist knowledge (e.g. a cosmetic surgeon)
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