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Lecture 5

Lecture 5 Note

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University of Toronto Mississauga
Dave Swanston

MGM101 Lecture 5 Notes October 11, 12 The Business Environment  Canada possesses one of the most fully developed economic systems in the world o Canada has a lot of natural resources that make us competitive since there is always demand for the products we offer o Very friendly place for business  Capitalism  entrepreneur  Canada’s abundance of natural resources, skilled labor force and sophisticated technology-based businesses have enabled the economy to grow and prosper over the past 200 years  Canada’s economy has moved primarily agricultural to a diversified system  Productivity gains, strong business investment, technological innovation, moderate wage increases, and a favorable currency exchange rate are all key factors in ensuring the Canadian economy remains resilient and competitive  Products driving current trade performance include oil and gas, canola, wheat, gold, nickel, potash, sulfur, telecommunications, aerospace, forestry – related and automobile sector products  A core requirement to the stability and growth the stability and growth of an economic system lies in its ability to service and promote both the current and future economic activity taking place o Ref. to pyramid on pp o Political  Political parties o Factors of production o Manageable levels of national debt o National monetary policy and banking system o Sufficient levels of investment o Low inflation o Absence of corruption o Effective legal system o Comparative advantage  Comparative advantage = the ability of a country to produce or supply goods or services at a lower cost than other countries or to possess resources or unique services that are unavailable elsewhere  Foreign direct investment occurs when a company or individual from one country makes an investment into a business within another country. This investment can reflect the physical ownership of productive assets or the purchase of a significant interest in the operations if a business  FDI into Canada has been increasing topping $500 billion  53% of FDI flowing into Canada comes from the U.S  Canada is viewed as a safe and lucrative place to do business  Canada has comparative advantage in commodities and energy market sectors  3 fundamental market compositions principles o the law of supply and demand- refers to the ability of the market, independent of external influences, to determine the price for which a product or service will be bought and sold. o allowance for private ownership, entrepreneurship, and wealth creation - refers to the openness of the market to support, encourage, and promote the concepts of private enterprise, personal ownership, entrepreneurship, and wealth creation. To a varying degree, economies around the world allow individuals and corporations these rights. Some economies, such as the United States and Canada, fully support these concepts in a climate of risk versus return. Developing economies such as the People’s Republic of China and India are allowing greater access to these fundamentals, whereas others, such as North Korea, are less willing to provide strong support of these capitalistic principles. o GOVERNMENT INVOLVEMENT IN INFLUENCING ECONOMIC ACTIVITY AND DIRECTION:  Open System refers to an economic system that adheres to the principles of economic freedom: the law of supply and demand, full and open access to the principles of private ownership, entrepreneurship, and wealth creation, and an absence of regulation on the part of government.  Within today’s global economy no system can be considered completely open  Controlled System refers to an economic system where the fundamentals of the law of supply and demand, private ownership, entrepreneurship, and wealth creation are largely restricted or absent, and the government fully controls the economic direction and activity.  Mixed Economic System refers to an economic system that contains components of both open and controlled systems. It includes the core principles of economic freedom, with some degree of centralized economic planning and government regulation and involvement  Canada has many sensitive resources which are regulated o On an open market it may not be an efficient system o We do regulate but yet there is a mixture of opened and closed  4 pillars of eco activity o expenditures- the purchases you make in support of your day-to-day economic activity that are deemed to be of value in meeting sustenance needs and in improving your overall quality of life. Clothing, food, housing, and transportation o savings- dollars you set aside today that will support economic activity and wealth creation in/for the future o investment- investments you are making today to further expand your capacity to conduct and expand your productivity and overall economic capacity. o Credit- the borrowing of dollars to support expenditures or investments being made o Economic Activity =Expenditures + Savings + Investment + Credit  Law of Supply and Demand- refers to the ability of the market, independent of external influences, to determine the price for which a product or service will be bought and sold.  gross domestic product, or GDP= refers to the total market value of the goods and services (economic output) a nation produces domes- tically over a period of time (generally one calendar year). o The total value of a nation’s economy is measured by its gross domestic product o Factors the contribute to eco growth and total value of GDP are:  Goods and services produced and purchased domestically for consumption  Business investments within the economy  Goods produced for export purposes  Government spending  Recession is a period of time that marks a contraction in the overall economic activity within an economy. A recession is typically believed to occur when an economy experiences two or more quarters of negative GDP movement.  Chartered Banks- are financial institutions regulated under the Canada Bank Act. Their primary responsibility is to bring together borrowers and lenders by accepting deposits and lending out money—all in a manner that safeguards the interests of their customers.  Economic growth needs to be managed in a way that stimulates investment yet maintains control of inflation and other inefficient economic influencers. Trends Impacting the Canadian Market:  Inflation- Inflation robs an economy of true growth and psy- cholog
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