Relationship of Business to Economy

Topics: Economics, Business, Manufacturing Pages: 1 (273 words) Published: June 19, 2013
Basically, the role of business is to produce goods and services which consumers need.
The business firm produces goods and services from the factors of production provided by society. Consumers in turn, buy these goods and services. Business firms thus contribute to the country’s economic growth. One measure of economic growth is the Gross National Product (GNP), defined as the total market value of goods and services produced by a country in any given period. Consequently, to produce goods and services, the business firm has to purchase materials, components, or semi-finished goods from other producers, thereby creating a demand for the outputs of other businesses. It has to pay wages to its personnel. These wages form the income of the workers, who in turn buy foods, clothes, and other goods and services. A business firm co-exists and interrelates with other members in the economic system. Some business firms manufacture the same products or substitutes for others. When we combine these firms as a group, we call them an industry. Thus, we may define an industry as a group of business firms offering similar goods or services. Some examples are the electronics, wood products, chemicals, petroleum, banking and finance, and building and construction industries. Industries may be broadly classified by sectors, such as the agricultural, manufacturing, trade, construction, and government sectors. The manufacturing sectors include all industries involved in producing goods, while the trade sector includes both domestic and foreign trade. The relationship between business and economy is like the relationship of supply and demand. The higher the demand, the higher the supply. The lower the demand, the lower the supply.
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