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adms 1000

6 Pages

Administrative Studies
Course Code
ADMS 1000
Len Karakowsky

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Session 2: Economic Context Chapter 2: The Economic Context Notes Business • An organization that produces or sells goods or services in an effort to make a profit Profit • Is what remains after a business’s expenses have been subtracted from its revenues • Rewards the owners of businesses for taking the risks involved in investing their time and money Not-For-Profit Organizations • Do not try to make a profit; rather, they use the funds they generate (from government grants or the sale of goods and services) to provide services to the public • Charities, educational institutions, hospitals, labour unions, and government agencies are examples of not-for-profit organizations Economic System • Allocates a nation’s resources among its citizens • Differ in terms of who owns and controls these resources, known as the “factors of production” Factors of Production • The key difference between economic systems is the way in which they manage the factors of production – the basic resources that a country’s businesses use to produce goods and services • Businesses make economic choices based on their needs for the five factors of production: natural resources, labour, capital, information resources (or knowledge), and entrepreneurs Labour • The people who work for a company represent the first factor of production – labour (basically workers) • Sometimes called human resources, labour is the mental and physical capabilities of people Capital • Refers to the funds that are needed to start a business and to keep it operating and growing • Major sources of capital for businesses are personal investments by owners, the sale of stock to investors, profits from the sale of products and services, and funds borrowed from the banks and other lending institutions • Buildings, machinery, tools, and equipment Entrepreneurs • Are people who accept the opportunities and risks involved in creating and operating businesses • Individuals who start up businesses Natural Resources • Include all physical resources such as land, water, mineral deposits, and trees • Land and raw materials Information Resources • Include the specialized knowledge and expertise of people who work in businesses, as well as information that is found in market forecasts and various other forms of economic data • Knowledge workers with specialized education, skills and expertise Types of Economic Systems: 1. Market Economy 2. Command/Communism 3. Socialism 4. Mixed Economy NOTE: • Different types of economic systems manage the factors of production in different ways • In some systems, ownership is private; in others, the factors of production are owned by the government • Economic systems also differ in the way decisions are made about production and allocation Command Economies • Relies on a centralized government to control all or most factors of production and to make all or most production and allocation decisions • The two most basic forms of command economies are communism and socialism • Is a system in which the government owns and operates all sources of production Market Economies • Individuals – producers and consumers – control production and allocation decisions through supply and demand • Private enterprises (one that allows individuals to pursue their own interests with minimal government restrictions) typically has four elements (i.e. capitalist ideology): 1. Private Property 2. Freedom of Choice 3. Profits 4. Competition Socialism • The government owns and operates only selected major industries essential to the country`s economy • Smaller businesses such as clothing stores and restaurants may be privately owned • Although workers in socialist countries are usually allowed to choose their occupations or professions, a large proportion generally work for the government Mixed Economies • An economy that uses more than one economic system Market • Is a mechanism for exchange between buyers and sellers of a particular good or service Input Market • Firms buy resources from households, which then supply those resources Output Markets • Firms supply goods and services in response to demand on the part of the households Capitalism • Which allowed private ownership of the factors of production and encourages entrepreneurship by offering profits as incentives Privatization • Converting government enterprises into privately owned companies Nationalization • Converting private firms into government-owned firms Demand • Is the willingness and ability of buyers to purchase a product or service Supply • Is the willingness and ability of producers to offer a good or service for sale Law of Demand • States that buyers will purchase (demand) more of a product as its price drops Law of Supply • States that producers will offer (supply) more for sale as the prise rises Competition • Occurs when two or more businesses vie for the same resources or customers Types of Competition: 1. Perfect (or Pure) Competition 2. Monopoly 3. Oligopoly 4. Monopolistic Competition Perfect (or Pure) Competition • Firms must be small in size (but large in number) • The products of each are almost identical • Both buyers and sellers know the price that others are paying and receiving in the marketplace • Firms find it easy to enter or leave the market • Prices are set by the forces of supply and demand • No firm is powerful enough individually to influence the price of its product in the marketplace • Agriculture is usually considered to be a good example of pure competition in the Canadian economy. There are thousands of wheat farmers, the wheat produced on one farm
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