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MGTA01H3 Lecture Notes - Quid Pro Quo, Monopolistic Competition, Initial Public Offering

Management (MGT)
Course Code
Chris Bovaird

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Chapter 1: Understanding the Canadian Business System
The Concept of Business and Profit
=> Business: An organization that produces or sells goods or services in an effort to
make a profit.
=> Revenues: The money a business earns selling its products and services.
=> Expenses: The money a business spends producing its goods and services, and
generally running the business.
=> Profit: The money that remains (if any) after a business’s expenses are subtracted
from its revenues.
Economic Systems around the World
=> Economic System: The way in which a nation allocates its resources among its
=> Factors of production: The resources used to produce goods and services: labour,
capital, entrepreneurs and natural resources.
=> Labour: Also referred to as human resources, labour is the mental and physical
capabilities of people. An example can be seen in a major corporation. All members of
the corporation who contribute to running and maintaining the business, its liabilities and
assets are forms of labour.
=> Capital: The funds used to operate an enterprise. A major source of capital for small
businesses is personal investments, which can come from individual entrepreneurs, from
partners who start businesses together or from investors who buy stock. Another form of
capital can be the revenue that enters the business once it successful enters the economic
=> Natural resources: Items used in the production of goods and services in their natural
state, including land, water, mineral deposits and trees. Once just limited to resources that
could only be produced in nature, it now relates to include all physical resources.
=> Entrepreneurs: The people who accept the opportunities and risks involved in
creating and operating businesses. An example can be seen in the establishment of
Facebook, by Mark Zuckerburg, who had the technical skills to understand the benefits of
connecting to the Internet, and realized the potential behind network connections between
its users. The entrepreneur is able to identify unmet consumer needs, such as advertising
and selling a good or service. The entrepreneur is able to spot a promising opportunity
and develop a good plan for capitalizing on it.
=> Information resources: information such as market forecasts, economic data, and
specialized knowledge of employees that is used to a business and that helps it achieve its
=> Command economy: an economic system in which government controls all or most
factors of production and makes all or most production decisions.
=> Market economy: An economic system in which individuals control all or most
factors of production and make all or most production decisions.

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=> Mixed market economy: An economic system with elements of both market and
command economies
=> Privatization: the process of converting government enterprises into privately owned
=> Deregulation: reduction in the number of laws affecting business activity.
- two basic forms of command economies are communism and socialism
- originally proposed by Karl Marx, communism is a system in which the government
owns and operates all sources of production.
- Marx envisioned a society in which individuals would ultimately contribute according
to their abilities and receive economic benefits according to their needs.
- he also expected government ownership of production factors to be only temporary
- once society has matured, government would “wither away” and the workers would
gain direct ownership
- less extensive command economic system than communism
- socialism owns and operates only selected major industries
- smaller businesses such as clothing stores and restaurants may be privately owned
- workers in socialist countries are usually allowed to choose their occupations
- despite this, a large population generally works for the government
- a kind of market economy offering private ownership of the factors of production and of
profits from business activity
- it is referred to as a political basis of market processes, which sanctions the private
ownership of the factors of production
- encourages entrepreneurship by offering profits as an incentive
Interactions between Business and Government
How the government influences business:
Government as customer:
- government purchases thousands of different products and services from business firms
- the government is also the largest purchaser of advertising
- many businesses depend on government purchases, if not for their survival, at least for a
certain level of prosperity.
Government as competitor:
- the government competes with other business as Crown corporations, which are
accountable to a minister of Parliament for their conduct

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- Crown corporations exist at both the federal and provincial level, and account for a
significant and wide variety of economic activity in Canada
Government as regulator:
- government regulates business through many administrative boards, tribunals or
- at the federal level, examples include the Canadian Radio-Television and
Telecommunications Commission (CRTC), which issues and renews broadcast licenses,
the Canadian Transport Commission (CTC) which makes decisions about route and rate
applications for commercial air and railway companies, and the Canadian Wheat Board,
which regulates the price of wheat.
- at the provincial level, provincial boards and commissions regulate business through
their decisions.
- other several important reason for government regulation on businesses include:
=> protecting competition
=> protecting consumers
=> achieving social goals
=> protecting the environment
Government as taxation agent:
- revenue taxes are taxes whose purpose is to fund government services and programs
- progressive taxes are levied on a higher rates on higher income tax payers, and at lower
rate on lower income tax payers
- regressive taxes are levied at the same rate, regardless of person’s income (fixed rate)
- restrictive taxes levied to control certain activities that legislators believe should be
controlled (examples include alcohol, tobacco and gasoline)
Government as provider of incentives:
- government offers incentive programs in order to stimulate the economy (Hyundai
Motors received $6.4 million to build a production facility, and an additional $682,000 in
order to train workers)
- government also offers services through government organizations (Stats Canada, which
provides data on Canadian economy)
Government as provider of essential services:
- the federal government provides highways, the postal service, the Royal Mint, military
forces and statistical data which helps businesses in decision making.
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