Stages of Economic Activities

In every business there are three main stages of economic activity:

  • Stage 1) The primary sector: This sector includes the earth’s natural resources to produce raw materials used by businesses. This involves farming, fishing, and extraction of natural materials such as oil.
  • Stage 2) The secondary sector: This sector includes taking materials and resources produced by the primary sector and converting them into processed goods. This involves computer assembly, aircraft and car manufacturing as well as building and construction.
  • Stage 3) The tertiary sector: This sector includes providing services to both consumers and other businesses. This involves transport, banking, hotels and hairdressing.

2.2 – The relative importance of economic sectors

Usually, the three sectors of economy are compared by two things:

  1. Percentage of the country’s total number of workers employed in each sector


  • Value of output of goods and services and the proportion this is of total national output.

In some countries, primary industries are more beneficial in developing countries – where manufacturing industry has recently been established. Most people still do live in rural areas with low incomes, where there is high demand for transport, hotels and insurance. The levels of both employment and output in the primary sector in these countries are likely to be higher than in the other two sectors.

In countries where manufacture industries have been introduced years ago, the secondary and tertiary sectors are likely to employ many more workers than the primary sector.

In economically developed countries, it is now common to find that many manufactured goods are brought in from other countries. Most of the workers will be employed in the service sector. The output of tertiary sector is often higher than both sectors combined, such countries are often called as the most developed countries.

2.3 – changes in sector importance

The decline in the manufacturing or secondary sector of industry is called de – industrialization.

 An example:

In China and India, the relative importance of the secondary sector has increased since the 1980s, compared to the primary sector. However, in both countries, many of the tertiary sector industries are now expanding more rapidly than primary and secondary sectors.

There are several reasons for changes in the relative importance of the three sectors over time:

  • Sources of some primary products, such as timber, oil and gas, become depleted.
  • Mostly developed economies are losing competitiveness in manufacturing to newly industrialized countries such as Brazil, India and China.
  • As a country’s total wealth increases and living standards rise, consumers tend to spend a higher proportion of their incomes on services such as travel and restaurants than manufactured products produced from primary products.

2.4 and 2.5 – mixed economy:

Nearly every country in the world has a mixed economy with a private sector and a public sector:

  • Private sector: business that isn’t owned by government. These businesses make their own decisions about what to produce, how it should be produced and what price should be changed for it.
  • Public sector: government (or state) owned and controlled businesses and organizations. The government, or other public sector authority, makes decisions about what to produce and how to charge customers.

2.6 – Mixed economies – recent changes:

In recent years, many governments have changed the balance between the private sector and the public sector in their economies. They have done this by selling some public sector businesses – owned and controlled by government – to private sector businesses. This is called privatisation.

It is most often claimed that private sector businesses are more efficient than public sector businesses. This might be because the main objective of private sector businesses is for profit and therefore are more controlled with costs. Also, private sector owners might invest more capital in the business than the government can afford. Competition between private sector businesses can help to improve product quality. However, a business in the private sector might make more workers unemployed than a public sector business in order to cut costs. A private sector business is also less likely to focus on social objectives

  • Capital: is the money invested into the business by owners.


  • The advantages and disadvantages of private sector are useful to remember.
  • Do not confuse ‘privatisation’ with ‘converting a sole trader into a private limited company.’

In conclusion:

There are three stages of economic activity:

  1. Primary sector
  2. Secondary sector
  3. Tertiary sector

These three stages are by activity which then leads to by ownership.

By ownership – mixed economy:

  1. Private sector – owned by private individuals
  2. Public sector – owned by government or state agencies