Industrial Data and the Industry Classification System

Industry

Industrial Data and the Industry Classification System

In microeconomics, an industry consists of a series of linked industries that produce a closely related collection of goods, services, or raw materials. For instance, one could term the furniture industry or the chemical industry as micro industries. It should be noted that there is often overlap between micro industries and macro industries. For instance, the automobile manufacturing industry may also be a micro-industry because many of the tasks associated with making cars can be done by other businesses such as car dealerships.

One problem with the traditional industry classification system is that it focuses on a relatively narrow scope of industries. Many of the micro industries are not included in this narrowed scope because they do not engage in the production of consumer goods or raw materials. These types of industries would be considered as services, rather than industries. As a result, the classification of these industries remains problematic.

The problem faced by most modern researchers and economists is that they attempt to classify business activity based on inputs and costs that may be allocated across various industries. However, most international economic activity does not take the form of consumer goods or raw materials, but includes intangible assets such as capital and plant, goodwill, and the intangible assets of the business enterprise. Thus, the classification of industries into economic units is not based on the extent of production of output, but on the extent of inputs and costs that are associated with production of consumer and capital goods and services. These decisions are made as part of the process of determining the allocations of profits and losses between the different firms involved in the production of the economic activity.