Business Fundamentals and Economic Contributions

Think about the many types of businesses you encounter daily: gas stations, fast-food chains, banks, and online stores. These organizations exist to meet your needs and those of other customers.

Businesses meet the needs of consumers by providing medical care, autos, and countless other goods and services. Goods are tangible items like laptops; services are intangible offerings like those from physicians, lawyers, hairstylists, car washes, and airlines.

Businesses create the goods and services that form the basis of our standard of living. The standard of living of any country is measured by the output of goods and services people can buy with the money they have. The United States has one of the highest standards of living in the world. Although countries like Switzerland and Germany have higher average wages, their standards of living aren't higher because prices are much higher—the same money buys less there.

Businesses play a key role in determining our quality of life by providing jobs and goods and services to society. Building a high quality of life is a combined effort of businesses, government, and not-for-profit organizations. In 2017, Vienna, Austria, ranked highest in quality of life, followed by Zurich, Switzerland; Auckland, New Zealand; and Munich, Germany. Not one of the world's top cities is in the United States: seven of the top 10 are in western Europe, two in Australia/New Zealand, and one in Canada. At the other end, Baghdad, Iraq, scores lowest.

Creating a quality of life is not without risks. Risk is the potential to lose time and money or otherwise not be able to accomplish an organization's goals. Without enough blood donors, the American Red Cross faces the risk of not meeting the demand for blood. Businesses like Microsoft face the risk of falling short of their revenue and profit goals.

For example, some of the costs Microsoft incurs in developing its software include salaries, facilities, and advertising. If Microsoft has money left over after paying all costs, it has a profit. A company whose costs are greater than revenues shows a loss.

When a company uses its resources intelligently, it can often increase sales, hold costs down, and earn a profit. Not all companies earn profits, but that is the risk of being in business. In U.S. business today, there is generally a direct relationship between risk and profit: the greater the risk, the greater the potential profit.

Businesses also serve other organizations, such as hospitals, retailers, and governments, by providing machinery, goods for resale, computers, and thousands of other items. This means businesses contribute to the economy not only by selling to consumers but also by supplying other businesses and institutions.