Levels Economic Activity Essay
Levels of Economic Activities There are 3 stages of production Primary Sector is the one in industry which extracts and uses the natural resources of the Heart Secondary Sector is the one in industry which manufactures goods using the raw materials provided by the primary sector Tertiary Sector is the one in industry which provides services to consumers and the other sectors of industry. The 3 sectors can be compared by the number of workers employed or by the value of output of goods and services.
The more developed a country the more significant the tertiary sector is. Public and Private Sectors of Industry There are 3 main economic system: laissez fairer or free market, command or planned economy, and mixed economy Laissez fairer or free market has no government control over factors of production. Businesses only provide goods and services if they make a profit as they’re all private. Prices depend on the demand of the goods.
Advantages: Consumers are free to choose what they want to buy Workers are encouraged to work hardly as they can keep most or all of their incomes because of low or non-existent taxes Businesses compete with each other and this old help low prices
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Only those who can afford to buy these important services will benefit from them There’s no government planning or control over the economy so there could be many uncontrolled economic booms and recessions. Businesses might be encouraged to create monopolies (a business which controls all of the market for a product) in order to increase prices. Consumers would have a limited choice Command or planned economy doesn’t have a private sector as all resources are owned by the state. The government decides what is being made and who by.
Advantages: Government controls should eliminate any waste resulting from competition between firms There should be work for everybody The needs of the production are met, but there’s little production of luxury goods for the wealthy Disadvantages: There is less incentive to work as the government fixes wages and private property isn’t allowed The government may not produce goods which people want to buy The lack of profit motive for firms leads to low efficiency Mixed Economy has both private and public sectors.
Businesses in private sector will make their own decisions; their aim is to be profitable. However the government has some control over these. The businesses in the public sector don’t aim for profit but for service to the community. The decisions are all taken by the government and are given to the consumer without the need to have to pay anything, the money comes form taxpayers. In many countries the government controls: health, education, defense, public transport, water supply and electricity supply.
Appropriations Appropriations is the governments selling off businesses they previously owned to new Levels Economic Activity By bay New owners have a profit aim which encourages the business to be run with more efficiency Competition is encouraged, this provides more efficiency and helps to keep prices low Governments are often short of money and now owners may have additional capital to invest in improving the business Decisions will be made for business efficiency not for government popularity The sale of the business raises money for the owners Arguments against:
If the business doesn’t make any profit it will close down Workers’ Jobs could be lost as the new owners want to increase efficiency to raise profits The business might be sold to an owner who’ll be able to run it as part of a monopoly. This could lead to higher prices to the customers Few people will benefit from owning the business, and before the whole country could benefit from any profits made as it was owned by the government Business Size There are four main ways in which you can compare two companies: Number of employees is a method which is easy to understand but can be misleading.
As some firms are capital intensive, these use a lot of capital to have high levels of outputs and employ very little workers. Value of output and scales is often used to compare firms in a same business; this shows which is the most important in industry. However sales are not profit, and these don’t mean that the business is large if we use other methods of measurement. Profit is a very poor method to measure business size because profit made depends on the efficiency of the managers and the skill of the workers. Some very large businesses don’t make much profit. Capital employed is the amount of money that is invested in the company.
However some companies are labor intensive as they employ thousands of workers. There is no perfect way to measure business size; several methods are often used to measure the size of a business. Forms of Business Growth Growth is an important aim for many businesses because: There is the possibility of higher profits for the owners More status and prestige for the owners and managers – Higher salaries are paid to managers who control the bigger firms Lower average costs Growth of a business often means that it controls a large share of its market – the proportion of the total market sales it makes is greater.
This gives a business more influence when dealing with supplies and distributors and consumers are often attracted to the “big names” in an industry. Firms can grow internally by expanding existing operations; or externally by taking over or merging with another business. Both mergers and take oversees are known as integration. Merger is when the owners of two businesses agree to Join their firms together to make one Take over is when one cuisines buys out the owners from another business which then becomes pare it.
There are 3 main types of integration: Horizontal, this is when 2 companies in the same industry at the same stage of production Join together Vertical, this is when 2 companies in the same industry but at different stages of production Join together. Vertical integration can be forward, that is towards the customer; r backwards, that is away from the customer and towards the raw materials. Conglomerate, this is when 2 companies in totally horizontal integration: Reduces competition
Possible economies of scale Increases market share Benefits of forward vertical integration: Assured outlet for your goods Any profit from the outlet is absorbed You can reduce the outlets of your competitors Manufacturer receives direct information from the customer Benefits of backward vertical integration: Always have supply Cut off supplies to competitors Absorbs profit Benefits of conglomerate integration: Allows the company to spread risk Ideas can be shared between industries Why Stay Small? Not all businesses have growth as an aim. This is because: 1 .
Type of industry; some business offer a personal service, which their customer like 2. Market size; if your business is located far away from any large population it’ll be very hard for you to expand. Or if you sell very expensive products, you’ll limit the size of your market because most people can’t afford what you’re selling 3. Owners objectives; some people who run businesses simply have to desire for the business to expand. They may prefer to have more time with their family, or they may like the fact they know all of their staff very well or finally, maybe they Jus don’t want to work too hard and pay lots of tax.