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Read Ch 2. Types of BusinessActivity
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Grade 9,Ch 2. Levels of Economic Activity
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Tasks:Activity 2.1.Submitt Monday August 4 2008
Business Primary Secondary Tertiary
InsuranceForestry
Coal Mining
Computer
Assembly
Travel Agent
Brewery
Car
Showroom
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Levels of Economic Activity, Examples
Stage Business Involved
Primary Woodcutter
Secondary Furniture Makers
Tertiary Retailer
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The Stage of Production:
1. Primary stage,
Extracts and uses the natural resources ofthe earth,
Such as farming, fishing, forestry.
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The Stage of Production (continued):
2. Secondary stage,
Manufactures goods using the raw materialsprovided by the
primary sector,
Such as building, aircraft making, computer
assembly.
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The Stage of Production (continued):
3. Tertiary stage,
Provides services to consumers and theother sectors of
industry,
Such as transport, banking, insurance.
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Notes:
Developing country:
- Country, primary industries employ manymore people than
manufacturing or services
industries.
Most developed country:
- Country where the output of tertiary sector is often
higher than the primary sector and secondary
sector.
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Public and Private Sectors of Industry
3 different types of economic system which
are used by countries to manage theirresources as efficiently as
possible:
1. Free market economy.
2. Command or planned economy.
3. Mixed economy.
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Public and Private Sectors of Industry(continued)
Free market economy:
- All resources are owned privately.- There is no government
control.
- Profit.
- Prices of goods are influenced by demandand supply of
goods.
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Public and Private Sectors of Industry(continued)
Free market economy:
- Advantages:* Consumers are free to choose.
* Workers are encouraged to work hard.
* Business compete.
* New businesses are encouraged.
- Disadvantages:
* No government control.
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Public and Private Sectors of Industry(continued)
Command or planned economy:
- Government controls the use of resources.
- Advantages:
* There should be work for everybody.
- Disadvantages:* Less incentive to work.
* The government may not produce goods which
people want to buy.
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Public and Private Sectors of Industry(continued)
Mixed economy:
- Combines free market economy andcommand economy.
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Privatisation
Privatisation:
Governments sold off businesses theypreviously owned to new
owners in the
private sector.
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Privatisation (continued)
Arguments in favour of privatisation:
- Profit, run the business efficiently.- Keep the price low.
- Additional capital.
- Raises money for the government.
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Privatisation (continued)
Arguments against of privatisation:
- Some services making losses money maybe closed.
- Workers job could be lost.
- The prices could be higher.- Only few people will benefit.
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Comparing the Size of Businesses
Business size can be measured in a number
of ways, such as:1. By number of employee.
2. By value of output and sales.
3. By profit.
4. By capital employed.
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Comparing the Size of Businesses
Comparing business size by number of employees:
- Easy to understand.
Comparing business size by value of output andsales:
- Comparing business in the same industry.
- A high sales level does not mean that a business is
large.
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How Can Businesses Grow?
Advantages of businesses grow?
- Higher profits.- More status and prestige for the owners
and
managers.
- Lower average costs (economies of scale).
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Business can expand in 2 main ways:
1. Internal growth,
Owner could open another the samebusiness in other area.
2. External growth,
Involving take over or merger with
another business.
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External growth
Three examples of mergers:
1. Horizontal merger (horizontal integration),
- one firm merges with or take over another one in the
same industry at the same stage of production.
2. Vertical merger (vertical integration),
- one firm merges with or take over another one in the
same industry at a different stage of production.
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External growth
Three examples of mergers:
3. Conglomerate merger (conglomerateintegration,
diversification),
- one firm merges with or takes over firm in
completely different industry.
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Integration:
1. Horizontal integration,
- benefits: * reduces number of competitors* opportunities for
economies of
scale.
* will have a bigger share of totalmarket.
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Integration:
2. Forward vertical integration,
Example: A car manufacturer takes over a carretailing
business.
- benefits: * an assured outlet for the product.
* prevented from selling competing.* consumer needs and
preferences can
now be obtained by the manufacturer.
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Integration:
3. Backward vertical integration,
Example: A car manufacturer takes over a firm supplying car
body
panels.
- benefits: * An assured supply of important components.
* The profit margin of the supplier is absorbed by the
expanded business.
* The supplier could be prevented from supplying
other manufacturers.
* Cost of components and supplies for the manufacturer
could be controlled.
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Integration:
3. Conglomerate integration,
- The business has activities more thanone industry.
- Business has diversified its activities.
- Spread the risks taken by the business.
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Why Do Some Businesses Stay Small?
Not all businesses grow.
Some stay small (employ few people; userelatively little
capital).
Several reasons:
1. The type of industry the business operatesin.
Example: hairdressing; car repairs.
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Homework:
1. Identify the form of business growth which is
used in each of these situations.
a. A garage agrees to merge with another
garage.
b. A bicycle retailer expands by buying a
shop in another town.
c. A fruit juice firm buys a fruit farm.d. A business making
electrical goods agrees to
join with a business with retail shops specialising
in electrical goods.
