Definition of an Industry in Economics

In economics, an industry is a group of related firms selling similar products and services. For example, companies selling dairy products belong to one industry known as a dairy industry. Firms such as Apple, Microsoft, Samsung, Google, Facebook, and IBM form the technology industry because they produce IT-related goods. Companies that deal with the sale of household and consumer goods such as fruits, vegetables, cereals, detergents, clothes, electronics, and furniture belong to the retail industry.

Each firm makes its own decisions on what to produce, how to produce it, and how much to charge for it; but those decisions are affected by what other firms in the industry are doing. For instance, one firm has no option but to lower product prices when all other firms in the industry are also lowering their prices; otherwise it will lose customers to its competitors.

Types of Industries

Industries are groups of firms that engage in the production, processing, extraction, and conversion of inputs into finished goods. Industry in economics does not mean a factory where goods are produced; it is a group of related firms that are engaged in similar productive processes. There are four major types of industries:

  • Generic Industry: this type of industry involves activities in reproducing and multiplying certain species of plants and animals for the sake of earning profit from their sale. Fish culture, cattle breeding, goatery and piggery are included in genetic industries.
  • Extractive Industry: The industries engaged with the discovery or extracting natural resources like minerals soil, water and forests are called extractive industries. Mining, agriculture and fishing are best examples of extractive industries.
  • Manufacturing Industries: these are types of industries that are involved in the conversion of raw materials into outputs. They include textile, sugar, steel, and leather industries.
  • Construction Industry: The construction industry includes a group of firms involved in the development of infrastructure such as roads, buildings, dams, bridges, and canals.

Key Differences between an Industry and a Firm

From the above descriptions, definition and explanation of the features of a firm and industry, there are several differences between a firm and industry that may be identified. The following are the major differences between firm and industry:

  • Industry is a group of related firms within an economy, while a firm is a business unit operating within an industry. This means that an industry is larger than a firm; an industry is an umbrella term, under which many firms operates independently.
  • There are many firms within an industry. One industry is comprised of many firms making independent decisions regarding the production of goods and services. There is no single firm that controls the industry; but an industry can have regulations that limit the actions of each firm and promote fair competition within the industry.
  • A firm is a type of business while an industry is a subsector of an economy. Each firm carries out a business activity to generate revenues and make profits, while an industry is just but a sector within an economy and cannot engage in decisions related to production.
  • Rules and regulations are made for an industry, and that typically apply to all firms inside the industry. This means that regulations within a firm apply to the firm alone; while regulations within an industry apply to all firms within the industry.

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