What is the profit system?
The profit system is a feature of the free market economy in which profit dictates how activities and opportunities are selected to entrepreneurs and companies. The theory "Invisible Hand" is a classic example of a profit system. This theory was first documented by Adam Smith, a Scottish philosopher and pioneer of economics from the 18th century, known as the father of the company theory in the free market. The invisible hand theory states that economic resources are assigned and used in a free market based on their own interest, competition and supply and demand in the economy.
The economic resource movement that can be seen in the theory of the invisible hand is often associated with the ability of individuals and businesses to generate profit from these sources. In order to maximize profit, companies must use economic resources efficiently and find ways to sell goods or services to consumers on the economic market. The profit system can also be associated with the economic theory of a business cycle or supply and demand.
Business cycle is a fluctuations in the wide economy, to which it usually occurs within a few months or years. The trade cycle seeks trends in expansion, plateau and contraction; This cycle is usually repeated throughout the economy, individual business industry or business sector. In most business cycles, the highest value system usually occurs in the expansion phase. This phase usually has the most growth potential because consumer demand is growing. The extension of the whole economy often suggests that consumer income level has increased to a point where more consumption purchases will be carried out. Many companies are launched during the expansion of the business cycle to use this situation.
During the platform phase in the business cycle, the potential of the profit system usually culminated and the sale was equal. Companies probably have maximized the potential of profit in the economy, industry or business sector and may try to tryLive to leave due to declining demand. Plateau can also occur when the national economy has seen a gross home product for several quarters in a row. Phase of the plateau often leads to the phase of contraction in the economic cycle.
The company's profits usually decreases significantly during a business cycle. Consumer demand has usually decreased to specific goods or services, and consumers may have stopped buying these products completely. Companies will start to lose money on these business functions and look for a new expansion of the business cycle where a new profit system can occur. Once the company has found a new phase of expansion, the entire profitable system process is usually repeated in the economic environment.