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Service sector

The service sector is one of the three main industrial categories of a developed economy, the others being manufacturing and agriculture. The service sector consists of the "soft" parts of the economy such as insurance, tourism, banking, retail and education.

The term service economy, in contrast, refers to a model wherein as much economic activity as possible is treated as a service. For example IBM treats it's business as a service business. Although it still manufactures computers, it sees the physical goods as a small part of the "business solutions" industry. They have found that the price elasticity of demand for "business solutions" is much less elastic than for hardware. There has been a corresponding shift to a subscription pricing model. Rather than receiving a single payment for a piece of manufactured equipment,many manufacturers are now receiving a steady stream of revenue for ongoing contracts.

Economies tend to follow a developmental progression that takes them from a heavy reliance on agriculture, toward the development of industry (e.g. automobiles, textiles, shipbuilding, steel, mining) and finally toward a more service based structure. Whereas the first economy to follow this path in the modern world was the United Kingdom, the speed at which other economies have later made the transition to service-based, sometimes called post-industrial, has accelerated over time.

Manufacturing tends to be more open to international trade than services. As a result, there has been a tendency for the first economies to industrialize to come under competitive attack by those seeking to industrialize later, e.g. because production, especially labour, costs are lower in those industrializing later. The resultant shrinkage of manufacturing in the leading economies might explain their growing reliance on the service sector.

See also