The role of business in relation

to the economy
Objectives

Explain the role of business

in relation to the economy

List the impacts

Describe
of business to
Economics
the economy

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Main Idea

A business enterprise is a part

of a larger economic system

It therefore interacts with it

• Knowing how and why is crucial to
becoming successful

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Key Concept

A business firm co-exists

and interrelates with other
members in the economic
system.

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Key Terms

Econom is an area of the

production, distribution,
y or trade, and
consumption of goods
and services by different
agents in a given
geographical location.

Inflation is the increase in price

levels over time.

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Key Terms

Economic is a term used to

cycle describe how, in
general, the national
income of a country
increases or fall from
one year to the next

Expenditur the action of

e spending funds

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Key Terms

Income is the consumption and

savings opportunity
gained by an entity
within a specified
timeframe, which is
generally expressed in
monetary terms.
Unemploymen the state of being
t without a job

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Key Terms

Aggregate earnings
from a nations
current production
Nationa including
compensation of
l income employees, interest,
rental income, and
profits of business
after taxes

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Key Terms

The total value of the

goods and services
Gross produced by the people
domestic of a nation during a
year not including the
product value of income earned
in foreign countries

The total value of the

Gross goods and services
produced by the people
national of a nation during a
year
product
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Discussion
Starter Review the relationship of
business and the economy

“Is your business

economically ready?”

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The Relationship
Pays for the factors of productions

Provides the factors

of productions

ECONO BUSINES
MY S
Produce goods and
services

Pays for the goods and services

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Basically, the role of business is to produce goods
and services which consumers need. Figure 1.1
(see next page) shows the relationship between
business and the economy.
The business firm produces goods and services from
the factors of production provided by society.
Consumers, in turn, buy these goods and services.
Business firms thus contribute to the country's
economic growth. One measure of economic growth
is the Gross National Product (GNP), defined as the
total market value of goods and services produced by
a country in any given period (usually quarterly, semi
annually, annually).
Consequently, to produce goods and services, the business
firm has to purchase materials, components, or semi-
finished goods from other producers, thereby creating a
demand for the outputs of other businesses. It has to pay
wages to its personnel. These wages form the income of the
workers, who in turn buy foods, clothes, and other goods
and services. A business firm co-exists and interrelates with
other members in the economic system. Some business
firms manufacture the same products or substitutes for
others. When we combine these firms as a group, we call
them an industry. Thus, we may define an industry as a
group of business firms offering similar goods or services.
Some examples are the electronics, car, chemicals,
petroleum, banking and finance, and construction industries.
Measuring activity in the national
economy
National income
gross national product
gross domestic product
 Measuring activity in the national
economy
The
expenditur C = the amount of
e approach
to
Economi consumption on goods
and services
calculating
economic c activity I = the amount spent on
investment in long-term
activity assets

= G = the amount of
government spending

C+I+G X = the amount of

exports of goods and
+ (X – M) services
M = the amount of
imports of goods and
services
Measuring activity in the national
economy
Economic Variable
18

16

14

12

10

0
EA C I G (X-M)

Economic Variable
 Questions
1. What are the impacts of business to
our economy?
2. Cite an examples or situations on
how business contribute to our
economy.

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