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The Role of Business in Society and the Economy

May 7, 2024

The Role of Business in Society and the Economy

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Business  plays a vital role in our lives. First, they create goods and services to satisfy our needs and wants. Then, they also recruit households as labor and provide them with compensation, such as wages, salaries, and benefits. Thus, it becomes a source of their income, which can be used to sustain their life.

Where does the business come into play and operate? Business is everywhere. They can operate in the  primary sector  to extract natural resources such as mining. Or they harvest various agricultural commodities. They usually produce raw materials, which are inputs for other businesses in the  secondary sector .

Others operate in the secondary sector. They process raw materials into intermediate products or final products. Intermediate products are sold to other businesses to be further processed into final products and then sold to consumers. Meanwhile, the final products are for final consumption without going through further processing to obtain their benefits.

Then, some businesses operate in the  tertiary sector . They offer services. Their activities range from providing trading services (retail and wholesale), tourism services to financial services such as banking and insurance. Apart from providing services to businesses in the primary and secondary sectors, they also provide them to households.

How does business play a role?

Businesses buy inputs such as raw materials from suppliers. They then process it into output, which they can sell at a higher price than the dollars they pay suppliers. This process we call value-adding wherein, they convert lower-priced inputs into higher-priced outputs.

The output then we use to fulfill our needs and wants. What are needs and wants?

  • Needs  are something we need because they are essential for our survival. Without fulfilling it, it could pose significant risks such as death. An example is our need for food, drink, clothing, and shelter.
  • Wants  are something we need but are less essential for our survival. For example, we want a vacation and a smartphone, although, without both, we’d be fine too. Likewise, standard clothing is a necessity, but we may want luxury clothes if we have enough money.

What output does the business produce?

Business output falls into two main categories: goods and services. We call them both products.

  • Goods  represent tangible products. We can see or touch them. We can also save them for later use. Examples are clothes, food, smartphone cars.
  • Services  are intangible products. We can only feel their benefits without being able to see or touch them. Banking services, hotels, consultants, barbershops are examples. We can interact with the people who gave them but can’t see what they gave us like when we receive the goods from the seller.

What inputs are used?

In a broad definition, inputs include not only raw materials. For a business to operate , it requires the following four resources – we refer to as factors of production:

  • Land – such as land for factory and office locations and natural resources for raw materials.
  • Labor – includes the physical and mental effort of a worker.
  • Capital – includes man-made to assist production such as machinery and equipment.
  • Entrepreneurship – our attempt, by taking risks, to establish a business by bringing together and organizing land, labor, and capital.

What are the role of business in society and the economy?

As with the opening sentence, the role of business is vital to our society and economy. Businesses don’t just satisfy our needs and wants through the products they produce. But, they also create jobs and income in the economy.  In addition, competition  between them encourages  innovation  and efficiency, making goods and services cheaper and of higher quality.

Satisfying our needs and wants

Businesses sell goods and services to satisfy our needs and desires for profit. So, without them, we would have to produce everything ourselves, including our food and clothes.

Then, businesses also have to compete with each other. To keep the money flowing, they must deliver higher satisfaction than competitors do. Competition forces them to be more efficient and innovative, leading to lower prices and better quality.

Creating added value

Businesses create wealth in the economy by adding value to the inputs they use. It makes the output more valuable than the input used. Finally,  added value  makes their products more attractive, and customers will usually be willing to pay more.

Value creation or value addition can be done in several ways. For example, businesses transform inputs into more valuable forms, such as converting bauxite into aluminum slabs and processing them into car bodies.

Another example is offering convenience, such as saving customers time as fast food businesses offer. Quality also contributes to added value, such as embedding 4G technology in smartphones instead of 3G.

Creating jobs

Business creates jobs in the economy. Therefore, the more businesses there are, the more manpower is needed. Likewise, as their size grows, they also require more manpower.

When starting a business, employers hire workers to support operations. They work in several functional areas such as accounting and finance, human resources, marketing, and production.

Then, as businesses grow, employers also need more workers. The larger business size makes operations more complex and requires more staff to handle tasks and jobs.

Income creation

Entrepreneurs set up businesses for profit. If the business is successful, their income and wealth increase.

Likewise, by working, individuals earn income. The money they get they can use to fulfill their needs and wants.

Thus, growing business activity creates more income in the economy. More people work for income. Higher incomes drive more demand for goods and services.

Then, with high demand, entrepreneurs see more opportunities to grow their business and introduce new businesses.

Economic development

The business contributes to promoting economic development. In addition, business activity creates a ripple effect, encouraging other businesses to emerge, creating more income and jobs in a region.

Business growth in the region does not only contribute to job creation. But, it will also lead to improvements to infrastructure such as roads and railways in the region. In addition, health facilities, education, shopping centers, and other public and private services are also developing. Eventually, the economy in the region grew.

Living standard improvement

Business activities contribute to improving people’s living standards. It can go through several channels.

First, from the goods and services produced by the business, we can fulfill our needs and wants. Second, from the jobs created, we get income. We can use the money to buy various goods and services to satisfy our needs and wants. We can also invest it to support future needs, for example, during retirement. Then, we can also use it to buy insurance to minimize the losses we may experience.

Third, competition leads to lower prices and higher quality goods and services. Businesses must outperform their competitors in satisfying their customers, forcing them to be more efficient and innovative. It ultimately makes our lives more comfortable and better because we can get lower prices and higher quality products.

For example, we can capture and photograph our best moments with mobile phones without buying a camera. In the past, we couldn’t do it. This is because manufacturers don’t embed high-resolution cameras into phones.

Community empowerment

Some business organizations seek to strike a balance between profit, social and environmental. They do not pursue maximum profit and wealth for the owner. But, they reinvest the profits for social and environmental causes.

For example, microfinance providers raise money through crowdfunding and lend it to small entrepreneurs on flexible terms and low-interest rates. It allows small businesses to thrive, creating more jobs and income for the neighborhood. Then, microfinance providers use the profits to expand the reach of their services to communities elsewhere.

In other cases,  social enterprises  empower a community by training people in entrepreneurial skills. They then help the community market the product and use the sales money to provide more training and build public facilities such as education and health.

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The Business Role in the Economy Essay

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Role of Business in the Society

Roles of for-profit and nonprofit organizations in the economy, impact of current fiscal and monetary policy on the economy, accessing global market through outsourcing at toyota, corporate social responsibility.

The main role of business in the society is to produce both goods and services in order to meet demand created by the public. However, it must do so in such a way that companies also make profits so that they can continue to exist.

Businesses provide goods and services that both the public and governments cannot do without having. In addition to this, businesses also consume both products and services from both the government and the public such as labour. Therefore, it is also the responsibility of any business to give back to society. This way the company will gain acceptability in society.

Business has the moral obligation to the consumers and the public not to produce goods and services that have the potential to cause any harm to people. In addition, it is the responsibility of business not to unreasonably over charge the consumers for its goods and services.

Recently it is has become the responsibility of business to contribute to the wellbeing of the society in which it carries out its business in the sense that a better society means a better environment for doing business.

In fact, a business social dimension is a plus in the conduct of business. It makes the very people who buy services and goods the mere existence of that business. This makes them to want to buy their products, which creates customer loyalty.

Business also has the obligation to trade fairly with other businesses and its suppliers to ensure an optimal business environment and to meet its financial obligations accordingly. It also has the responsibility to obey the laws of the country/state in which it is carrying out its business.

Profit and nonprofit organizations contribute to the growth of an economy. They both offer employment and contribute to the GDP. In 2011, for example, nonprofit organizations contributed about 5 % of the United States’ GDP. These organizations also offer employment to youth and create a sense of purpose in society by championing for certain causes.

For profit organizations, on the other hand, exist purely for profit making purposes. They pay tax and contribute to the economic development by employing individuals who in turn pay tax and use their disposable incomes to spur growth in various sectors of the economy.

Additionally, profit organizations engage in social responsibility work. This ensures that they maintain close contact with the business market and shows a sense of responsibility towards their sources of resources.

The government uses two policies to control money supply in a country. That is, expansionary and contractionary policy with the effect of increasing and reducing money supply respectively. The effect of expansionary policy on the AA-DD model is a shift to the right. This increases the exchange rate of a country’s money with respect to another country. However, this does not happen fast.

It takes on a transitional mode with many factors at play. For example, the real money supply exceeds the real money demand. This, in the short run, means that inflation levels increase quickly.

However, the trend lags as more people convert their money assets into non-money assets to beat or take advantage of the inflation levels. In the long term, the natural effect is that the exchange rate will increase with the amount of cash in the economy.

The US Government employs the contractionary monetary policy when the money supply in an economy reduces. This reduction has the effect of shifting the AA-DD model downwards. When this happens, there is an immediate reduction in Gross National Product of a country. It also leads to a relatively stronger local currency.

Fiscal policy refers to government spending. The government is the biggest consumer and its consumption has many policy effects on the economy. The government uses this power to effect policies in a country through either reduction in spending (contractionary fiscal policy) or increase in spending (expansionary fiscal policy). An increase in government spending causes AA-DD model to shift to the right.

This causes a decrease in the exchange rate. For example, the Canadian dollar would do better than the American dollar in this situation. However, this leads to an increase in the GNP for the country. This is because it may attract more foreign investment as it is favorable to them. There are many causes for an expansionary policy. This includes transfer payments, tax reductions, and government direct spending.

Outsourcing has become a trend in today’s business environment and Toyota is no exception of the firms that are increasingly outsourcing production of goods and services. It is not possible for the firm to produce every component that it requires in the production of its vehicles.

Even if it were possible to produce all these components, it would be more expensive as it may mean having other completely different plans and work set-ups. Additionally outsourcing allows the firm to concentrate on the core business of the firm and hence giving the firm room to be more efficient and effective in doing its core business. It also allows the firm to gain access to higher-level expertise and experience.

This may be unavailable within its staff or which is expensive to employ. Other benefits include legality of the process done on contractual basis, risk avoidance, tax benefit, commoditization, and many more. An example of components that the firm outsources includes wheels and oil.

Toyota, a multi-national company, gets its suppliers all over the word as long as they provide what the company requires and for a reasonable price in accordance with the firm’s intentions. This shows that outsourcing will increase market penetration to countries where Toyota does not operate and further increase its profits.

CSR obligation surpasses what the law requires a firm to do. It is the responsibility an organization takes upon itself to better the social lives of both the workforce and society. Currently, this is a worldwide trend.

This is because of the pressure from society and governments for organizations to feel more responsible for the sources of their resources. The members of society are also more sophisticated than sometime back. The competitive environment is also cutthroat with more companies joining the framework.

Corporate Social Responsibility at Toyota has greatly affected society in different areas of life. Among the greatest beneficiaries is the environment. Toyota has taken up the challenge of conserving the environment, as it is becoming a necessity for the whole of the business fraternity in the world to engage in environmental conservation activities.

Consequently, the world’s society is gaining from Toyota’s efforts, for instance increase in rainfall around the world, reduced global warming etc. The company is producing environmentally friendly cars such as Prius and actively engaging environmental conservation efforts at the corporate level such as planting trees.

  • Chapters 7-9 of "International Trade" by Suranovic
  • Japanese expansionary fiscal policy
  • The Littoral Combat Ship: Strategies for Changing the Vector of Debate
  • Money Mechanics in the U.S.
  • Monetary Policy: Easier does it
  • Milton Friedman’s Life and Contribution to Economics
  • Australian and Hong Kong monetary policy
  • The Law of Demand
  • Chicago (A-D)
  • Chicago (N-B)

IvyPanda. (2019, April 16). The Business Role in the Economy. https://ivypanda.com/essays/business-environment-5/

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The Role of Business in the Economy

The cornerstone and prosperity of any society depends on business. Through business, companies create resources that enable social development and welfare. This part will describe the role of business in the society.

Businesses provide goods and services that our daily lives depend on and also create employment. It is through business that the government is paid taxes from, to make it function. This means that business is a very important part of the economy. Business helps to develop, produce and supply goods and services to people (customers) who need it. This is done with a view of creating profit. Business helps people to fend for themselves by focusing on producing one product or by expertise. Business also helps the society to create jobs for customers, distributors and suppliers. Business helps to develop new goods and services and supply goods and services that customers may not produce.

Other roles that business plays in the economy will be to address the urbanization. Urbanization has been growing rather fast, but only being poorly managed. As such, the role of a business is to provide suitable solutions for emerging problems. All these problems will, thus, be taken by businesses in our society (Kropp, 2010).

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Businesses play a crucial role in the economy by driving innovation, creating jobs, and contributing to overall economic growth. Here are some key aspects of their role:

  • Production of Goods and Services: Businesses produce a wide range of goods and services to meet the needs and wants of consumers. This production is essential for maintaining and improving the standard of living.
  • Job Creation: By establishing and expanding operations, businesses create employment opportunities. This not only provides income for individuals but also stimulates economic activity through increased consumer spending.
  • Innovation and Technology: Businesses invest in research and development to innovate and improve products and services. This technological advancement drives productivity and economic growth.
  • Economic Value and Wealth Creation: Businesses generate economic value by creating wealth for owners, shareholders, and employees. This wealth creation is fundamental to economic development and prosperity.
  • Market Coordination: Businesses facilitate trade and commerce by coordinating markets. They help in the efficient allocation of resources through the price mechanism, ensuring that goods and services are distributed where they are most needed.
  • Social Responsibility: Modern businesses are increasingly expected to address social, economic, and environmental challenges. This includes sustainable practices, ethical operations, and contributing to community development.
  • Partnership with Government: Businesses often collaborate with governments to solve social problems and drive economic policies. This partnership can lead to improved infrastructure, education, and healthcare systems.

Overall, businesses are integral to the functioning and growth of the economy, impacting various aspects of society and contributing to overall well-being.

Roles of For-Profit and Nonprofit Organizations in the Economy

For-profit organizations are those organizations established mainly for profit purposes. These organizations are important in the economy for they involve in research and development. This leads to better and dynamic efficiency. Such organizations like oil exploration are for-profit and without them the economy can stagnate. They also contribute to tax revenues from the government while result in profits getting saved to provide for during unexpected downturns. They also result into awards of shareholders leading to people buying shares (Entrepreneurs and Economic Profit).

Nonprofit organizations are those organizations that in the course of their business can generate income but are restricted on the amount of income that is distributed in comparison to generated. Non-profits organizations are those firms that provide essential goods and services, but not for profit purposes. Thus, they are organizations for mutual benefits or for charities. Organizations like health centres supported by the government are not for-profit as they provide essential services to all people regardless of their status. Nonprofit organizations have a role to play in efficiency to meet client’s needs at the lowest possible price. Through nonprofits organizations, the government can correct failures in the stock market. 

Discussion on the impact of current fiscal and monetary policy on the economy. Every major market trend has some underlying economic factors like declining employment, rising GDP or inflation. Fiscal policy is an economic policy instigated by the congress or the president through taxation and government spending. Increase of taxes means less disposable income for consumers, thus, little money to spend. Turning to the U.S., there has been a slow economic recovery from 2008 and, thus, we have a weak job creation, although expansionary fiscal policy seems to have averted a deeper recession in 2010 (Lipsky, 2010).

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Monetary policy means that the Federal Reserve of the U.S. controls the supply of money within the country’s economy. Thus, by affecting the cost of money, it affects the amount of money spent on businesses by consumers or by businesses. Maintaining a supportive monetary policy should be encouraged to help the slow pace that has been experienced during the recovery (Lipsky, 2010).

Wal-Mart Global Strategy

Wal-Mart is a U.S. leading retail store chain that has a global presence serving more than 200 times a week at more than its 8,000 retail outlets in 15 countries under different banners.  First established in 1962, the retail chain has grown to be one of the biggest employers in the world. The company’s retail stores are operated in diverse designs dividing the business into 3 main segments, namely: Sam’s club, Wal-Mart Stores and International stores.

Wal-Mart was focused on establishing large discount stores within small towns during its early years of operation; this ensures that low prices are guaranteed for each transaction and attract potential customers. Consumers always expect Wal-Mart to sell lower than its competitors and, as always, Wal-Mart delivers, thus, making the business highly recognizable. This interaction between the business and the customers gets established through trust. The potential strategy has seen Wal-Mart grow in its global businesses (Shah and Phipps, 2002).  

Coca Cola CSR

Corporate Social Responsibility (CSR) involves the acts that are undertaken by corporate organizations in addressing a wide array of stakeholder concerns. Thus, the organization expands its business activities to a new and different dimension by involving the society as a whole. CSR, therefore, enhances its value from few community members to the whole world.  

Coca cola believes that it has a duty not only to contribute to the community but to target initiatives that will have a maximum impact on the environment. In Great Britain, Coca Cola has identified to cooperate with the public, NGO and government to seek solution to the environment problems.  The environmental management system called eKOsystem that “conducts its business to protect, preserve and enhance the environment” (1). Coca Cola is committed to take actions that result in minimizing negative environmental impact and it strives for constant improvement that seeks to provide leadership in energy and water efficiency and eliminate solid waste. And that is why Coca Cola has been supporting Tidy Britain group that supports local authorities to keep the environment clean by reducing graffiti, litter and dispose abandoned vehicles (The importance of social responsibility).

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What role do small businesses play in the economy?

Entrepreneurs are starting businesses in record numbers. Is that helpful for the economy?

Published Thu, October 26, 2023 by the USAFacts Team

Entrepreneurship in the US declined in the four decades before the pandemic. Between 1998 and 2014, the share of Gross Domestic Product (GDP) attributed to small businesses fell , while large businesses experienced faster growth.

But since 2020 , there has been an increase in entrepreneurial activity .

According to data from the Small Business Administration (SBA), small businesses create two-thirds of new jobs , increased competition among businesses, and are often the forces behind innovation and positive adjustments in efficiency.

How does the government define entrepreneurship and small businesses?

Depending on the industry, the Small Business Administration (SBA) classifies a small business based on either employee size or annual receipts. For example, a department store that earns up to $40 million in gross receipts annually is considered a small business, as is a winery that employs 1,000 people or fewer.

The government tracks the rate of entrepreneurship by the number of applications people submit to the IRS for employer or tax identification numbers. This can be a signal that an entrepreneur is officially starting a new business. And because new businesses generally start small , tracking these applications indicates how many new small businesses are forming.

How much has entrepreneurship increased?

The US Census Bureau tracks a range of business formation statistics that can be filtered by date and sector or by other factors such as state and county .

At the start of the pandemic, incoming applications for employer or tax identification numbers declined from 2019. Applications for tax IDs rose throughout 2020, ultimately growing by 900,000 applications — from 3.5 million to 4.4 million year over year.

For context, between 2010 and 2019 , the annual average increase in the number of applications was 122,000. The application growth in 2020 was nearly seven times the typical average.

The number of applications has also remained higher since the pandemic. In 2021, they continued to grow, hitting 5.4 million before tapering to about 5.1 million in 2022. Looking at submissions on a monthly basis from 2012 to 2019, there were roughly 200,000 to 300,000 applications submitted each month. At one point in 2020, they shot up over 500,000. Since 2021, monthly applications have remained between 400,000 and 500,000.

Area chart showing the number of monthly high-propensity and other business applications from August 2004 to July 2023.

There is a subcategory of business applications called “high-propensity” applications. This specifically refers to businesses with a high likelihood of having a payroll, meaning the business plans to hire employees and pay wages.

According to data collected by the Census Bureau , high-propensity business applications fell from 112,052 in December 2019 to 76,644 in April 2020, when COVID-19 halted many business operations. High-propensity applications rebounded in July 2020, peaking at 174,685. Applications have decreased since then, hitting 149,785 in August 2023.

Numerous economic forces in 2020 caused businesses to close and prompted others to open, creating noticeable anomalies in the data. But in 2023, both general and high-propensity applications remain higher than pre-COVID levels.

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How do small businesses impact the economy?

Large businesses grew faster and accounted for the majority of GDP between 1998 and 2014, according to a summary of research on small businesses and GDP from the SBA. While small businesses’ share of GDP fell during this time, small businesses still accounted for 43.5% of economic activity in the US in 2014.

“Entrepreneurship plays an important role in allocating resources more efficiently throughout the economy, thereby making it more productive,” according to the Congressional Budget Office . And when new businesses operate more efficiently, they generate competitive pressure on existing businesses to innovate.

Though there are ways to innovate without needing a patent, patent application data is one way the government measures innovation. Overall, about 650,000 patent applications were submitted annually between 2016 and 2020.

An SBA brief on patent applications and business size shows that small businesses applied for 29,583 patents in 2018 and received 12,837. Large businesses have a higher patent approval rate ( three per 1,000 employees ) compared to small businesses (2.7 per 1,000).

But as a business grows, the number of patent applications per employee generally decreases. Businesses with one to four employees applied for about 270 patents per 1,000 employees — almost 25 times the rate of any other business size and more than 50 times the rate of large businesses.

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what is the role of business in the economy essay

What Role Should Business Play in Society?

  • Mariana Mazzucato

what is the role of business in the economy essay

Companies talk the talk of creating stakeholder value, but most don’t walk the talk. In this article, the author outlines two major reasons why — an insular financial sector and stock buybacks — and describes a new model for a truly symbiotic relationship among business, government, and citizens. For this model to succeed, business and government in particular need to address three key questions: What should we create? How should we evaluate social impact? And how should we share?

We must reconsider how value is created in capitalist economies.

The private sector is often considered to be the heart of wealth creation and innovation — the late 1990s and early 2000s success story of Silicon Valley being a prime example. In this model, shareholder value is seen as the ultimate measure of a company’s success. Indeed, the idea that businesses are the most productive actors in the economy has served as a convenient justification for high incomes and great wealth.

From articles on “Successful Wives of Successful Executives” to “Women Rising: The Unseen Barriers.”

  • MM Mariana Mazzucato is a professor in the Economics of Innovation and Public Value at University College London, where she is the founding director of the UCL Institute for Innovation and Public Purpose (IIPP). She is the author of Mission Economy: A Moonshot Guide to Changing Capitalism . MazzucatoM

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The New Role of Business in Society

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what is the role of business in the economy essay

  • Olivier F Williams  

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What is the role of business in society? This essay argues that we are in the midst of a major paradigm shift in our understanding of the purpose of business and that this new understanding holds much promise for business being a significant force for peace in our world. Examples of what companies are doing and why they are doing it will be provided. What we are seeing is the emergence of a view of the firm as a socially responsible political actor in the global economy and as an institution that can generate not only material wealth but also wealth that nourishes the full range of human needs, or what some call spiritual capital (Williams, 2008).

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Litow, S. 2008. “IBM and Corporate Citizenship.” In Oliver F. Williams (ed.), Peace Through Commerce . pp. 336–348. Notre Dame, IN: University of Notre Dame Press.

Merck & Co., Inc., Whitehouse Station, NJ, USA. Availabla at: http://www.merck.com

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Williams, O.F. 2008. “Responsible Corporate Citizenship and the Ideals of the United Nations Global Compact.” In Oliver F. Williams (ed.), Peace Through Commerce . pp. 431–452. Notre Dame, IN: University of Notre Dame Press.

Williams, O.F. 2003. “Introduction.” In Oliver F. Williams (ed.), Business, Religion, and Spirituality: A New Synthesis . pp. 1–28. Notre Dame, IN: University of Notre Dame Press.

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Williams, O. (2011). The New Role of Business in Society. In: Bouckaert, L., Zsolnai, L. (eds) Handbook of Spirituality and Business. Palgrave Macmillan, London. https://doi.org/10.1057/9780230321458_42

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What Is Entrepreneurship?

  • Entrepreneurship and Economic Growth
  • Necessity" vs. "Opportunity"
  • Other Factors to Consider
  • Entrepreneurship and Social Progress

The Bottom Line

  • Business Leaders
  • Entrepreneurs

Why Entrepreneurship Is Important to the Economy

Entrepreneurship can promote economic growth, even if its benefits are sometimes overhyped

Diane Costagliola is a researcher, librarian, instructor, and writer who has published articles on personal finance, home buying, and foreclosure.

what is the role of business in the economy essay

Getty Images, Tara Moore

Entrepreneurship is often cited as a major engine of economic growth, particularly in the United States. But the actual picture is more complicated. Here's what leading scholars have to say about the importance of entrepreneurship around the world.

Key Takeaways

  • Entrepreneurship can fuel economic growth under the right conditions and when people become entrepreneurs for the right reasons.
  • It is not, however, a magic bullet for growth, particularly in less-developed economies.
  • Social entrepreneurship can attempt to deliver both profits and societal good, though often with mixed results.

Entrepreneurship is a general, blanket term related to starting a business. But its precise definition has long been a matter of debate among scholars and policymakers.

"Despite widespread interest in the topic and a broad recognition of its importance to the economy, there remains a lack of consensus about how to specifically define entrepreneurship," the nonpartisan Center for American Entrepreneurship notes. "'Entrepreneur' is an English derivation of the French word 'entreprendre' (to undertake), leaving wide latitude for interpretation and application."

Howard Stevenson, known as "the godfather of entrepreneurship studies" at Harvard Business School (HBS), has defined it as the "pursuit of opportunity beyond resources controlled." As fellow HBS professor Tom Eisenmann elaborates, "'beyond resources controlled' implies resource constraints. At a new venture's outset, its founders control only their own human, social, and financial capital. Many entrepreneurs bootstrap: they keep expenditures to a bare minimum while investing only their own time and, as necessary, their personal funds."

The Stanford Center for Professional Development at Stanford University offers a somewhat simpler definition: "At its most basic level, entrepreneurship refers to an individual or a small group of partners who strike out on an original path to create a new business. An aspiring entrepreneur actively seeks a particular business venture and it is the entrepreneur who assumes the greatest amount of risk associated with the project. As such, this person also stands to benefit most if the project is a success."

How Entrepreneurs Fuel Economic Growth

Innovation and entrepreneurship undeniably contribute to economic growth, making them a particular area of interest for economists and policymakers worldwide. However, some scholars say that the growth created by entrepreneurship can be exaggerated.

For one thing, growth from entrepreneurial activity doesn't occur evenly across an economy. Studies of economic growth have pointed toward an apparent paradox in which the growth in productivity overall in the U.S. has been only modest in recent years, despite the pervasiveness of entrepreneurship, innovation, and innovation ideology. According to studies by the National Bureau of Economic Research (NBER) , this is because innovation affects industries very differently, having a large impact in some sectors of the economy but little impact in others.  

While generally positive, the link between entrepreneurship and improving societal welfare is also complicated, influenced by factors such as regional population, entrepreneurship density, and the specific industry in which the entrepreneurial activity is taking place, according to the scholarly literature.

What's more, some studies have suggested that economic growth may be correlated to an increase in overall inequality in certain circumstances. Scholars say that in the U.S. income inequality and economic growth have been linked since the 1970s.

The number of new business applications in the United States in April 2024.

"Necessity" Entrepreneurs vs. "Opportunity" Entrepreneurs

One interesting way to look at entrepreneurship is to divide it into two broad categories. "Necessity entrepreneurship" is the launching of a business by people who lack other opportunities. "Opportunity entrepreneurship" is the creation of an enterprise in response to a new or previously overlooked opportunity.

In countries where entrepreneurial activity is largely in the form of necessity entrepreneurship, it can be a signal that the economy isn't creating enough jobs or wage opportunities for workers. It may be connected to slow economic growth or lagging economic development overall, scholars say.

Necessity entrepreneurship can be a side hustle for someone who is trying to make ends meet or a way to meet their non-economic needs and goals.

Where Entrepreneurship Aids Growth—and Where It Doesn't

The level of economic development of a country can also affect whether entrepreneurship will lead to greater economic growth there.

In the 20th century, driven by the decline in manufacturing and the shift toward service businesses, industrialized market economies in later stages of economic development—like the United States and parts of Western Europe, such as Germany and Sweden—were able to benefit greatly from entrepreneurship, the economist and management professor Zoltan Acs has noted. Starting in the 1970s, those countries saw a rise in entrepreneurship, which reversed the previous trend in their economies, when workers favored high-paying jobs with big companies over self-employment.

Other factors may be relevant as well. Scholars point out that the U.S., in particular, has benefited from a large and competitive domestic market, a highly developed financial system, and a high level of long-term government support for basic science.

For developing countries, on the other hand, entrepreneurship isn't a panacea for growth. A study of 74 economies across a six-year period concluded that less developed countries should not base their economic policy on "generic entrepreneurship" if they desire to stimulate economic growth. The authors argue that focusing on programs that develop human capital, take advantage of economies of scale, and entice foreign capital are more effective in spurring economic growth.

Italy may provide an additional example of a country where high levels of self-employment have proved to be inefficient for economic development. Research has shown that Italy has experienced large negative impacts on the growth of its economy because of self-employment.

Social Entrepreneurship and Economic Progress

With concerns over sustainability, inequality, and other issues gaining attention, some entrepreneurs have become more interested in the social consequences of their economic activity. In particular, the rise of social awareness among certain entrepreneurs has led to many attempts to use the principles of entrepreneurship to create a more just and sustainable world.

Social entrepreneurship , which has been around as a concept since the 1950s, has become increasingly common. It describes a category of entrepreneurship that can, in some cases, attempt to both make a profit and solve societal problems. It differs from the typical nonprofit model when it pursues both of those ends simultaneously.

From the perspective of social justice, which prizes a world with equal rights and access to opportunity, the reliance of an economic system on entrepreneurship presents both upsides and downsides.

Theoretically, socially conscious entrepreneurship offers the opportunity to generate solutions for marginalized communities, and the motivations for social entrepreneurs around the world tend to come from a genuine desire to fix serious problems. However, it's important to note that sometimes attempts to solve the underlying structural problems lead to murky results. The dual motives of profit and social good can sometimes clash, as the example of microfinancing in India and Bangladesh revealed.

Once popular in international circles, microfinancing is now seen as having a more limited impact on eradicating poverty and sometimes even increasing indebtedness.  The practice may have also led to a series of suicides among farmers in Andhra Pradesh in the 2000s.

What Is the Difference Between a Small Business Owner and an Entrepreneur?

In general, small businesses focus on existing products and services, while entrepreneurs look to introduce new ones. However, small business owners can be entrepreneurial in their own way and entrepreneurs may end up as small business owners if their idea catches on.

What Is an Intrapreneur?

An intrapreneur is someone who works within a larger company, typically one they don't own, to foster entrepreneurial ideas and innovation. Intrapreneurship can be another source of economic growth, and intrapreneurs often have access to greater resources than independent entrepreneurs without a company behind them.

What Is a Social Entrepreneur?

A social entrepreneur is someone who launches an innovative enterprise to address a larger social issue. They may or may not also hope to turn a profit from their efforts.

The relationship between entrepreneurship and economic growth is complicated and can vary from one country to another based on their level of economic development. In highly developed economies, entrepreneurs can accelerate growth, while in less-developed ones they may have less of a positive effect.

Some entrepreneurial efforts, often referred to as social entrepreneurship, hold out the promise for new innovations that will address problems such as climate change and structural racism, possibly while making a profit at the same time.

Center for American Entrepreneurship. " What Is Entrepreneurship? "

Harvard Business Review. " Entrepreneurship: A Working Definition ."

Stanford Center for Professional Development. " What Is Entrepreneurship? "

Duke Sanford Center for International Development. " Top 5 Takeaways on the Importance of Entrepreneurship ."

Academy of Entrepreneurship Journal. " The Economic Impact of Entrepreneurship: Setting Realistic Expectations ."

National Bureau of Economic Research. " The Role of Innovation and Entrepreneurship in Economic Growth ."

Management Review Quarterly. " The Impact of Entrepreneurship on Economic, Social and Environmental Welfare and Its Determinants: A Systematic Review. "

AgEconSearch. " Impact of Economic Growth on Income Inequality: A Regional Perspective ."

Federal Reserve Economic Data. " Business Applications: Total for All NAICS Across the United States ."

Innovations: Technology, Governance, Globalization, Massachusetts Institute of Technology Press. " How Is Entrepreneurship Good for Economic Growth? "

Center for MIT Entrepreneurship. " Necessity Vs. Innovation-Based Entrepreneurs ."

European Research on Management and Business Economics. " Entrepreneurial Activity and Economic Growth. A Multi-Country Analysis ."

European Parliament. " The Social and Employment Situation in Italy ," Pages 10–12.

Deloitte. " The Rise of the Social Enterprise ."

Journal of Management, Southern Management Association. " Social Entrepreneurship Research: Past Achievements and Future Promises ."

The Tavistock Institute. " Microfinance and the Business of Poverty Reduction: Critical Perspectives From Rural Bangladesh ."

Economic and Political Weekly. " Microfinance: Lessons From a Crisis ."

what is the role of business in the economy essay

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1.1 What Is Economics, and Why Is It Important?

Learning objectives.

By the end of this section, you will be able to:

  • Discuss the importance of studying economics
  • Explain the relationship between production and division of labor
  • Evaluate the significance of scarcity

Economics is the study of how humans make decisions in the face of scarcity. These can be individual decisions, family decisions, business decisions or societal decisions. If you look around carefully, you will see that scarcity is a fact of life. Scarcity means that human wants for goods, services and resources exceed what is available. Resources, such as labor, tools, land, and raw materials are necessary to produce the goods and services we want but they exist in limited supply. Of course, the ultimate scarce resource is time- everyone, rich or poor, has just 24 expendable hours in the day to earn income to acquire goods and services, for leisure time, or for sleep. At any point in time, there is only a finite amount of resources available.

Think about it this way: In 2015 the labor force in the United States contained over 158 million workers, according to the U.S. Bureau of Labor Statistics. The total land area was 3,794,101 square miles. While these are certainly large numbers, they are not infinite. Because these resources are limited, so are the numbers of goods and services we produce with them. Combine this with the fact that human wants seem to be virtually infinite, and you can see why scarcity is a problem.

Introduction to FRED

Data is very important in economics because it describes and measures the issues and problems that economics seek to understand. A variety of government agencies publish economic and social data. For this course, we will generally use data from the St. Louis Federal Reserve Bank's FRED database. FRED is very user friendly. It allows you to display data in tables or charts, and you can easily download it into spreadsheet form if you want to use the data for other purposes. The FRED website includes data on nearly 400,000 domestic and international variables over time, in the following broad categories:

  • Money, Banking & Finance
  • Population, Employment, & Labor Markets (including Income Distribution)
  • National Accounts (Gross Domestic Product & its components), Flow of Funds, and International Accounts
  • Production & Business Activity (including Business Cycles)
  • Prices & Inflation (including the Consumer Price Index, the Producer Price Index, and the Employment Cost Index)
  • International Data from other nations
  • U.S. Regional Data
  • Academic Data (including Penn World Tables & NBER Macrohistory database)

For more information about how to use FRED, see the variety of videos on YouTube starting with this introduction.

If you still do not believe that scarcity is a problem, consider the following: Does everyone require food to eat? Does everyone need a decent place to live? Does everyone have access to healthcare? In every country in the world, there are people who are hungry, homeless (for example, those who call park benches their beds, as Figure 1.2 shows), and in need of healthcare, just to focus on a few critical goods and services. Why is this the case? It is because of scarcity. Let’s delve into the concept of scarcity a little deeper, because it is crucial to understanding economics.

The Problem of Scarcity

Think about all the things you consume: food, shelter, clothing, transportation, healthcare, and entertainment. How do you acquire those items? You do not produce them yourself. You buy them. How do you afford the things you buy? You work for pay. If you do not, someone else does on your behalf. Yet most of us never have enough income to buy all the things we want. This is because of scarcity. So how do we solve it?

Visit this website to read about how the United States is dealing with scarcity in resources.

Every society, at every level, must make choices about how to use its resources. Families must decide whether to spend their money on a new car or a fancy vacation. Towns must choose whether to put more of the budget into police and fire protection or into the school system. Nations must decide whether to devote more funds to national defense or to protecting the environment. In most cases, there just isn’t enough money in the budget to do everything. How do we use our limited resources the best way possible, that is, to obtain the most goods and services we can? There are a couple of options. First, we could each produce everything we each consume. Alternatively, we could each produce some of what we want to consume, and “trade” for the rest of what we want. Let’s explore these options. Why do we not each just produce all of the things we consume? Think back to pioneer days, when individuals knew how to do so much more than we do today, from building their homes, to growing their crops, to hunting for food, to repairing their equipment. Most of us do not know how to do all—or any—of those things, but it is not because we could not learn. Rather, we do not have to. The reason why is something called the division and specialization of labor , a production innovation first put forth by Adam Smith ( Figure 1.3 ) in his book, The Wealth of Nations .

The Division of and Specialization of Labor

The formal study of economics began when Adam Smith (1723–1790) published his famous book The Wealth of Nations in 1776. Many authors had written on economics in the centuries before Smith, but he was the first to address the subject in a comprehensive way. In the first chapter, Smith introduces the concept of division of labor , which means that the way one produces a good or service is divided into a number of tasks that different workers perform, instead of all the tasks being done by the same person.

To illustrate division of labor, Smith counted how many tasks went into making a pin: drawing out a piece of wire, cutting it to the right length, straightening it, putting a head on one end and a point on the other, and packaging pins for sale, to name just a few. Smith counted 18 distinct tasks that different people performed—all for a pin, believe it or not!

Modern businesses divide tasks as well. Even a relatively simple business like a restaurant divides the task of serving meals into a range of jobs like top chef, sous chefs, less-skilled kitchen help, servers to wait on the tables, a greeter at the door, janitors to clean up, and a business manager to handle paychecks and bills—not to mention the economic connections a restaurant has with suppliers of food, furniture, kitchen equipment, and the building where it is located. A complex business like a large manufacturing factory, such as the shoe factory ( Figure 1.4 ), or a hospital can have hundreds of job classifications.

Why the Division of Labor Increases Production

When we divide and subdivide the tasks involved with producing a good or service, workers and businesses can produce a greater quantity of output. In his observations of pin factories, Smith noticed that one worker alone might make 20 pins in a day, but that a small business of 10 workers (some of whom would need to complete two or three of the 18 tasks involved with pin-making), could make 48,000 pins in a day. How can a group of workers, each specializing in certain tasks, produce so much more than the same number of workers who try to produce the entire good or service by themselves? Smith offered three reasons.

First, specialization in a particular small job allows workers to focus on the parts of the production process where they have an advantage. (In later chapters, we will develop this idea by discussing comparative advantage .) People have different skills, talents, and interests, so they will be better at some jobs than at others. The particular advantages may be based on educational choices, which are in turn shaped by interests and talents. Only those with medical degrees qualify to become doctors, for instance. For some goods, geography affects specialization. For example, it is easier to be a wheat farmer in North Dakota than in Florida, but easier to run a tourist hotel in Florida than in North Dakota. If you live in or near a big city, it is easier to attract enough customers to operate a successful dry cleaning business or movie theater than if you live in a sparsely populated rural area. Whatever the reason, if people specialize in the production of what they do best, they will be more effective than if they produce a combination of things, some of which they are good at and some of which they are not.

Second, workers who specialize in certain tasks often learn to produce more quickly and with higher quality. This pattern holds true for many workers, including assembly line laborers who build cars, stylists who cut hair, and doctors who perform heart surgery. In fact, specialized workers often know their jobs well enough to suggest innovative ways to do their work faster and better.

A similar pattern often operates within businesses. In many cases, a business that focuses on one or a few products (sometimes called its “ core competency ”) is more successful than firms that try to make a wide range of products.

Third, specialization allows businesses to take advantage of economies of scale , which means that for many goods, as the level of production increases, the average cost of producing each individual unit declines. For example, if a factory produces only 100 cars per year, each car will be quite expensive to make on average. However, if a factory produces 50,000 cars each year, then it can set up an assembly line with huge machines and workers performing specialized tasks, and the average cost of production per car will be lower. The ultimate result of workers who can focus on their preferences and talents, learn to do their specialized jobs better, and work in larger organizations is that society as a whole can produce and consume far more than if each person tried to produce all of their own goods and services. The division and specialization of labor has been a force against the problem of scarcity.

Trade and Markets

Specialization only makes sense, though, if workers can use the pay they receive for doing their jobs to purchase the other goods and services that they need. In short, specialization requires trade.

You do not have to know anything about electronics or sound systems to play music—you just buy an iPod or MP3 player, download the music, and listen. You do not have to know anything about artificial fibers or the construction of sewing machines if you need a jacket—you just buy the jacket and wear it. You do not need to know anything about internal combustion engines to operate a car—you just get in and drive. Instead of trying to acquire all the knowledge and skills involved in producing all of the goods and services that you wish to consume, the market allows you to learn a specialized set of skills and then use the pay you receive to buy the goods and services you need or want. This is how our modern society has evolved into a strong economy.

Why Study Economics?

Now that you have an overview on what economics studies, let’s quickly discuss why you are right to study it. Economics is not primarily a collection of facts to memorize, although there are plenty of important concepts to learn. Instead, think of economics as a collection of questions to answer or puzzles to work. Most importantly, economics provides the tools to solve those puzzles.

Consider the complex and critical issue of education barriers on national and regional levels, which affect millions of people and result in widespread poverty and inequality. Governments, aid organizations, and wealthy individuals spend billions of dollars each year trying to address these issues. Nations announce the revitalization of their education programs; tech companies donate devices and infrastructure, and celebrities and charities build schools and sponsor students. Yet the problems remain, sometimes almost as pronounced as they were before the intervention. Why is that the case? In 2019, three economists—Esther Duflo, Abhijit Banerjee, and Michael Kremer—were awarded the Nobel Prize for their work to answer those questions. They worked diligently to break the widespread problems into smaller pieces, and experimented with small interventions to test success. The award citation credited their work with giving the world better tools and information to address poverty and improve education. Esther Duflo, who is the youngest person and second woman to win the Nobel Prize in Economics, said, "We believed that like the war on cancer, the war on poverty was not going to be won in one major battle, but in a series of small triumphs. . . . This work and the culture of learning that it fostered in governments has led to real improvement in the lives of hundreds of millions of poor people.”

As you can see, economics affects far more than business. For example:

  • Virtually every major problem facing the world today, from global warming, to world poverty, to the conflicts in Syria, Afghanistan, and Somalia, has an economic dimension. If you are going to be part of solving those problems, you need to be able to understand them. Economics is crucial.
  • It is hard to overstate the importance of economics to good citizenship. You need to be able to vote intelligently on budgets, regulations, and laws in general. When the U.S. government came close to a standstill at the end of 2012 due to the “fiscal cliff,” what were the issues? Did you know?
  • A basic understanding of economics makes you a well-rounded thinker. When you read articles about economic issues, you will understand and be able to evaluate the writer’s argument. When you hear classmates, co-workers, or political candidates talking about economics, you will be able to distinguish between common sense and nonsense. You will find new ways of thinking about current events and about personal and business decisions, as well as current events and politics.

The study of economics does not dictate the answers, but it can illuminate the different choices.

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What is the Role of Business in Society?

November 10, 2015  • Jay Coen Gilbert , Bart Houlahan & Andrew Kassoy

  • There is a shift in business - from focusing on the bottom line to having a positive impact on society.
  • There still is a long way to go to achieve the scale required to allow all people to use business as a force for good.

Below, the co-founders of B Lab explain the shift in business from focusing on the bottom line to having a positive impact on society.

Jay Coen Gilbert, Bart Houlahan, and Andrew Kassoy, are 2015 John P. McNulty Prize winners . The $100,000 prize recognizes the spirit of innovation and excellence of private sector leaders who use entrepreneurship to address important global social issues.

Capitalism is the most powerful man-made force on the planet. It has played a central role in improving the quality of life for billions of people by constantly evolving through a delicate balancing act with government and civil society. When this relationship is in balance, capitalism is able to meet the needs of diverse communities, provide purpose and dignity to peoples’ lives, and create a shared and durable prosperity for all.

During the late 20th century, that relationship fell out of balance. Even as capitalism’s by-products — technological innovation and economic growth — have accelerated and benefited many, we are experiencing increasing inequality, environmental degradation, and a loss in trust in one of our most important institutions.

Capitalism is failing to live up to its unique promise.

By practice or by law, the operating system and the culture of business and capital markets became Milton Friedman’s maxim that the social responsibility of business is to maximize wealth for stockholders. That operating system functions too often at the expense of the interests of society and even the long-term interests of stockholders.

Fortunately, we are in the early stages of a great re-balancing.

Business has become a source of identity, purpose, and power.

We are beginning to see an evolution in capitalism, from a 20th century view that the purpose of business is to maximize value for shareholders to a shared view that the purpose of business is to maximize value for society. Significantly, this transition is being driven, not by government regulation, institutional blame, or partisanship, but by market-based activism and personal responsibility. We are witnessing an historical moment when, rather than simply debating the role of government in the economy or the role of business in society, people are taking action to harness the power of business to solve society’s greatest challenges.

This reflects a major culture shift. Business — what we create, where we work, where we shop, what we buy, who we invest in — has become a source of identity, purpose, and power.

The most innovative entrepreneurs and venture capitalists, both in the US and abroad, want to start and fund businesses with a transformational purpose. In emerging markets around the world, thousands of businesses are working to lift billions of people out of poverty. Millennials – who represent 50 percent of the world’s workforce and will inherit $30 trillion in the coming decades — want to work with purpose, to buy products from companies they can trust, and to make investments that make money and make a measurable positive impact. And policymakers on both sides of the aisle want to support market forces to solve social problems.

When the CEO of Walmart , one of the world’s largest corporations, says that business exists to serve society, and the CEO of Blackrock , the world’s largest asset manager, says that long-term value is created only through long-term investing and stakeholder-centric management, they are acknowledging a shift in the debate about the role of business. But a shift in the debate is just an opportunity; it doesn’t change the rules of the game or guarantee different outcomes for society.

B Lab was started eight years ago because normative and institutional changes are needed for capitalism to fulfill its promise and continue this evolution. Concrete, scalable, systemic solutions are needed to restore trust in business, create the legal and capital markets’ infrastructure to drive capital to high-impact investments, and enable consumers, employees, and investors to differentiate good companies from just good marketing. We need both a clear vision for what capitalism can offer for society and a clear path to get there.

The B Corp Movement is putting theory into action by setting an objective standard for social and environmental performance, accountability, and transparency. This has moved the conversation beyond declaration of purpose to verification of performance, beyond framed mission statements on conference room walls to signed benefit corporation laws passed in the legislative halls in the majority of states in the country.

This movement is equipping businesses and investors with a platform for benchmarking, measuring, and reporting on impact; providing a sustainable operating system for business by allowing companies to expand their fiduciary duties to include the consideration of their stakeholders; and enabling millions of consumers, workers, entrepreneurs, and investors to join the movement all over the world. Led by a community of over 1,400 Certified B Corporations in 42 countries and 160 industries, and joined by over 3,000 benefit corporations, and 35,000 businesses using the B Impact Assessment as the road map to impact, the B Corp Movement is the model for what it means to use business as a force for good.

And it’s now having an impact on mainstream capital markets. Etsy , a handmade goods marketplace, went public in the US this year as a B Corp, and companies such as Natura in Brazil, Australian Ethical in Australia and Snakk Media in New Zealand are traded on other international exchanges. Large multinationals are getting involved by acquiring subsidiaries that are B Corps, including Ben & Jerry’s at Unilever and Plum Organics at Campbell Soup Company , and they are exploring ways to use the B Impact Assessment to improve their supply chain.

The evolution of capitalism to a model that serves society requires a cultural shift.

However, this movement requires broader buy-in, collaboration, and support from businesses, investors, consumers, workers, and policymakers. If we seek a shared and durable prosperity, mainstream markets must come to expect higher standards of fiduciary duty and corporate leadership to measure and manage impact with the same rigor as they do profit today. With increasing interest from large corporations like Unilever, B Lab has recently announced the formation of a Multinationals and Public Market Advisory Council  to explore how companies of this size and scope can engage with the B Corp movement.

There still is a long way to go to achieve the scale required to allow all people to use business as a force for good. In a globalized, technology-driven society, systemic change no longer comes from one organization, one government, or one charismatic individual. The evolution of capitalism from last century’s model that served shareholders to this century’s model that serves society, requires a cultural shift. That shift is already happening. The B Corp Movement is playing a leadership role by inspiring and empowering millions of people to change their buying behavior and creating advocates who can build new institutions, demand more for their money, and create the necessary policy changes to accelerate this shift. We hope you will join us.

You can learn more about the B Corp Movement at bcorporation.net or take the first step towards using business as a force for good by taking the free B Impact Assessment at bimpactassessment.net

what is the role of business in the economy essay

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The Role of Business in the Economy

An overview of the role that businesses play in the economy.

Firms are a very important part of an economy. They produce goods and services for consumers to buy and experience. The  role of business in the economy  is to produce goods and services in order to satisfy consumers’ needs and wants.

Firm’s Production Decisions

Firms have certain production decisions they must make. This includes looking at inputs, the production process, and outputs. The video below talks more about firms and their certain decision-making processes.

Businesses and Economic Growth

Firms are organised in such a way as to establish clear goals that guide business behaviour. With the achievement of business goals, firms grow and expand, contributing to  economic growth . Common business goals include:

  • Profit maximization;
  • Maximizing growth;
  • Increasing market share;
  • Meeting shareholder expectations; and
  • Satisficing behaviour.

The video below looks at what each of these goals mean. Check it out!

Efficiency and the Production Process

In order for businesses to be successful and sustainable, they must be  efficient  in their  production process . In the preliminary economic course, we define efficiency as the optimal allocation of resources such that output is maximised. In other words, if a firm is efficient, they use minimal inputs for maximum output. The video below looks at the different aspects of productivity in an economic landscape.


Economies of Scale

Economies of scale refer to the reductions in a firm’s average costs as output increases. In other words, they are the ‘savings of size’ if a firm is able to increase the size or scale of its production process in the long run .

Diseconomies of Scale

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The Roles of Business Organizations in Economic Development

by Danielle Smyth

Published on 24 Mar 2019

The role of business in social and economic development cannot be overstated. Business plays a vital role in the economic development and wealth of a country. Success in business translates to the economic well-being of a company and its residents through job creation and offering improved quality of life for the country’s citizens. Here, we delve into several aspects that relate to the importance of business in today’s economic environment and society.

Economic Development and Business

Small and large businesses drive economic stability and growth by providing valuable services, products and tax dollars that directly contribute to the health of the community. They also provide jobs, strengthening the economic health of each community where a business is based. Even if a business is headquartered elsewhere, employing people at each local business contributes to the success of that region, as with the wages they earn, people buy property, work, shop and otherwise invest in where they live.

Taxes are used, among other things, to maintain the infrastructure of a city, state or country – roads, bridges, tunnels, public transportation, libraries and other public buildings and services, including police officers and firefighters, all benefit from tax money collected from individuals and businesses. These services are essential to the good health and positive qualities of local and national citizens. In a capitalist society like that of the United States, business growth and increased sales means collecting more taxes, which can directly translate to better maintenance and offerings of local infrastructure and services that benefit the community.

World Economy and Business

The success of business as a whole directly affects the world’s economy. At its core, businesses are designed to serve a particular need that people have, and to provide trusted goods and services related to that need. When consumer confidence or trust dips in business, it isn’t just sales that are negatively affected. This mistrust has a ripple effect and can result in a decline in a country’s general economy, weakening the strength of its currency and buying power.

As businesses focus more and more on providing value to shareholders instead of directly to consumers, their interests and tactics may not align with the best interests of the consumer. A “profit at any cost” model can have extremely negative implications down the road if corners are cut and poor decisions are made in the name of solely working to increase shareholder profit or are based purely on greed. No matter how efficiently you make a product or how special the service is that you deliver, if you lose consumer confidence as a result of your business decisions, consumers won’t support you by purchasing your goods and services, and then nobody benefits.

Why Business Matters

Business is directly related to the economic health and well-being of the citizens of the city, region, state or country in which those businesses are active. Profitable businesses drive economic health, which translates to a better quality of life for the citizens.

The economic health of a region and its ability to sustain businesses – particularly small businesses – can offer tremendous opportunities for diversity in business ownership that might not otherwise exist. Communities and states that foster new business development and assist with business creation derive benefits for their citizens and residents through the products and services businesses provide, and allow for opportunities for women and/or minorities to start and run businesses.

Almost 99 percent of women-owned businesses are considered small businesses, according to the Small Business Administration. When you consider that women are half the population and close to 50 percent of workers, this shows how important small businesses can be for women and those who work in women-owned businesses. Further, almost 60 percent of businesses owned by African-Americans are owned by women.

The number of businesses is also important – the more, the better. Economic diversification means less reliance upon one particular business or industry, and allows the region to better withstand the normal ups and downs associated with the cycle of doing business.

Business and Chambers of Commerce

A chamber of commerce is essentially a local networking organization designed to foster business and professional memberships in the community. Being a business that’s a member of a chamber of commerce lends an air of legitimacy to your business and can offer growth opportunities through advertising and sponsorship opportunities with the chamber. Membership fees can be steep for small businesses, but you have to evaluate what the benefits might be that would make the fees worthwhile, such as increased sales, networking opportunities and better name recognition for your business.

Corporate Responsibility and Economic Health

As businesses and corporations grow, their role in corporate responsibility and social development can become as important as that of their contributions to economic health. It’s thought that a business shouldn’t just serve as an economic machine, but also have stewardship in issues that affect society as a whole, such as environmental concerns, human and worker rights, support of local and national charities, schools, and a variety of non-profit organizations that offer benefits to the community and make the quality of life higher for its members.

As a business grows and develops, these matters should be evaluated as the company may eventually be viewed not just as a way to make money for employees, owners and the community, but as an important part of the community or country, whose profits in part serve the greater good through environmentally friendly business practices or supporting groups that help strengthen communities like charities.

Role of Business in Development

Business is vital to a country’s economy. Success of businesses can drive the success of an entire country, including through contributions to the gross domestic product, or GDP, of a nation, which affects their world standing. If a country supports businesses with goods and services that are in demand, everyone in the country benefits. From job creation that results in money being put back into the community to taxes that help the government smoothly run and provide maintenance and improvements to the country’s infrastructure, or in other ways that are helpful for its citizens, there are dozens of ways business success translates to economic development.

In addition to providing products and services that citizens and residents want, economic health can allow for exporting goods and services to others who want those items, contribute to offering avenues for education and training for citizens, create healthy business competition and provide additional methods of strengthening economic development for the country as a whole.

The role of business in relation to the economy is a pivotal one. Small businesses boost economic revenue on a smaller scale, but one that’s of vital importance, directly and positively affecting the health, quality of life and purchasing power of residents in the local community.

But small businesses don’t always stay small. Many nationally known brands today got their start as very small businesses run out of someone’s home or garage. Startups can become multinational companies that can have a huge and positive impact on the global economy, benefiting all of the company’s employees and the communities in which those businesses thrive. Apple, Whole Foods, Amazon and Starbucks were all ideas started on a small scale that have had incredible, explosive positive impacts not just on the U.S. economy, but on a global scale.

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Small businesses have a BIG impact on our economy

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Mike Anderson, founder and CEO of the National Small Business Chamber (NSBC)

Small businesses need the nation to mobilise behind them more than ever before. That’s the word from Mike Anderson, founder and CEO of the National Small Business Chamber (NSBC). The role that small businesses play in job creation, poverty alleviation, service delivery, and wealth creation all mean that small business is big business.

“Nearly two thirds of all South African workers are employed by small businesses,” says Anderson.

Small businesses also contribute a significant portion of our country’s gross domestic product, which is why we’re encouraging South Africans to lend their support to go out there and support their local small businesses.

“Small businesses are key to unlocking economic opportunities and achieving inclusive growth, adding that South Africa’s high rate of unemployment call for bold and far-sighted interventions,” says Anderson.

One out of five units exported from South Africa is produced in the small and medium business sector. Adding even more weight to the argument that small businesses are the mainstay of the South African economy, and need greater support from government, the public sector, and of course ordinary South Africans.

“Making a small change to where we spend our money can have a huge impact on small businesses, our communities and ultimately our economy,” says Anderson.

“The advantages of supporting small businesses lie not only in making an impact on the economy, but also the positive difference it can make in uplifting local communities. Locally owned businesses help shape strong communities by keeping vital spend within small towns and cities, leading to vibrant local economies that benefit all who live there,” says Anderson.

There are plenty of advantages for consumers too, very often small businesses care deeply about the kind of customer service they deliver; knowing that quality products and personalised service is what keeps their business thriving.

“Through a sustained nationwide effort, we want to bring about permanent change in the hearts of all South Africans. We want to encourage everyone in our country to support their local small businesses as a priority. So, when you all go out to shop, please make that all-important choice, support your local independent small businesses,” concludes Anderson.

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Numbers, Facts and Trends Shaping Your World

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  • Americans’ Views of Government’s Role: Persistent Divisions and Areas of Agreement

1. Government’s scope, efficiency and role in regulating business

Table of contents.

  • Views on the efficiency of government
  • Views on the government’s regulation of business
  • Confidence in the nation’s ability to solve problems
  • Views on the effect of government aid to the poor
  • Views on government’s role in health care
  • Views on the future of Social Security
  • Trust in government
  • Feelings toward the federal government
  • Acknowledgments
  • The American Trends Panel survey methodology

American s are evenly divided in their preferences for the size of government. Yet a somewhat greater share wants the government to do more to solve problems than say it is doing too much better left to others.

Chart shows Americans are closely divided on the size of government, and these views increasingly partisan

There is a persistent belief that government is wasteful: 56% say it is “almost always wasteful and inefficient.”

However, a majority of Americans (58%) say government regulation of business is necessary to protect the public good.

Divisions on government’s size, scope

Overall, 49% say they would prefer a smaller government providing fewer services, while 48% say they would rather have a bigger government providing more services.

Most Democrats prefer a larger government. For nearly half a century, Democrats and Republicans have differed in their preferences for the size of government. Today, those differences are as wide as they have ever been:

  • Nearly three-quarters of Democrats and Democratic-leaning independents (74%) favor a bigger government, providing more services. By comparison, in 2015, a smaller majority of Democrats (59%) said they preferred a bigger government.
  • Just 20% of Republicans and Republican leaners prefer a bigger government; nearly four times as many want smaller government with fewer services. Republicans’ views of the size of government have changed less than Democrats’. Still, when George W. Bush was running for reelection in 2004, roughly a third of Republicans favored a bigger government.

Chart shows Differences by age, race and ethnicity, and family income on government’s role in solving problems

When asked about the proper role of government, about half of Americans (53%) say the government should do more to solve problems, while 46% say the government is doing too many things better left to businesses and individuals.

An overwhelming share of Democrats (76%) say government should do more to solve problems, while about a quarter (23%) say it is doing too many things better left to individuals and businesses.

By contrast, Republicans prefer a more limited role for government: 71% say government is doing too many things better left to businesses and individuals, while 28% say government should do more to solve problems.

There are also sizable demographic differences in these views:

  • White adults (54%) are the most likely to say government is doing too many things better left to businesses and individuals, while smaller shares of Asian (34%), Black (31%) and Hispanic (29%) adults say the same.
  • Younger adults are more likely than older adults to favor a larger role for government, with adults ages 18 to 29 (66%) being the most likely to say government should do more to solve problems.
  • Among income groups, a majority of lower-income adults (61%) say government should do more to solve problems, while smaller shares of upper- and middle-income adults (53% and 48%, respectively) say the same.

Views among partisans by race, ethnicity and income

Among partisans, there are wide demographic differences on the preferred role of government – especially among Republicans.

Chart shows Republicans are divided internally on whether government should do more to solve problems

Hispanic Republicans (58%) are much more likely than White Republicans (21%) to favor a larger role for government.

Views among Democrats are much less divided, with at least seven-in-ten Democrats in each racial and ethnic group saying government should do more to solve problems.

Nearly half of lower-income Republicans (46%) say that the government should do more to solve problems, while smaller shares of middle- (22%) and upper-income (19%) Republicans say the same.

Wide majorities of Democrats across income groups say government should do more to solve problems.

In assessments of the efficiency of the government, a majority of Americans (56%) find it to be “almost always wasteful and inefficient.” A smaller share (42%) say government “often does a better job than people give it credit for.”

Chart shows Majority of Americans say government is ‘almost always wasteful and inefficient’

Overall, views on the efficiency of government have remained somewhat steady since 2019, with views today mirroring those five years ago.

Among partisans, a majority of Democrats (63%) say the government often does a better job than people give it credit for, while a large majority of Republicans (77%) say government is often wasteful and inefficient.

Views on the efficiency of government in both parties have remained steady since 2021.

While Democrats are generally more likely than Republicans to say government does not get enough credit, these views vary somewhat depending on which party holds the presidency:

  • Democrats are now more likely to give credit to the government than they were during the Trump administration.
  • Among Republicans, views of government efficiency were more positive during the Trump administration.

This is consistent with shifts in views during prior administrations .

On the topic of government regulation of business, about six-in-ten Americans (58%) say that government regulation of business is necessary to protect the public interest. Four-in-ten, however, say government regulation of business usually does more harm than good.

Chart shows Broad support for government regulation of business among Democrats, young adults, and Black, Hispanic and Asian adults

These views have remained largely unchanged since 2017.

As with other attitudes about government, Republicans and Democrats differ on the impact of government regulation of business:

  • About two-thirds of Republicans (65%) say government regulation does more harm than good.
  • Roughly eight-in-ten Democrats (82%) say government regulation is necessary to protect the public interest.

Among other demographic differences:

  • White adults (45%) are the most likely to say government regulation does more harm than good, while smaller shares of Hispanic (32%), Asian (29%) and Black (27%) adults say the same.
  • Younger adults are more likely than older adults to say government regulation of business is necessary to protect the public interest, with adults ages 18 to 29 (64%) being the most likely to say this.

Chart shows Americans are evenly divided on whether the U.S. can solve many of its important problems

Americans are divided in their views on the country’s ability to solve important problems. About half (52%) of Americans say “this country can’t solve many of its important problems,” while 47% say that “as Americans, we can always find ways to solve our problems and get what we want.”

More Americans express confidence in the country’s ability to solve problems now than a year ago (47% now, 43% then). Still, the share saying this is lower than it was from 2019 to 2022.

Unlike assessments of government, there are no partisan differences in views on the country’s ability to solve its important problems.

In both parties, about half say the U.S. can’t solve many of its important problems, while slightly narrower shares say Americans can always find ways to solve the country’s problems.

Views among age groups

Chart shows Age differences over whether the U.S. can solve its important problems

Among age groups, younger adults are the most likely to express skepticism in the country’s ability to solve its important problems. About six-in-ten adults ages 18 to 29 (62%) say the U.S. can’t solve many of its important problems, while smaller shares of older adults say the same.

Overall, the shares of adults in each age group who voice skepticism on the country’s ability to solve its problems remain higher than they were in 2022.

However, older adults have grown slightly more optimistic on this issue in the past year. Views among the youngest adults are relatively unchanged from 2022.

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A scientist, a leftist and a former Mexico City mayor. Who is Claudia Sheinbaum?

Who is Claudia Sheinbaum, Mexico’s future first female president?


Ruling party presidential candidate Claudia Sheinbaum greets supporters after the National Electoral Institute announced she held an irreversible lead in the election in Mexico City, early Monday, June 3, 2024. (AP Photo/Eduardo Verdugo)

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Presidential candidate Claudia Sheinbaum arrives at her closing campaign rally at the Zocalo in Mexico City, Wednesday, May 29, 2024. (AP Photo/Eduardo Verdugo)

A supporter of presidential candidate Claudia Sheinbaum takes a selfie with a campaign poster during Sheinbaum’s closing campaign rally at the Zocalo in Mexico City, Wednesday, May 29, 2024. (AP Photo/Matias Delacroix)

Ruling party presidential candidate Claudia Sheinbaum leaves the polling station where she voted during general elections in Mexico City, Sunday, June 2, 2024. (AP Photo/Eduardo Verdugo)

Ruling party presidential candidate Claudia Sheinbaum shows her ID as she leaves a polling station where she voted during general elections in Mexico City, Sunday, June 2, 2024. (AP Photo/Marco Ugarte)

MEXICO CITY (AP) — Claudia Sheinbaum, who will be Mexico’s first woman leader in the nation’s more than 200 years of independence, captured the presidency by promising continuity.

The 61-year-old former Mexico City mayor and lifelong leftist ran a disciplined campaign capitalizing on her predecessor’s popularity before emerging victorious in Sunday’s vote, according to an official quick count. But with her victory now in hand, Mexicans will look to see how Sheinbaum, a very different personality from mentor and current President Andrés Manuel López Obrador , will assert herself.

While she hewed close to López Obrador politically and shares many of his ideas about the government’s role in addressing inequality, she is viewed as less combative and more data driven.


Sheinbaum’s background is in science. She has a Ph.D. in energy engineering. Her brother is a physicist. In a 2023 interview with The Associated Press, Sheinbaum said, “I believe in science.”

Observers say that grounding showed itself in Sheinbaum’s actions as mayor during the COVID-19 pandemic, when her city of some 9 million people took a different approach from what López Obrador espoused at the national level.

While the federal government was downplaying the importance of coronavirus testing, Mexico City expanded its testing regimen. Sheinbaum set limits on businesses’ hours and capacity when the virus was rapidly spreading, even though López Obrador wanted to avoid any measures that would hurt the economy. And she publicly wore protective masks and urged social distancing while the president was still lunging into crowds.


Over 50 countries go to the polls in 2024

  • The year will test even the most robust democracies. Read more on what’s to come here .
  • Take a look at the 25 places where a change in leadership could resonate around the world.
  • Keep track of the latest AP elections coverage from around the world here.

Mexico’s persistently high levels of violence will be one of her most immediate challenges after she takes office Oct. 1. On the campaign trail she said little more than that she would expand the quasi-military National Guard created by López Obrador and continue his strategy of targeting social ills that make so many young Mexicans easy targets for cartel recruitment.

“Let it be clear, it doesn’t mean an iron fist, wars or authoritarianism,” Sheinbaum said of her approach to tackling criminal gangs, during her final campaign event. “We will promote a strategy of addressing the causes and continue moving toward zero impunity.”

Sheinbaum has praised López Obrador profusely and said little that the president hasn’t said himself. She blamed neoliberal economic policies for condemning millions to poverty, promised a strong welfare state and praised Mexico’s large state-owned oil company, Pemex, while also promising to emphasize clean energy.

“For me, being from the left has to do with that, with guaranteeing the minimum rights to all residents,” Sheinbaum told the AP last year.


In contrast to López Obrador, who seemed to relish his highly public battles with other branches of the government and also the news media, Sheinbaum is expected by many observers to be less combative or at least more selective in picking her fights.

“It appears she’s going to go in a different direction,” said Ivonne Acuña Murillo, a political scientist at Iberoamerican University. “I don’t know how much.”

Sheinbaum will also be the first person from a Jewish background to lead the overwhelmingly Catholic country.


Follow the AP’s coverage of global elections at: https://apnews.com/hub/global-elections/

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‘It’s All Happening Again.’ The Supply Chain Is Under Strain.

As Houthi rebels intensify strikes on vessels headed for the Suez Canal, global shipping prices are soaring, raising fears of product shortages and delays.

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A cargo ship in the ocean carrying shipping containers.

By Peter S. Goodman

Peter Goodman has reported extensively on the global supply chain since the early months of the Covid-19 pandemic.

Stephanie Loomis had hoped that the chaos besieging the global supply chain was subsiding. The floating traffic jams off ports . The multiplying costs of moving freight . The resulting shortages of goods . All of this had seemed like an unpleasant memory confined to the Covid-19 pandemic.

No such luck.

As head of ocean freight for the Americas at Rhenus Logistics, a company based in Germany, Ms. Loomis spends her days negotiating with international shipping carriers on behalf of clients moving products and parts around the globe. Over the last few months, she has watched cargo prices soar as a series of disturbances have roiled the seas.

Late last year, Houthi rebels in Yemen began firing on ships entering the Red Sea en route to the Suez Canal , a vital artery for vessels moving between Asia, Europe and the East Coast of the United States. That prompted ships to avoid the waterway, instead moving the long way around Africa, lengthening their journeys by as much as two weeks.

Then, a severe drought in Central America dropped water levels in the Panama Canal , forcing authorities to limit the number of ships passing through that crucial conduit for international trade.

In recent weeks, dockworkers have threatened to strike on the East and Gulf Coasts of the United States, while longshore workers at German ports have halted shifts in pursuit of better pay. Rail workers in Canada are poised to walk off the job, imperiling cargo moving across North America and threatening backups at major ports like Vancouver, British Columbia.

The intensifying upheaval in shipping is prompting carriers to lift rates while raising the specter of waterborne gridlock that could again threaten retailers with product shortages during the make-or-break holiday shopping season. The disruption could also exacerbate inflation, a source of economic anxiety animating the American presidential election.

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    In 'The Role of Business in the Modern World', Professor David Henderson argues that now, as in the past, the primary role of business is to act as a vehicle for economic progress. This role depends upon business enterprises operating with the framework of a competitive market economy. If we ask businesses to achieve broader social goals ...

  11. The New Role of Business in Society

    Abstract. What is the role of business in society? This essay argues that we are in the midst of a major paradigm shift in our understanding of the purpose of business and that this new understanding holds much promise for business being a significant force for peace in our world. Examples of what companies are doing and why they are doing it ...

  12. What is the role of business?

    The fundamental role of business has remained relatively constant: providing the goods and services that people need or want. What has changed dramatically over time are the expectations placed on businesses. Boards of directors, management and investors of large corporations are now expected to address an array of social, economic and ...

  13. Small business and entrepreneurship: their role in economic and social

    Introduction. Since the 1980s, small business owners and entrepreneurs have been receiving greater recognition as drivers of economic growth. Recently, several studies (Forsman Citation 2011; McKeever, Anderson, and Jack Citation 2014) have reported that long-term economic growth and prosperity require participation from entrepreneurs.Both experts and governmental authorities opt for fostering ...

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    Key Takeaways. Entrepreneurship can fuel economic growth under the right conditions and when people become entrepreneurs for the right reasons. It is not, however, a magic bullet for growth ...

  15. 1.1 What Is Economics, and Why Is It Important?

    As you can see, economics affects far more than business. For example: Virtually every major problem facing the world today, from global warming, to world poverty, to the conflicts in Syria, Afghanistan, and Somalia, has an economic dimension. If you are going to be part of solving those problems, you need to be able to understand them.

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    Business has become a source of identity, purpose, and power. We are beginning to see an evolution in capitalism, from a 20th century view that the purpose of business is to maximize value for shareholders to a shared view that the purpose of business is to maximize value for society. Significantly, this transition is being driven, not by ...

  17. The Role of Business in the Economy

    An Overview of the Role that Businesses Play in the Economy. Firms are a very important part of an economy. They produce goods and services for consumers to buy and experience. The role of business in the economy is to produce goods and services in order to satisfy consumers' needs and wants.

  18. The Roles of Business Organizations in Economic Development

    The role of business in relation to the economy is a pivotal one. Small businesses boost economic revenue on a smaller scale, but one that's of vital importance, directly and positively affecting the health, quality of life and purchasing power of residents in the local community. But small businesses don't always stay small.

  19. The Role of Business Essay

    The Body Shop, for example, from the start took a socially responsible stance. One of the firm's early campaigns was the removal of animal testing for cosmetics. This stance worked well for the company, creating a unique selling point, and helped it become a major retailing group. Free Essay: The Role of Business Is Corporate Social ...

  20. Role of business in relation to the economy

    This document discusses the role of business in relation to the economy. It explains that businesses benefit society by supplying goods and services, creating jobs, developing new technologies, and investing in employees and the community. Businesses are socially responsible by considering their impact on customers, employees, and the environment.

  21. Small businesses have a BIG impact on our economy

    With more support, small businesses have the potential to breathe new life into the South African economy and play an even bigger role in economic growth and job creation. Small businesses ...

  22. the role of business in the economy

    George Silandote Jr. The document discusses the role of businesses in the economy. It states that businesses allow for specialization of production and economies of scale, which lower costs. They also coordinate trade and commerce through markets. Markets allow buyers and sellers to discover information and exchange goods and services voluntarily.

  23. The Role of Business in the Economy

    Some might say that business is the lifeblood of any economy. This is because businesses provide benefits to an economy in ways like job creation, the payment of a good portion of a region's taxes, and the use of local resources. This cycle continues as the people employed by these businesses contribute to the economy by spending the money ...

  24. 1. Government's scope, efficiency and role in regulating business

    Views on the government's regulation of business. On the topic of government regulation of business, about six-in-ten Americans (58%) say that government regulation of business is necessary to protect the public interest. Four-in-ten, however, say government regulation of business usually does more harm than good.

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    MEXICO CITY (AP) — Claudia Sheinbaum, who will be Mexico's first woman leader in the nation's more than 200 years of independence, captured the presidency by promising continuity. The 61-year-old former Mexico City mayor and lifelong leftist ran a disciplined campaign capitalizing on her predecessor's popularity before emerging victorious in Sunday's vote, according to an official ...

  26. Thailand is now the Myanmar junta's favored banking destination as

    International banks are playing a significant role in the Myanmar military junta's ability to carry out its systematic and deadly assault on the people, a new United Nations-backed report has found.

  27. The Daily Show Fan Page

    The source for The Daily Show fans, with episodes hosted by Jon Stewart, Ronny Chieng, Jordan Klepper, Dulcé Sloan and more, plus interviews, highlights and The Weekly Show podcast.

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    Peter S. Goodman is a reporter who covers the global economy. He writes about the intersection of economics and geopolitics, with particular emphasis on the consequences for people and their lives ...