Portal:Business and economics

Introduction

Business is the activity of making one's living or making money by producing or buying and selling products (such as goods and services).[need quotation to verify] Simply put, it is "any activity or enterprise entered into for profit. It does not mean it is a company, a corporation, partnership, or have any such formal organization, but it can range from a street peddler to General Motors."

Having a business name does not separate the business entity from the owner, which means that the owner of the business is responsible and liable for debts incurred by the business. If the business acquires debts, the crors can go after the owner's personal possessions. A business structure does not allow for corporate tax rates. The proprietor is personally taxed on all income from the business.

The term is also often used colloquially (but not by lawyers or by public officials) to refer to a company. A company, on the other hand, is a separate legal entity and provides for limited liability, as well as corporate tax rates. A company structure is more complicated and expensive to set up, but offers more protection and benefits for the owner.

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A Bank run (also known as a run on the bank) is a type of financial crisis. It is a panic which occurs when a large number of customers of a bank fear it is insolvent and withdraw their deposits.
Northern Rock bank run on the morning of 14 September 2007.

A run on the bank begins when the public begins to suspect that a bank may become insolvent. As a result, individuals begin to withdraw their savings. This action can destabilize the bank to the point where it may in fact become insolvent. Banks retain only a fraction of their deposits as cash (see fractional-reserve banking): the remainder is issued as loans. As a result, no bank has enough reserves on hand to cope with more than the fraction of deposits being taken out at once, and will 'call in' the short term deposits itself has made. This can cause a shortage of Market liquidity in the short term money market.

As a bank run progresses, it generates its own momentum. As more people withdraw their deposits, the likelihood of default increases, so other individuals have more incentive to withdraw their own deposits. If many or most banks were to suffer runs at the same time, then the resulting chain of bankruptcies can cause a long economic recession.

To prevent bank runs, Central banks can prevent financial institutions from failing by:

  • Deposit insurance systems insure each depositer up to a certain amount, therefore the depositers' savings are protected even if the bank fails. This removes the incentive to withdraw deposits simply because others are withdrawing theirs if consumers trust the insurance system.
  • Central banks act as a lender of last resort. To prevent a bank run, the Central Bank guarantees that it will make short-term, high-interest loans to banks, to ensure that, if they remain economically viable, they will always have enough liquidity to honour their deposits.
  • Reserve ratios and Tier 1 capital thresholds both limit the proportion of deposits which a bank can loan out.

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Say no to bribes in Zambia.
Photo cr: Lars Plougmann

Bribery around the world is estimated at about $1 trillion (£494bn). The burden of corruption falls disproportionately on the bottom billion people living in extreme poverty who cannot afford to pay and who thus receive sub-standard treatment from officials.

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"The feature of actual business to which, like Professor Sraffa, we draw attention, and which does not seem to have been generally taken account of in economic theory, is the existence with reference to each seller of groups of buyers who will deal with him instead of with his competitors in spite of a difference in price. If a seller increases his price too far he will gradually lose business to his rivals, but he does not lose all his trade instantly when he raises his price only a trifle. Many customers will still prefer to trade with him because they live nearer to his store than to the others, or because they have less freight to pay from his warehouse to their own, or because his mode of doing business is more to their liking, or because he sells other articles which they desire, or because he is a relative or a fellow Elk or Baptist, or on account of some difference in service or quality, or for a combination of reasons. Such circles of customers may be said to make every entrepreneur a monopolist within a limited class and region and there is no monopoly which is not confined to a limited class and region. The difference between the Standard Oil Company in its prime and the little corner grocery is quantitative rather than qualitative. Between the perfect competition and monopoly of theory lie the actual cases"

Harold Hotelling, Stability in Competition, 1929

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