Whatever your attitude about business, you can’t help but have a sense of its importance in American society. A business provides the food we eat, the homes we live in, the information we crave, the entertainment we enjoy, the array of appliances that make our lives easier and the money to buy our things.
The American Business
What’s more, our economic system encourages competition, which means that we have our choice of a wide variety of goods at different price ranges.
By most standards, American business has almost miraculously successful. We owe this success, and indeed our lifestyle, to a combination of extensive natural resources, hard work, a minimally restrictive economy and the entrepreneurial spirit that has characterized this continent since its colonization.
But along the way we overtook a few things that, as a society, we can’t afford to overlook anyone: dwindling natural resource; environmental pollution; threats to human health and a safety; racial, ethnic, and sex discrimination; and foreign competition. In this chapter, we’ll examine the business’s role in society.
First, we’ll discuss the way it works and then we’ll consider where its responsibility lies in solving some of our most pressing social problems.
The Business point of Focus Today
After reading the materials in this page, you will understand and be able to discuss:
• The nature of the business and the importance of the profit motive
• Forces that guard the free- market system on which the American economy is based
• Relationships between business and the environment
• The history and current status of the consumer movement
• The role of business is solving the problem of discrimination against minorities.
What is business?
For our purposes, we can define business broadly as all the work involved in providing people with goods and services for a profit. This definition, of course, is very broad indeed, since that work can include an enromous variety of tasks
The activities involved in business
If you had an idea for the proverbial better mouse tarp, you would have to do a great deal of practical work before your brainstorm could become a reality.
First of all, you would have to acquire the necessary resources— wood and metal, tools, a workshop and the like. Then you would have to organize the actual production—– devising an efficient assembly process, training your workers, and supervising the operation.
After this ( assuming the world didn’t beat a path to your door), you would need to distribute your product to as many stores ad possible, then make the public aware of it’s existence and superior qualities.
Finally—or, actually, before you did anything else — you would have to find money to get the whole enterprise started. Equipment and materials must be bought, workers paid, distribution and advertising paid for—— before you could sell a single mousetrap. This sequence of tasks, needless to say, simplified outline of the kinds of activity involved in business.
In general terms, though, it is typical of business of the sizes, whatever the nature of the enterprise. An Ice– cream company offers a product. An airline offers a service. But both need to acquire resources, produce what they intend to sell, advertise it, and make it available to customers.
The estimated 15 million American businesses
This comes in all forms and sizes, from American telephone and telegraph, which has over 3 million shareholders, 1 million employees, and $125 billion in assets, to the one— man hot — dog cart on a busy street corner. And the business scene is a constantly changing e.g New product and services are forever being offered by entrepreneurs looking to make a million. Most don’t make it, but keep trying. More…
Business as a profit making activity
We described business as all the work involved in providing people with goods and services for a profit. The last three words are important. Profit, simply put, is the money left over-from all sums received from sales after expenses have been deducted.
If it costs you $1.00 to produce one of your mousetraps and you sell it for $1.50, your profit is fifty trappers ( before taxes, of course). The element of profit is the foundation of our economic system. It is, indeed, the whole point—- the ” bottom !one” for most business activities and enterprises.
The American economic system
Meanwhile, this is on the idea that the owner of a business is entitled to keep whatever profit the business produces. It takes effort, after all, to put a desirable product or service into a useful form and then sell it to people.
Further more, the owner may have to take a considerable financial risks. Most businesses need substantial investment to get started, and if a new venture doesn’t succeed (and most don’t),whoever financed it stands to lose a great deal of money.
It seems only fair, that someone who makes the effort and takes the financial risk should be rewarded with the profits. Such an arrangement, moreover, is not only logical in theory; it has also provided extremely effective in practice. Most people do not work five days a week for the sheer fun of it: their work in exchange for compensation, usually money.
Furthermore, they tend to work harder or take greater risks if their fell that extra efforts may produce greater rewards. It is the basic human inventive, the profit motive, that lies at the heart of the American business system. At this point we must note that not all businesses exist to sake a profit.
As we’ ll see, it is the nature of the American system to provide goods and service for which their is a sizable demand or for which a relatively small number of people are willing to spend a large sum of money. But some small segments of society have needs that profit -oriented businesses can’t afford to supply at prices that these market can pay.
Therefore, our society supports a number of nonprofit businesses, such as underwriter laboratories and goodwill industries. In other respects, these enterprises are much like profit-directed businesses.
The free market system
In view of the importance of the profit motive, it is essential to understand how businesses make their profits. To begin with, our country’s business life is based on what economist call a free-market system.
In essence , this means that if you have something to sell- whether it’ sa product like the better mousetrap or a service-you have free to charge any price and to sell to anyone willing to pay that price.
Conversely, as a consumer you’re free to buy whatever you want and can afford, from whomever you choose.
In practice, of course, there are numerous exceptions to this principle and well discuss them shortly.
However, there are two forces which are competition and supply and demand as said to dominate the operation of any free market.
How competition operates
If you et out to sell a product or service in today’s society, chances are that someone else not too far away is selling something similar. And since potential customers are free to shop where they please, you will have to compete with your rival for their business. How can you go about this? One obvious strategy to charge lower prices.
Competition keeps prices down
If your rival is selling blue jeans, say, a pair, you may try offering them for $25.The catch, of course, is that you’ll get $3 less for each pair you sell have to cover the same expenses– buying the jeans from the manufacturer, paying rent on your store, and so forth.
How, then, can you charge less and still make a worthwhile profit? The answer- you hope- is that the lower price will attract more customers. Thus even though you make less money on each pair of jeans, you’ll sell more of them and so come out with a good overall profit. In real life, needless to say, things do not always work out so logically.
This basic head- on type of competition tends to keep prices down, which is obviously good for the buying public. At the same time, it holds out the promise of great profits to the business that can sell more units of whatever its produce or service happens to be.
Competition encourages efficiency
In addition , the nature of the free market is to encourage other forms of competition that serve the interests of both the business community and the society at large.
The merchant selling blue jeans, for example, may find that rearranging the store’s layout makes it possible to display more items in the same amount of space or that a new lighting system cuts the electrical bills.
Likewise, someone who refinishes furniture for a living may discover that dipping a table or chair in a large vat of chemical solvents removes the old finish faster— and thus more economically—– than doing the by hand.
Competition promotes quality
Instead of cutting prices, a business may decide to complete for customers by offering higher– quality goods or services than its rivals.
The price may also be higher, but those customers who can afford it will probably be willing to pay the extra amount. ( Indeed , the snob appeal of high prices, plush surroundings, a d prestigious brand names can be vital advantages that deals in luxury goods will not attract as many customers as, say, an average discount store, it will make more money per item and may well end up with an equal or even greater total profit.
A particular benefit of this competitive approach is that it provides a particular incentive for business to maintain high standards of quality and increases the choices available to customers of different income levels.
Competition encourages variety
The free – market system not only encourages variety in the price range for a given category of products or services but also encourages an immense variety in the types of goods and services offered to the public. Changes in popular taste, technology, and the like are constantly new business opportunities —– and free enterprises, like nature, abhors a vacuum.
The possibility of profit —— however remote it may be — almost invariable attracts entrepreneurs willing to risk their time or money.
The result is an astonishing diversity of businesses: virtually anything you might want to buy — any product or service, no matter how obscure — is probably sold somewhere. ( And if it isn’t, you may have profitable idea yourself.). More…
Competition and advertising are interdependent
Finally, the free– market system includes another major competitive tool, one that confronts us every day: advertising. The business that can attract more public attention or create a more favorable image for its product or services will gain a valuable edge over its competitors.
To be sure, advertising does not itself improve the quality of the product being offered, and it may, in fact, add to the price. But it can spur people to buy more, and this, in turn, can help keep business operating at high capacity — and employing more workers.
As we have seen, prices in a free market system are influenced by the competitive strategies of rival businesses. Price levels are not determined solely by the decision of business managers, however. Price levels often respond to forces of supply and demand.
In economic terms supply is the quantity of a goods or services that producers are willing to provide; demand is the quantity of a goods or services that consumers are willing to buy at that time.
I’m basic terms, the theory of supply and demand holds that the supply of a product withstand to rise when demand is great —- when people are Willi g to pay more for it—- and fall when demand is low. By the same token, people will usually pay more for something they want.
I hope this is helpful?