Monday, December 24, 2007

Business


In
economics
, a business is a legally recognized organizational entity
existing within an

economically free
country designed to sell

goods
and/or

services
to
consumers
or other
businesses
, usually in an effort to generate
profit.

In
predominantly

capitalist
economies, where most businesses are privately owned,
businesses are typically formed to earn
profit and
grow the personal
wealth
of their owners. The owners and operators of a business have as one
of their main objectives the receipt or generation of a

financial return
in exchange for their

work
and their acceptance of
risk. Notable
exceptions to this rule include

cooperative
businesses and

government
institutions. This model of business functioning is contrasted
with
socialistic
systems, which involve either government, public, or worker
ownership of most sizable businesses.


The
etymology
of "business" relates to the state of being busy either as an
individual or society, doing commercially
viable and
profitable work. The term "business" has at least three usages, depending on
the scope — the singular usage (above) to mean a particular
company or

corporation
, the generalized usage to refer to a particular

market sector
, such as "the record business," or the broadest meaning to
include all activity by the community of suppliers of goods and services.
However, the exact definition of business, like much else in the

philosophy of business
, is a matter of debate.




Business Studies
, the study of the

management
of individuals organizing to maintain collective

productivity
toward accomplishing particular creative and

productive
goals (usually to generate profit), is taught as an
academic
subject in many schools.


Basic forms of ownership


Although forms of business ownership vary by country and local government,
there are several common forms of business ownership:



  • Sole proprietorship: A

    sole proprietorship
    is a business owned by one person. The owner may
    operate on his or her own or may employ others. The owner of the business
    has total and unlimited personal liability of the debts incurred by the
    business.





  • Cooperative: Often referred to as a "Co-Op business" or "Co-Op",
    a
    cooperative
    is a for-profit, limited liability entity that differs from
    a corporation in that it has
    members,
    as opposed to shareholders, who share decision-making authority.
    Cooperatives are typically classified as either

    consumer cooperatives
    or

    worker cooperatives
    . Cooperatives are fundamental to the ideology of

    economic democracy
    .


Classifications





Wall Street, Manhattan is the location of the New York Stock Exchange and is often used as a symbol for the world of business.






Wall Street
,

Manhattan
is the location of the

New York Stock Exchange
and is often used as a
symbol
for the world of business.







Commercial Street, Bangalore. India




Commercial Street,

Bangalore
.
India




There are many types of businesses, and, as a result, businesses can be
classified in many ways. One of the most common focuses on the primary
profit-generating activities of a business:





  • Manufacturers
    produce

    products
    , from
    raw
    materials
    or component parts, which they then sell at a profit.
    Companies that make physical
    goods, such
    as cars or pipes, are considered manufacturers.



  • Service businesses
    offer intangible goods or services and typically
    generate a profit by charging for labor or other services provided to
    government, other businesses or
    consumers.
    Organizations ranging from house decorators to consulting firms to
    restaurants and even to entertainers are types of service businesses.

  • Retailers
    and

    Distributors
    act as middle-men in getting goods produced by
    manufacturers to the intended consumer, generating a profit as a result of
    providing sales or distribution services. Most consumer-oriented stores and
    catalogue companies are distributors or retailers. See also:

    Franchising


  • Agriculture
    and
    mining
    businesses are concerned with the production of raw material, such as plants
    or minerals.


  • Financial
    businesses include banks and other companies that generate
    profit through investment and management of
    capital.

  • Information businesses generate profits primarily from the resale of
    intellectual property and include movie studios, publishers and packaged
    software companies.


  • Utilities
    produce public services, such as heat, electricity, or sewage
    treatment, and are usually government chartered.


  • Real estate
    businesses generate profit from the selling, renting, and
    development of properties, homes, and buildings.


  • Transportation
    businesses deliver goods and individuals from location to
    location, generating a profit on the transportation costs


There are many other divisions and subdivisions of businesses. The
authoritative list of business types for North America (although it is widely
used around the world) is generally considered to be the

North American Industry Classification System
, or NAICS. The equivalent
European Union list is the NACE.


Organization


Most businesses must accomplish similar functions regardless of size, legal
structure or industry. These functions are often organized into departments.
Common departments include (but are not limited to):




Accounting

Typically responsible for

financial reporting
, financial controls and the raising of the capital
necessary to run the business.



Human Resources

Typically responsible for hiring, firing, payroll, benefits, etc.

Marketing and sales

responsible for selling the business' goods or services to the customer
and for managing the relationships with the customer




Marketing

Typically responsible for promoting interest in, and generating
demand for, the business' products or services, and

positioning
them within the market

Sales

finding likely purchasers and obtaining their agreement (known as a

contract
) to buy the business' products or services







Operations

makes the product or delivers the service





Production

produces the raw materials into the delivered goods, if they require
processing



Customer service

supports customers who need help with the goods or services








Procurement

responsible for acquiring the goods and services necessary for the
business. Sometimes organized as:





Strategic sourcing

determines the business' needs and plans for acquiring the necessary
raw materials and services for the business

Purchasing

processes the

purchase orders
and related transactions









Research and Development

tests to create new products and to determine their viability (e.g.
pilot
plants
)



Information Technology

manages the business' computer and data assets

Communications/Public Relations

responsible for communicating to the outside world

Administration

provides administrative support to the other departments (such as
typing, filing, etc.)



Internal Audit

an independent control function typically accountable to the Board of
Directors for reporting on the proper functioning of the other departments



Management
is sometimes listed as a "department" but typically refers to
the top level of leadership within the business regardless of their functional
role


Economics








Face-to-face trading interactions on the New York Stock Exchange trading floor. Financial decisions can be one of those many economic choices people make.




Face-to-face trading interactions on the

New York Stock Exchange
trading floor. Financial decisions can be
one of those many economic choices people make.




Economics is the

social science
that studies the production,

distribution
, and consumption of

goods and services
. The term economics comes from the

Greek
for oikos (house) and nomos (custom or law), hence
"rules of the house(hold)."[1]


A definition that captures much of modern economics is that of

Lionel Robbins
in a

1932 essay
: "the science which studies human behaviour as a relationship
between ends and scarce means which have alternative uses."[2]
Scarcity
means that available

resources
are insufficient to satisfy all wants and needs. Absent scarcity
and alternative uses of available resources, there is no

economic problem
. The subject thus defined involves the study of

choices
as they are affected by incentives and resources.


Areas of economics may be divided or classified into various types,
including:



One of the uses of economics is to explain how
economies,
as economic systems, work and what the relations are between economic players
(agents)
in the larger society. Methods of economic analysis have been increasingly
applied to fields that involve people (officials included) making choices in a
social context, such as crime,[3]
education,[4]
the

family
,

health
,

law
,

politics
, religion,[5]

social institutions
, and war.[6]


In the beginning





Adam Smith, author of The Wealth of Nations (1776), generally regarded as initiating modern economics.




Adam Smith, author of The Wealth of Nations (1776),
generally regarded as

initiating modern economics
.




Although discussions about production and distribution have a long history,
economics in its modern sense is conventionally dated from the publication of
Adam
Smith
's

The Wealth of Nations
in 1776.[7]
In this work Smith describes the subject in these practical and exacting
terms:



Political economy, considered as a branch of the science of a statesman
or legislator, proposes two distinct objects: first, to supply a plentiful
revenue or product for the people, or, more properly, to enable them to
provide such a revenue or subsistence for themselves; and secondly, to
supply the state or commonwealth with a revenue sufficient for the public
services. It proposes to enrich both the people and the sovereign.


Smith referred to the subject as 'political
economy
', but that term was gradually replaced in general usage by
'economics' after 1870.


Areas of economics


Areas of economics may be classified in various ways, but an
economy is
usually analyzed by use of microeconomics or macroeconomics.


Microeconomics


Microeconomics examines the economic behavior of

agents
(including individuals and firms) and their interactions through
individual markets, given scarcity and

government regulation
. A given market might be for a product, say
fresh corn, or the services of a

factor of production
, say bricklaying. The theory considers

aggregates
of quantity demanded by buyers and quantity supplied
by sellers at each possible price per unit. It weaves these together to
describe how the market may reach equilibrium as to price and quantity or
respond to market changes over time. This is broadly termed

demand-and-supply
analysis. Market structures, such as

perfect competition
and
monopoly,
are examined as to implications for behavior and

economic efficiency
. Analysis often proceeds from the simplifying
assumption that behavior in other markets remains unchanged, that is,

partial-equilibrium
analysis.

General-equilibrium
theory allows for changes in different markets and
aggregates across all markets, including their movements and
interactions toward equilibrium.[8][9]


Macroeconomics


Macroeconomics examines the economy as a whole "top down" to explain broad
aggregates and their interactions. Such aggregates include

national income and output
, the

unemployment rate
, and price
inflation
and subaggregates like total consumption and investment spending and their
components. It also studies effects of

monetary policy
and

fiscal policy
. Since at least the 1960s, macroeconomics has been
characterized by further integration as to

micro-based
modeling of sectors, including

rationality
of players,

efficient use
of market information, and

imperfect competition
.[10]
This has addressed a long-standing concern about inconsistent developments of
the same subject.[11]
Analysis also considers factors affecting the long-term level and

growth
of national income within a country and across countries.[12][13]


Related fields, other distinctions, and
classifications


Recent developments closer to microeconomics include

behavioral economics
and

experimental economics
. Fields bordering on other

social sciences
include

economic geography
,

economic history
,

public choice
,

cultural economics
, and

institutional economics
.


Another division of the subject distinguishes two types of economics.

Positive economics
("what is") seeks to explain economic phenomena or
behavior.

Normative economics
("what ought to be," often as to public policy)
prioritizes choices and actions by some set of criteria; such priorities
reflect value judgments, including selection of the criteria.


Another distinction is between mainstream economics and heterodox
economics
. One broad characterization describes

mainstream economics
as dealing with the
"rationality-individualism-equilibrium nexus" and

heterodox economics
as defined by a "institutions-history-social structure
nexus." [14]


The

JEL classification codes
of the

Journal of Economic Literature
provide a comprehensive, detailed way of
classifying and searching for economics articles by subject matter. An
alternative classification of often-detailed entries by mutually-exclusive
categories and subcategories is

The New Palgrave: A Dictionary of Economics
.[15]


Mathematical and quantitative methods


Economics as an academic subject often uses geometric methods, in addition
to literary methods. Other general mathematical and quantitative methods are
also often used for rigorous analysis of the economy or areas within
economics. Such methods include the following.


Mathematical economics


Mathematical economics refers to application of mathematical methods to
represent economic theory or analyze

problems
posed in economics. It uses such methods as
calculus
and

matrix algebra
. Expositors cite its advantage in allowing formulation and
derivation of key relationships in an

economic model
with clarity, generality, rigor, and simplicity.[16]
For example,

Paul Samuelson
's book

Foundations of Economic Analysis
(1947) identifies a common
mathematical structure across multiple fields in the subject.


Econometrics


Econometrics applies mathematical and

statistical methods
to analyze

data
related to

economic models
. For example, a theory may hypothesize that a person with
more education will on average earn more income than person with less
education holding everything else equal. Econometric estimates can estimate
the magnitude and

statistical significance
of the relation. Econometrics can be used to draw
quantitative generalizations. These include testing or refining a theory,
describing the relation of past variables, and forecasting future variables.[17]


National accounting


National accounting is a method for summarizing economic activity of a
nation. The national accounts are

double-entry accounting
systems that provide detailed underlying measures
of such information. These include the

national income and product accounts
(NIPA), which provide estimates for
the money value of output and income per year or quarter. NIPA allows for
tracking the performance of an economy and its components through

business cycles
or over longer periods. Price data may permit
distinguishing

nominal from real amounts
, that is, correcting money totals for price
changes over time.[18][19]
The national accounts also include measurement of the

capital stock
,

wealth
of a nation, and

international capital flows
.[20]


Selected fields


Development Economics


Development economics examines economic aspects of the development
process in relatively

low-income countries
with a focus on methods of promoting economic growth.
Approaches in development economics frequently incorporate social and
political factors to devise particular plans.[21][22]


Economic systems


Economic systems is the

branch
of economics that studies the methods and

institutions
by which societies determine the ownership, direction, and
allocaton of economic resources. An economic system of a society is the
unit of analysis. Among contemporary systems at different ends of the
organizational spectrum are

socialist systems
and

capitalist systems
, in which most production occurs in respectively
state-run and private enterprises. In between are

mixed economies
. A common element is the interaction of economic and
political influences, broadly described as

political economy
.

Comparative economic systems
studies the relative performance and
behavior of different economies or systems.[23][24]


Environmental economics


Environmental economics is concerned with issues related to degradation,
enhancement, or preservation of the

environment
. In particular,
public
bads
from production or consumption, such as air pollution, can lead to

market failure
. The subject considers how public policy can be used to
correct such failures. Policy options include regulations that reflect

cost-benefit analysis
or market solutions that change incentives, such as

emission fees
or redefinition of property rights.[25][26]


Financial economics


Financial economics, often simply referred to as
finance, is
concerned with the allocation of financial resources in an uncertain (or
risky)
environment. Thus, its focus is on the operation of

financial markets
, the pricing of

financial instruments
, and the

financial structure
of companies.[27]



Game theory


Game theory is a branch of

applied mathematics
that studies strategic interactions between agents. In

strategic games
,

agents
choose strategies that will maximize their payoff, given the
strategies the other agents choose. It provides a formal modeling approach to
social situations in which decision makers interact with other agents. Game
theory generalizes maximization approaches developed to analyze markets such
as the

supply and demand
model. The field dates from the 1944 classic

Theory of Games and Economic Behavior
by

John von Neumann
and

Oskar Morgenstern
. It has found significant applications in many areas
outside economics as usually construed, including formulation of

nuclear strategies
,

ethics
,

political science
, and

evolutionary theory
.[28]


Growth economics studies factors that explain

economic growth
– the increase in output
per
capita
of a country over a longer period of time. The same factors are
used to explain differences in the level of output per capita
between
countries, Much-studied factors include the rate of

investment
,

population growth
, and

technological change
. These are represented in theoretical and
empirical
forms (as in the

neoclassical growth model
) and in

growth accounting
.
[29]
[30][31]


Industrial organization


Industrial organization studies the strategic behavior of firms, the
structure of markets and their interactions. The common market structures
studied include

perfect competition
,

monopolistic competition
, various forms of
oligopoly,
and monopoly.[32]



Information economics


Information economics examines how information (or a lack of it) affects
economic decision-making. An important focus is the concept of

information asymmetry
, where one party has more or better information than
the other. The existence of information asymmetry gives rise to problems such
as
moral hazard
, and

adverse selection
, studied in

contract theory
. The economics of information has relevance in many
fields, including
finance,
insurance,

contract law
, and decision-making under risk and uncertainty.


International economics


International trade studies the determinants of the flow of goods and
services across international boundaries.

International finance
is a macroeconomic field which examines the flow of
capital
across international borders, and the effects of these movements on

exchange rates
. Increased trade in goods, services and capital between
countries is a major effect of contemporary

globalization
.


Labour economics


Labour economics seeks to understand the functioning of the
market and
dynamics for

labour
.

Labour markets
function through the interaction of workers and employers.
Labour economics looks at the suppliers of labour services (workers), the
demanders of labour services (employers), and attempts to understand the
resulting patterns of wages and other labour income and of employment and
unemployment, Practical uses include assisting the formulation of

full employment
of policies.[33]


Law and economics


Law and economics, or economic analysis of law, is an approach to legal
theory that applies methods of economics to law. It includes the use of
economic concepts to explain the effects of legal rules, to assess which legal
rules are

economically efficient
, and to predict what the legal rules will be.[34][35]
A seminal article by

Ronald Coase
published in 1961 suggested that well-defined property rights
could overcome the problems of

externalities
.[36]


Managerial economics


Managerial economics applies

microeconomic
analysis to specific decisions in business firms or other
management units. It draws heavily from quantitative methods such as

operations research
and programming and from statistical methods such as

regression analysis
in the absence of certainty and perfect knowledge. A
unifying theme is the attempt to

optimize
business decisions, including unit-cost minimization and profit
maximization, given the firm's objectives and constraints imposed by
technology and market conditons.[37]
[38]



Public finance


Public finance is the field of economics that deals with budgeting the
revenues and expenditures of a

public sector
entity, usually government. The subject addresses such
matters as
tax
incidence
(who really pays a particular tax), cost-benefit analysis of
government programs, effects on

economic efficiency
and

income distribution
of different kinds of spending and taxes, and fiscal
politics. The latter, an aspect of

public choice theory
, models public-sector behavior analogously to
microeconomics, involving interactions of self-interested voters, politicians,
and bureaucrats.[39]



Welfare economics


Welfare economics is a branch of economics that uses

microeconomic
techniques to simultaneously determine the

allocative efficiency
within an economy and the income

distribution
associated with it. It attempts to measure

social welfare
by examining the economic activities of the individuals
that comprise society.[40]


Economic concepts



Supply and demand


The theory of demand and supply is an organizing principle to explain
prices and quantities of goods sold and changes thereof in a
market
economy. In

microeconomic theory
, it refers to price and output determination in a

perfectly competitive market
. This has served as a building block for
modeling other market structures and for other theoretical approaches.


For a given market of a

commodity
, demand shows the quantity that all prospective buyers
would be prepared to purchase at each unit price of the good. Demand is often
represented using a table or a graph relating price and quantity demanded (see
boxed figure).

Demand theory
describes individual consumers as "rationally"
choosing the most preferred quantity of each good, given income,
prices, tastes, etc. A term for this is 'constrained utility maximization'
(with income as the "constraint"
on demand). Here, 'utility'
refers to the (hypothesized) preference relation for individual consumers.
Utility and income are then used to model hypothesized properties about the
effect of a price change on the quantity demanded. The law of demand
states that, in general, price and quantity demanded in a given market are
inversely related. In other words, the higher the price of a product, the less
of it people would be able and willing to buy of it (other things

unchanged
). As the price of a commodity rises, overall

purchasing power
decreases (the

income effect
) and consumers move toward relatively less expensive
goods (the

substitution effect
). Other factors can also affect demand; for
example an increase in income will shift the demand curve outward
relative to the origin, as in the figure.


Supply is the relation between the price of a good and the quantity
available for sale from suppliers (such as producers) at that price. Supply is
often represented using a table or graph relating price and quantity
supplied
. Producers are hypothesized to be profit-maximizers, meaning that
they attempt to produce the amount of goods that will bring them the highest
profit. Supply is typically represented as a directly proportional
relation between price and quantity supplied (other things unchanged). In
other words, the higher the price at which the good can be sold, the more of
it producers will supply. The higher price makes it profitable to increase
production. At a price below equilibrium, there is a shortage of quantity
supplied compared to quantity demanded. This pulls the price up. At a price
above equilibrium, there is a surplus of quantity supplied compared to
quantity demanded. This pushes the price down. The

model
of supply and demand predicts that for a given supply and demand
curve, price and quantity will stabilize at the price that makes quantity
supplied equal to quantity demanded. This is at the intersection of the two
curves in the graph above,

market equilibrium
.


For a given quantity of a good, the price point on the demand curve
indicates the value, or

marginal utility
[41]
to consumers for that unit of output. It measures what the consumer would be
prepared to pay for the corresponding unit of the good. The price point on the
supply curve measures

marginal cost
, the increase in total cost to the supplier for the
corresponding unit of the good. The price in equilibrium is determined by
supply and demand. In a

perfectly competitive market
, supply and demand equate cost and value at
equilibrium.[42]


Demand and supply can also be used to model the

distribution of income
to the

factors of production
, including labour and capital, through factor
markets
. In a labour market for example, the quantity of labour employed
and the price of labour (the wage rate) are modeled as set by the

demand for labour
(from business firms etc. for production) and supply of
labour (from workers).


Demand and supply are used to explain the behavior of perfectly competitive
markets, but their usefulness as a standard of performance extends to any type
of market. Demand and supply can also be generalized to explain

macroeconomic
variables in a

market economy
, for example,
quantity of
total output
and the general
price
level
.


Prices and quantities





Even a currency has a price, its exchange rate in currency markets.  Its determination by supply and demand is an important issue in international trade.




Even a

currency
has a price, its

exchange rate
in currency markets. Its determination by supply and
demand is an important issue in

international trade
.




In supply-and-demand analysis, price, the going rate of exchange for
a good, coordinates production and consumption quantities. Price and quantity
have been described as the most directly observable characteristics of a good
produced for the market.[43]
Supply, demand, and market equilibrium are theoretical constructs linking
price and quantity. But tracing the effects of factors predicted to change
supply and demand -- and through them, price and quantity -- is a standard
exercise in applied

microeconomics
and

macroeconomics
. Economic theory can specify under what circumstances price
demonstrably serves as an efficient communication device to regulate
quantity.[44]
A real-world counterpart might attempt to measure how much variables that
increase supply or demand change price and quantity.


Elementary demand-and-supply theory predicts equilibrium but not the speed
of adjustment for changes of equilibrium due to a shift in demand or supply.[45]
In many areas, some form of "price stickiness" is postulated to account for
quantities, rather than prices, adjusting in the short run to changes on the
demand side or the supply side. This includes standard analysis of the

business cycle
in

macroeconomics
. Analysis often revolves around causes of such price
stickiness and their implications for reaching a hypothesized long-run
equilibrium. Examples of such price stickiness in particular markets include
wage rates in labour markets and posted prices in markets deviating from

perfect competition
.


Another area of economics considers whether markets adequately take account
of all social costs and benefits. An

externality
is said to occur where there are significant social costs or
benefits from production or consumption that are not reflected in market
prices. For example, air pollution may generate a negative externality, and
education may generate a positive externality (less crime, etc.). Governments
often tax and otherwise restrict the sale of goods that have negative
externalities and subsidize or otherwise promote the purchase of goods that
have positive externalities in an effort to correct the price distortions
caused by these externalities.[46]

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