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ADMS1000 - Lecture 2.docx

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Administrative Studies
ADMS 1000
Shahab Modirmassihai

Lecture 2:
 CONTEXT Learning Objectives: By the end of the chapter, you should be able to: 1. Identify the factors of production. 2. Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. 3. Show how demand and supply affect resource distribution in Canada. 4. Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system. 5. Define key indicators of economic stability and economic growth. What is the economic environment of business? The Idea of Business & Profit What is: - Business: an organization that produces or sells goods or services in an effort to make a profit - Profit: remains after a business’s expenses have been subtracted form its revenue - Non-profit: do not try to make a profit; rather, they use funds they generate (from government grants or the sale of goods or services) to provide services to the public – includes unions, government agencies, hospitals… Factors of Production
 Businesses make economic choices based on their needs for the five factors of production 1. Natural resources All physical resources Land and raw materials 2. Labour Workers; mental and physical capabilities of people – wide variety of skills 3. Capital Funds required to start a business and to keep it operating and growing Buildings, machinery, tools and equipment 4. Information resources Specialized Knowledge and expertise of workers Education, skills 5. Entrepreneurs Individuals who start up businesses How does Tim Horton’s utilize the five factors of production? Factors of Examples at Tim Horton’s How used? Production: Natural resources Land, Coffee beans, Sugar,  to operate business Milk  to make coffee  to make donuts  to make other products Labour Workers in franchise  store manager, cashier, coffee maker, Workers at corporate head donut maker, cleaner  executives, marketing managers, office finance managers, other administrative staff Capital Buildings, Machines, Tools  to run the fast food restaurant franchises  cooking equipment: to cook donuts, make coffee, etc  computers and calculators: to keep track of revenues and expenses Knowledge Specialized skills  individuals who understand the complexities of the coffee-bean trade, growing coffee etc. Entrepreneur Franchise Owner  Tim Horton is the original founder, but you can own and operate a franchise Economic Systems What is an economic system? - Allocates a nations resources among its citizens - Characterize the country in which they do business Types of Economic Systems: 1) Command Two basic forms: a. Communism (Karl Marx) exists when the government owns all the country’s resources and makes economic decisions centrally. b. Socialism an economic system whereby the government has large ownership or control of its major industries essential to the country’s economy. 2) Market Economy
 - market is mechanism for exchange between the buyers and sellers of a particular good or service - B2C and B2B exchange takes place w.o much government involvement o Both buyers and sellers enjoy freedom of choice - Input/output Markets: o Input Market: firms buy resources from households which then supply resources: Labour, capital, entrepreneurs, natural resources o Output Market: firms supply goods and services in response to demand on the part of the households: goods, services o Acidity of these two create a circuit flow o Political basis for the free market is called capitalism: allows private ownership of the factors of production and encourages entrepreneurship by offering profits as incentives - Relies on private enterprise 3) Mixed Market Economies - An economy that uses more than one economic system – most countries - Trend in 1990s – privatization: converting government enterprises into privately owned companies - Nationalization: converting private firms into government-owned firms o Attempts to stabilize o On the rise after 2008 recession - Canada The Canadian Market Economy The Laws of Supply and Demand - In market economy, decisions about what to buy and sell are determined primarily by the forces of demand and supply Demand: is the result of the decisions from buyers on whether or not to purchase a good or service. Supply: is the result of the decisions of sellers/producers whether to produce and offer a good or service for sale. The Laws of Supply and Demand: states that more of a good will be demanded (by society) as the price drops, and more of a good will be supplied (by producers) as the price rises. - To optimize profit – all businesses must constantly seek the right combination Competition and the economy
 - Private enterprise: market economies rely on – allows individuals to pursue their own interests with minimal government restrictions - Private enterprise typically has four elements: o Private property – ownership of resources used to create wealth is in the hands of individuals o Freedom of choice – you can sell you labour to any employer you choose; choose which to buy, and producers can usually choose whom to hire o Profits – leads people to abandon the security of working for someone else o Competition – profits motivate individuals to start businesses, and competition motivates them to operate those businesses efficiently.  Occur when tow or more businesses vie for the same resources or customers Types of Competition: 1) Perfect (or Pure) competition: - Firms must be small in size but large in numbers - Large number of buyers and sellers acting independently - Product or service is undifferentiated/almost the same - The market (supply/demand) determines the price (a price taker) - Firms individually do not have the power to influence the price of its product in the mark
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