What Is the Relationship Between Business and the Economy?

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Businesses provide goods and services that drive economic output, according to About.com. The law of supply and demand dictates that companies can step in and begin producing products if an economy is not able to produce high-demand goods to satisfy the public.

Supply and demand also works when prices fall due to lack of demand from the public, About.com states in an article adapted from the U.S. Department of State. This causes businesses to fail or switch to manufacturing other goods. This is known as a market economy, which is different from a socialist economy, an economic system whereby the government plays a more central role in the economy.

Small businesses in particular foster economic growth by hiring people, and large corporations benefit from the productivity of smaller companies, according to the Houston Chronicle. Successful small businesses also contribute to communities by paying taxes. Some small businesses morph into larger companies that participate in the national and international markets.