Final answer:
The high failure rate among small businesses is often due to poor management, unproductive labor, strong competition, and unexpected market changes affecting costs and pricing. The U.S. Small Business Administration reported a large number of exits indicating the challenges for small business sustainability. Despite the difficulties, such exits are part of a dynamic market system.
Step-by-step explanation:
The principal reasons for the high failure rate among small businesses can include a variety of factors such as poor management, unproductive labor, fierce domestic or foreign competition, and unexpected shifts in market demand and supply. These shifts can lead to a decrease in the prices that can be charged for outputs or an increase in the cost of inputs, putting financial stress on the business. The U.S. Small Business Administration's data from 2011 shows that while over half a million new businesses were created, a slightly higher number exited the market, highlighting the volatile nature of small business survival.
In a more detailed examination, we see factors such as poor management which may result in inadequate business planning, ineffective decision-making, and substandard customer service. Inefficient workers who do not contribute to productivity can also cause a business to struggle financially. Additionally, small businesses often face competition from larger, more established companies, both domestically and internationally, which can be challenging to overcome. Ultimately, these factors align with the expectations of a market-oriented economic system where businesses must continuously adapt and innovate to meet the needs of customers while managing costs effectively.