Business As A Part Of Economic System

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Business as a part of Economic System

The economic system of a nation represents the network of economic institutions for the organization of national economic resources to satisfy the needs of the people. But the business system involves a network of activities concerned with production and distribution of goods and services for satisfaction of human needs. Thus, economic system is a broader system consisting of business firms and government institutions which direct and facilitate the utilization of economic resources.

Business is a sub-system of the economic system of the country. Business system is engaged in the production and distribution and distribution of want satisfying goods and services as determined by the economic system. It may be noted that economic system aims at utilizing the limited national resources to meet the unlimited wants of the people. That is why, the economic system determines the pattern of utilization of national resources by the business firms. In other words, the business system has to operate within the limits imposed by the economic system such as ownership and control of factors of production, property rights, price mechanism, economic plans etc.

The business system is composed of uncountable inter-locking sub-systems known as industrial and commercial firms. Each firm has further sub-systems such as production, marketing, finance and personnel. The economic system of the country (say capitalist, socialist or mixed system) exerts the most pervasive influence on the structure, organization and operations of these firms. Therefore, the business system of a country cannot be studied without reference to the economic system of which it is a part. The economic system of the country provides economic environment of business. Business is influenced by the overall economic system consisting of ownership of factors of production, economic planning (centralized or decentralized), fiscal commercial and industrial policies of the Government, etc.

Under a capitalist economy, business is largely operated by entrepreneurs for private profit. Decisions relating to production, distribution and consumption are made through market forces of demand and supply without much interference by the Government. But in a communist or socialist economy, all business decisions are dictated and regulated by the central agencies of the Government. The business cannot take independent decisions here. However, in a mixed economy like India, the businessmen have freedom of choice and action in certain industries. Some industries are reserved exclusively for the public sector. The private sector business enterprises have to be guided by the Government budgetary, industrial and commercial policies. They are also expected to pursue their social responsibilities as they operate under the socio-economic environment.

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