Small Business Theory

A business is a legal body or enterprise dedicated to the quest of gain and commerce through the legal ownership, usage, or access of tangible property or immovable assets of another. A business can be privately owned, organized, or operated by an individual or corporation. Private organizations are distinguished from government organizations by their ability to restrict freedom of association and political rights guaranteed in the constitution and/or under federal law. In contrast, government organizations are generally ruled by a centralized authority with flexible but enforceable rules for membership, conduct, and administration.


Online business economics refers to the economics of nonprofit organizations. Non-profit organizations tend to be supported by a wide variety of charitable contributions, including private contributions, grants, and donations. Non-profit organizations have a wide range of activities, including educational and humanitarian programs, social services, art and culture, sports and entertainment, and community service. These organizations have special concerns related to organizational growth, budgeting, management, and financing. The concepts of business economics are very different from that of the personal finance of a businessman. Online business economists specialize in studying the economic activities of non-profits and other civic organizations.

Finance is a branch of business economics that studies the effects of changes in the supply and demand of specific good or service prices. An example of a product that is in high demand but not enough supply is automobile tires. The rise in tire prices caused by the rising demand has both positive and negative impacts on the overall economy. Students who earn an online business economics degree will study these factors and learn how to appropriately affect the supply and demand.

Market entry, exit, and trading costs all fall under the scope of business economics. Market entry is the process of determining how much a firm or organization will charge for a given good or service. The costs of starting a new business, as well as the costs of running one that is already in operation are included in market entry decisions. The analysis of exit strategies helps firms determine if they should retain existing employees and cut costs by exiting certain businesses or products. Economic trade theories also help with business decisions about opening, enlarging, and/or closing any business venture.

Another branch of business economics is that of managerial economics. Managerial economics focuses on the decisions made by managers at the top of large corporations and small companies. Those decisions can affect the overall economy. For example, a company’s decision to buy more products in order to boost customer satisfaction may result in increased inflation. Managing firms that control a large amount of assets can also affect business incentives.

Entrepreneurship refers to the development of new ventures. Entrepreneurship also includes private or public offerings of equity, business loans, and other forms of capital. A large portion of the cost of establishing a business often comes from finance. Many economists believe that entrepreneurs who can obtain access to highly developed finance can become large corporate or organizational leaders. The key to entrepreneurship is developing business plans that focus on the human resources of the enterprise as well as its technical infrastructure.

The third branch of business theory is commercial law. This field studies how commercial law affects the creation and sale of goods and services. In particular commercial law seeks to prevent monopoly conditions, price ceilings, and price controls in the distribution of consumer and capital goods. Monopoly occurs when there is a structural imbalance between supply and demand. The study of commercial law closely examines the relationship between monopoly, economic theory, technological change, government regulation, entrepreneurship, and various institutional factors. Commercial law also makes use of social science and statistics to examine the costs and benefits of different businesses in the same market segment.

Finally, entrepreneurship applies business principles to noncommercial enterprises such as partnerships, sole proprietorships, and cooperatives. Entrepreneurship theory suggests that entrepreneurs seek to achieve self-employment, generate surplus income, and build wealth by utilizing their skills, talent, and resources. It also suggests that small business owners must establish and maintain relationships with external customers, develop marketing strategies, manage working capital, and expand markets for their business. The study of entrepreneurship analyzes the business characteristics that distinguish small businesses from large corporations and establish the boundaries within which successful small businesses thrive.