Butchers, bakers and candlestick makers
In earlier sections, firms were grouped together as one part of the circular flow of income model. But this begs the question, what is a firm?
Think about the goods and services you use each week – what types of firm produce them? You may also work for a firm. Make a quick list of at least five different firms that you have a connection with, for instance, as a customer, employee, investor or owner. What are the similarities between firms on your list?
Your list may show a bewildering variety of different firms, a mixture of well recognised national names, other local suppliers, and some that may appear to have only a virtual presence.
The diversity of firms in the economy is enormous: from the local corner shop, bakery or other food producers such as dairy farmers, to vast enterprises like Microsoft or Apple producing consumer goods, or GlaxoSmithKline or Pfizer producing pharmaceutical and health care products. Major multi-product firms are bigger on most measures of size than the economies of many whole countries, and also operate from sites across different countries, giving them the term Multi-National Corporations (MNCs). Not all firms produce goods, but some instead provide services, or a mixture of both goods and services. Services firms offer a range of activities, from the professional services, such as tax, legal and financial advice offered by ‘The Big Four’ audit firms (PWC, Ernst & Young, Deloitte and KPMG), or caring and social services provided by a local childminder or nursery.
Some firms are particularly well-known, capturing the attention of the media by developing innovative products to challenge the status quo. In fact, firms like Microsoft, Apple and, more recently, Amazon and Google began as small enterprises before growing to become large corporations known to households internationally. Aside from these high-profile firms with customers all over the world, there are many firms that sell directly to other businesses and provide intermediate goods and services as inputs into other firms’ production processes.