Economic Activity – Definition, Stages, and Types

Economic Activity – Definition, Stages, and Types

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Rashmi
Rashmi Karan
Manager - Content
Updated on Nov 6, 2023 15:30 IST

Economic activity refers to the range of actions and transactions within an economy involving the production, distribution, and consumption of goods and services. It encompasses all the economic interactions and behaviours that contribute to the overall well-being and prosperity of a society. Learn the concept of economic activity, stages, types, and examples and understand the production of wealth through economic activity.

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Economic activity is any activity through which a good or service is produced, intermediated, and sold to satisfy a need or desire of the consumers, regardless of whether it is producing, brokering, or selling any good or service. Production, consumption, and capital formation are the primary economic activities of an economy. 

An example of economic activity would be renting a flat we own to a tenant. The persons or entities participating in the economic activity are called economic agents.

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Stages of Economic Activities

Below are the main stages of economic activity –

  1. Obtaining the raw material: Raw materials are obtained through agriculture (food, cotton, hemp, linen, etc.), livestock (wool, leather, etc.), or industry (synthetic products: nylon, polyamide, polycarbonate, etc.).
  2. Transport: Transfer of the material to the place, usually factories, to manufacture the product.
  3. Preparation: Manufacturing and processing the product in the factory using specific machinery that requires an energy source (hydraulic, electric, etc.).
  4. Transport: Once the product is manufactured, it is taken to the distribution centers.
  5. Sale of the product.

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Types of Economic Activities

We can categorize economic activities into 5 segments as follows –

Primary Activities

Primary activities include the productive activities of extracting and obtaining raw materials. Industry classification (examples) of primary activities include –

  • Temporary crops
  • Permanent crops
  • Plant propagation (nurseries)
  • Livestock (cattle and pigs, sheep, poultry, etc.)
  • Forestry and other forestry activities
  • Woodwork
  • Fishing and aquaculture
  • Extraction from mines and quarries
  • Mineral extraction

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Secondary Activities

The secondary activities include transforming raw materials extracted or produced by the primary sector into consumer products or capital goods. While the primary sector is limited to directly obtaining “nature’s resources,” the secondary sector executes industrial procedures to transform said resources. Industrial Classification (examples) of secondary activities:

  • Manufacture of food products
  • Manufacture of beverages
  • Manufacture of tobacco products
  • Manufacture of textile products
  • Wood processing
  • Manufacture of paper and related products
  • Printing activities
  • Manufacture of chemical products
  • Pharmaceutical manufacturing
  • Manufacture of rubber products
  • Manufacture of metallurgical products
  • Weapons manufacturing
  • Manufacture of computer, electronic and optical products
  • Manufacture of motor vehicles
  • Furniture manufacturing
  • Supply of electricity, gas, steam, and air conditioning
  • Collection, treatment, and distribution of water
  • Construction activities

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Tertiary Activities

Tertiary activities are services that are not producers or processors of material goods but generate services to meet the needs of consumers.  Industrial Classification (examples) of tertiary activities:

  • Retail and wholesale trade
  • Transport and storage
  • Air Transport
  • Accommodation and food services
  • Information and communications
  • Financial and insurance activities
  • Real estate activities
  • Professional, scientific and technical activities
  • Administrative and support service activities
  • Public administration and defense
  • Education
  • Human health care and social assistance activities
  • Artistic, entertainment, and recreation activities

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Quaternary Economic Activities

In this sector, activities that are very productive in generating knowledge and new technologies stand out, such as consultancies, financial planning, design in general, information technologies, research and development (R&D), and information generation.

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Quinary Economic Activities

Like the quaternary, the quinary sector is another subdivision of the tertiary sector and forms a branch of the economy focused on creating, rearranging, and interpreting ideas and projects. It includes the work of government officials, directors of large companies, scientific leaders, legislators, etc.

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Production of Wealth through Economic Activity

Economic activities create wealth. The combination of labor, capital, and technology produces value, for example extracting a natural resource and turning it into a consumer good or using personal skills to entertain.

Any form of productive activity generates wealth. However, its magnitude depends on multiple factors specific to each task, for example, competition in the market, production costs,  existing technology, and government limitations, among others. Such factors make some economic activities more profitable than others.

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In general, the profitability of the activity depends on its type. Tertiary activities or the service sector have the highest profitability, followed by secondary or industrial and primary or extractive activities. However, the primary activities may be the most profitable due to different factors. One great example is the oil revolution in the middle east, which changed the face of the Middle Eastern countries, and their economies witnessed sharp growth.

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How are the Economic Activities of a Country Measured?

The economic activities of a country are measured through nominal or real Gross Domestic Product (GDP) indicators. GDP is the sum of the value at market prices of all the goods and services that an economy produces in its different economic activities in a certain period and within its geographical borders. 

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A country’s economic activity mainly depends on technology, infrastructure, physical capital, natural resources, law, and workforce. To a large extent, the dominant economic activity depends on the degree of development of a country, so developed countries focus primarily on tertiary activities. In contrast, developing countries are more dedicated to primary or extractive activities. 

Tertiary or service activities are the most common in the world, representing more than half of the world’s GDP.

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We hope this article helped you to understand the concept of economic activity. All the sectors of the economy are crucial and interdependent. Every individual directly or indirectly contributes towards the nation’s growth. You can check out finance-related articles to build your financial understanding.

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Rashmi Karan
Manager - Content

Rashmi is a postgraduate in Biotechnology with a flair for research-oriented work and has an experience of over 13 years in content creation and social media handling. She has a diversified writing portfolio and aim... Read Full Bio