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. Partnership: A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership. There are three typical classifications of partnerships: general partnerships, limited partnerships, and limited liability partnerships. Corporation: A business corporation is a for-profit, limited liability entity that has a separate legal personality from its members. A corporation is owned by multiple shareholders and is overseen by a board of directors, which hires the business's managerial staff. 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. 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 costshere 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.   Economics 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 household.A definition that captures much of modern economics is that of Lionel Robbins in a essay: the science which studies human behaviour as a relationship between ends and scarce means which have alternative uses. 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 rsources.Areas of economics may be divided or classified into various types, including microeconomics and macroeconomics positive economics what is and normative economics what ought to be mainstream economics and heterodox economics fields and broader categories within economics. 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, education, the family, health, law, politics, religion, social institutions, and war.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 . 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 .   Microeconomics Microeconomics or price theory is a branch of economics that studies how individuals, households, and firms make decisions to allocate limited resources, typically in markets where goods or services are being bought and sold.Microeconomics examines how these decisions and behaviours affect the supply and demand for goods and services, which determines prices; and how prices, in turn, determine the supply and demand of goods and services.Macroeconomics, on the other hand, involves the sum total of economic activity, dealing with the issues of growth, inflation, and unemployment and with national economic policies relating to these issues and the effects of government actions e.g., changing taxation levels on them. Particularly in the wake of the Lucas critique, much of modern macroeconomic theory has been built upon 'microfoundations' — i.e. based upon basic assumptions about micro-level behaviour. One of the goals of microeconomics is to analyze market mechanisms that establish relative prices amongst goods and services and allocation of limited resources amongst many alternative uses. Microeconomics analyzes market failure, where markets fail to produce efficient results, as well as describing the theoretical conditions needed for perfect competition. Significant fields of study in microeconomics include general equilibrium, markets under asymmetric information, choice under uncertainty and economic applications of game theory. Also considered is the elasticity of products within the market system.   Assumptions and definitions The theory of supply and demand usually assumes that markets are perfectly competitive. This implies that there are many buyers and sellers in the market and none of them have the capacity to significantly influence prices of goods and services. In many real-life transactions, the assumption fails because some individual buyers or sellers or groups of buyers or sellers do have the ability to influence prices. Quite often a sophisticated analysis is required to understand the demand-supply equation of a good. However, the theory works well in simple situations. Mainstream economics does not assume a priori that markets are preferable to other forms of social organization. In fact, much analysis is devoted to cases where so-called market failures lead to resource allocation that is suboptimal by some standard highways are the classic example, profitable to all for use but not directly profitable for anyone to finance. In such cases, economists may attempt to find policies that will avoid waste directly by government control, indirectly by regulation that induces market participants to act in a manner consistent with optimal welfare, or by creating missing markets to enable efficient trading where none had previously existed. This is studied in the field of collective action. It also must be noted that optimal welfare usually takes on a Paretian norm, which in its mathematical application of Kaldor-Hicks Method, does not stay consistent with the Utilitarian norm within the normative side of economics which studies collective action, namely public choice. Market failure in positive economics microeconomics is limited in implications without mixing the belief of the economist and his or her theory.The demand for various commodities by individuals is generally thought of as the outcome of a utility-maximizing process. The interpretation of this relationship between price and quantity demanded of a given good is that, given all the other goods and constraints, this set of choices is that one which makes the consumer happiest.   Modes of operation It is assumed that all firms are following rational decision-making, and will produce at the profit-maximizing output. Given this assumption, there are four categories in which a firm's profit may be considered. A firm is said to be making an economic profit when its average total cost is less than the price of each additional product at the profit-maximizing output. The economic profit is equal to the quantity output multiplied by the difference between the average total cost and the price. A firm is said to be making a normal profit when its economic profit equals zero. This occurs where average total cost equals price at the profit-maximizing output. If the price is between average total cost and average variable cost at the profit-maximizing output, then the firm is said to be in a loss-minimizing condition. The firm should still continue to produce, however, since its loss would be larger if it were to stop producing. By continuing production, the firm can offset its variable cost and at least part of its fixed cost, but by stopping completely it would lose the entirety of its fixed cost. If the price is below average variable cost at the profit-maximizing output, the firm should go into shutdown. Losses are minimized by not producing at all, since any production would not generate returns significant enough to offset any fixed cost and part of the variable cost. By not producing, the firm loses only its fixed cost. By losing this fixed cost the company faces a challenge. It must either exit the market or remain in the market and risk a complete loss. In microeconomics, the term market failure does not mean that a given market has ceased functioning. Instead, a market failure is a situation in which a given market does not efficiently organize production or allocate goods and services to consumers. Economists normally apply the term to situations where the inefficiency is particularly dramatic, or when it is suggested that non-market institutions would provide a more desirable result. On the other hand, in a political context, stakeholders may use the term market failure to refer to situations where market forces do not serve the public interest.This situation was first described by Kenneth J. Arrow in a seminal article on health care in entitled Uncertainty and the Welfare Economics of Medical Care, in the American Economic Review. George Akerlof later used the term asymmetric information in his work The Market for Lemons. Akerlof noticed that, in such a market, the average value of the commodity tends to go down, even for those of perfectly good quality, because the buyer has no way of knowing whether the product they are buying will turn out to be a lemon a defective product. The four main types or causes of market failure are: Monopolies or other cases of abuse of market power where a single buyer or seller can exert significant influence over prices or output. Abuse of market power can be reduced by using antitrust regulations. Externalities, which occur in cases where the market does not take into account the impact of an economic activity on outsiders. There are positive externalities and negative externalities. Positive externalities occur in cases such as when a television program on family health improves the public's health. Negative externalities occur in cases such as when a company’s processes pollutes air or waterways. Negative externalities can be reduced by using government regulations, taxes, or subsidies, or by using property rights to force companies and individuals to take the impacts of their economic activity into account.Public goods such as national defence and public health initiatives such as draining mosquito-breeding marshes. For example, if draining mosquito-breeding marshes was left to the private market, far fewer marshes would probably be drained. To provide a good supply of public goods, nations typically use taxes that compel all residents to pay for these public goods due to scarce knowledge of the positive externalities to third parties/social welfare; and Cases where there is asymmetric information or uncertainty information inefficiency. Information asymmetry occurs when one party to a transaction has more or better information than the other party. Typically it is the seller that knows more about the product than the buyer, but this is not always the case. Buyers in some markets have better information than the Sellers. For example, used-car salespeople may know whether a used car has been used as a delivery vehicle or taxi, information that may not be available to buyers. An example of a situation where the buyer may have better information than the seller would be an estate sale of a house, as required by a last will and testament. A real estate broker purchasing this house may have more information about the house than the family members of the deceased.   Opportunity cost Although opportunity cost can be hard to quantify, the effect of opportunity cost is universal and very real on the individual level. In fact, this principle applies to all decisions, not just economic ones. Since the work of the Austrian economist Friedrich von Wieser, opportunity cost has been seen as the foundation of the marginal theory of value.Opportunity cost is one way to measure the cost of something. Rather than merely identifying and adding the costs of a project, one may also identify the next best alternative way to spend the same amount of money. The forgone profit of this next best alternative is the opportunity cost of the original choice. A common example is a farmer that chooses to farm his land rather than rent it to neighbors, wherein the opportunity cost is the forgone profit from renting. In this case, the farmer may expect to generate more profit himself. Similarly, the opportunity cost of attending university is the lost wages a student could have earned in the workforce, rather than the cost of tuition, books, and other requisite items whose sum makes up the total cost of attendance. The opportunity cost of a vacation in the Bahamas might be the down payment money for a house. Note that opportunity cost is not the sum of the available alternatives, but rather the benefit of the single, best alternative. Possible opportunity costs of the city's decision to build the hospital on its vacant land are the loss of the land for a sporting center, or the inability to use the land for a parking lot, or the money that could have been made from selling the land, or the loss of any of the various other possible uses—but not all of these in aggregate. The true opportunity cost would be the forgone profit of the most lucrative of those listed.One question that arises here is how to assess the benefit of dissimilar alternatives. We must determine a dollar value associated with each alternative to facilitate comparison and assess opportunity cost, which may be more or less difficult depending on the things we are trying to compare. For example, many decisions involve environmental impacts whose dollar value is difficult to assess because of scientific uncertainty. Valuing a human life or the economic impact of an Arctic oil spill involves making subjective choices with ethical implications.   Applied microeconomics Applied microeconomics includes a range of specialized areas of study, many of which draw on methods from other fields. Much applied works uses little more than the basics of price theory, supply and demand. Industrial organization and regulation examines topics such as the entry and exit of firms, innovation, role of trademarks. Law and economics applies microeconomic principles to the selection and enforcement of competing legal regimes and their relative efficiencies. Labor economics examines wages, employment, and labor market dynamics. Public finance also called public economics examines the design of government tax and expenditure policies and economic effects of these policies e.g., social insurance programs. Political economy examines the role of political institutions in determining policy outcomes. Health economics examines the organization of health care systems, including the role of the health care workforce and health insurance programs. Urban economics, which examines the challenges faced by cities, such as are sprawl, air and water pollution, traffic congestion, and poverty, draws on the fields of urban geography and sociology. The field of financial economics examines topics such as the structure of optimal portfolios, the rate of return to capital, econometric analysis of security returns, and corporate financial behavior. The field of economic history examines the evolution of the economy and economic institutions, using methods and techniques from the fields of economics, history, geography, sociology, psychology, and political science.