The Foundations of Business

Business:

Business is all profit-seeking activities and enterprises that provide goods and services necessary to an economic system. Some businesses produce tangible products, like cars and clothes, while others produce services like insurance and car rentals.

Profit:

Profit is the difference between an organization’s revenues and expenses. Revenues are funds received and expenses are funds expended. Profits are rewards received by business owners that take risks involved in business.

Social Responsibility:

Social responsibility is the consideration of the social as well as economic impacts of business decisions.

Private enterprise system:

The private enterprise system is an economic system in which success or failure is determined by how well organizations match and counter the offerings of competitors.

Competition:

Competition is the battle among business for consumer acceptance. This acceptance is demonstrated by the purchase of goods and/or services and measured by sales and profits.

Entrepreneur:

An entrepreneur is a risk taker in the private enterprise system. This person devises a plan and forms an organization to achieve the objective of providing goods and/or services and making a profit.

Capitalism:

The private enterprise system, or capitalism, is founded on the principle that competition among businesses best serves the needs of society.

Invisible hand of competition:

Adam Smith, often called the father or capitalism, first described the invisible hand of competition in his book Wealth of Nations, published in 1776. He wrote that an economy is best regulated by the invisible hand of competition, meaning that competition among businesses would assure that consumers received the best possible products and prices because the less efficient producers would gradually be eliminated for the marketplace.

Antitrust laws:

Antitrust laws were passed to strengthen the role of competition. Antitrust laws prohibit attempts o monopolize, or dominate, a particular market. Two early antitrust laws were the Sherman Antitrust Act of 1890 and the Clayton Act of 1914. The Sherman Antitrust law prohibits every contract or conspiracy in restraint of trade and declares illegal any action that monopolizes or attempts to monopolize any part of trade or commerce. The Clayton Act forbids trade restraints such as tying contracts, inter-locking directorates, and certain anticompetitive stock acquisitions. A tying contract is a contract that requires a person who wishes to be the exclusive dealer for a manufacturer’s product to carry other products of the manufacturer in inventory. Interlocking directorates are identical or overlapping boars of directors for competitive companies.

Private property:

The right to private property is the most fundamental of all rights under the private enterprise system. The private enterprise system guarantees people the right to own, use, buy, sell, and bequeath most forms of property—including land, buildings, machinery, equipment, inventions, and various intangible properties.

Basic rights under the private enterprise system:

Basic rights under the private enterprise system include the right to private property, profits, freedom of choice, and competition. The private enterprise system guarantees the risk taker to all profits, after taxes earned by the business. Under the private enterprise system people can go into or out of business with minimal government interference. People can change jobs, negotiate compensation, join labor unions, and quit if they so desire. Consumers can choose between different products and services. The private enterprise system also endeavors to prohibit “cutthroat” competition—excessively competitive practices designed to eliminate competition. There are also prohibitions on price discrimination, fraudulent dealings in financial markets, and deceptive advertising and packaging.