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CA (538,595)
UTSC (32,642)
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MGTA01H3 (350)
Lecture

MGTA03 chap 1-5.doc

15 Pages
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Department
Management (MGT)
Course Code
MGTA01H3
Professor
Bill Mc Conkey

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Chapter 1: Understanding the Canadian Business System
The Concept of Business and Profit
Terms:
=> 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
Terms:
=> Economic System: The way in which a nation allocates its resources among its citizens.
=> 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
market.
=> 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
goals.
=> 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.
=> Mixed market economy: An economic system with elements of both market and
command economies
=> Privatization: the process of converting government enterprises into privately owned
companies.
=> Deregulation: reduction in the number of laws affecting business activity.
Communism:
- 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
Socialism:
- 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
Capitalism:
- 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
- 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
commission.
- 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.
The Canadian Market Economy
Demand and Supply in a Market Economy:
Terms:
=> Demand: the willingness and ability of buyers to purchase a product or service
=> Supply: the willingness and ability of producers to offer a good or service for sale
=> Law of Demand: buyers will purchase(demand) more of a product as its price drops and
less of a product as its price increases.
=> Law of Supply: producers will offer (supply) more of a product for sale as its price rises
and less as its price drops.
=> Demand and Supply schedule: assessement of the relationships between different levels
of demand and supply at different price levels.
=> Demand curve: a graph showing how many units will be demanded at different prices
=> Supply curve: a graph showing how many units will be supplied at different prices.
=> Equilbrium price: the price where demand is equal to supply.
=> Surplus: when quantity supplied exceeds quantity demanded.
=> Shortage: when quantity demanded exceeds quantity supplied.
Private Enterprise and Competition of a Market Economy
Private Enterprise:
- an economic system characterized by private property rights, freedom of choice, profits and
competition.

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Description
Chapter 1 Understanding the Canadian Business SystemThe Concept of Business and ProfitTermsBusiness 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 businesss expenses are subtracted from its revenuesEconomic Systems around the WorldTerms Economic System The way in which a nation allocates its resources among its citizens 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 marketNatural 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 goalsan economic system in which government controls all or most Command economyfactors 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 Mixed market economy An economic system with elements of both market and command economies Privatization the process of converting government enterprises into privately owned companies Deregulation reduction in the number of laws affecting business activityCommunism 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 ownershipSocialismless 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 governmentCapitalism a kind of market economy offering private ownership of the factors of production and of profits from business activityit is referred to as a political basis of market processes which sanctions the privateownership of the factors of production encourages entrepreneurship by offering profits as an incentiveInteractions between Business and GovernmentHow the government influences businessGovernment 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 prosperityGovernment as competitor the government competes with other business as Crown corporations which are accountable to a minister of Parliament for their conduct Crown corporations exist at both the federal and provincial level and account for a significant and wide variety of economic activity in CanadaGovernment as regulator government regulates business through many administrative boards tribunals or commissionat the federal level examples include the Canadian RadioTelevision 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
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