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Midterm

COMMERCE 1B03 Study Guide - Midterm Guide: Marketing Mix, General Agreement On Tariffs And Trade, Canada Health Transfer


Department
Commerce
Course Code
COMMERCE 1B03
Professor
Rita Cossa
Study Guide
Midterm

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Chapter 2 Review
Adam Smith = father of modern economics
Coined “Invisible Hand” – the process that turns self-directed gain into social and
economic benefits for all (EX: Farms)
Socialism - some free market and some government allocation
Communism= is an economic and political system in which the government makes
ALMOST ALL economic decisions and owns almost all factors of production (land,
labour, capitalism.
-affects personal choices more than socialism
-ex: Korea is a communist country
Capitalism - individuals seeking profits produce products and these products are sold in
a free market to those who can pay for them
The Foundations of Capitalism:
1) Free Market = exists when the market largely determines what G&S are
produced, who gets them and how the economy grows.
-CAPITALISM is used to describe this economic system
2) Command Market = exists when the government largely determines what G&S
are produced, who gets them and how the economy grows.
-SOCIALISM and COMMUNISM are used to describe variations of this
economic system
Mixed Economy = exists where some allocation of resources is made by the market and
some is made by the government
-Canada is a MIXED ECONOMY (like most countries in the world)
Capitalism
(USA)
Socialism
(Sweden)
Communism
(North Korea)
Mixed
Economy
(Canada)
Social &
Economic
Goods
-private
ownership
-Freedom
-Free Trade
-public
ownership
-some private
ownership
-very high
taxation
-emphasis on
equality
-public
ownership
-emphasis on
equality
-many
limitations on
freedom
-private
ownership
-gout control of
some
institutions
-high taxation
-emphasis on
balance btwn
freedom and
equality

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Motivation of
Workers
-much incentive
-workers highly
rewarded
-capitalist
incentive
-gout control of
wages
-very little
incentive
-similar to
capitalism
Control over
Markets
-complete
freedom of
trade
-no gout control
of markets
-some markets
controlled by
gout & some
are free trade
-trade
restrictions
-total gout
control
-some gout
control
Choices in the
Market
-many products
available
-variety in
market place
-very little
choice among
competing
products
-similar to
capitalism
Free Market Comp Types:
• 1. Pure / Perfect Competition
o many buyers and sellers for similar products
o perfect information
o no buyer or seller is powerful enough to affect the price
o distribution is important
2. monopolistic Competition
o large number of sellers for unique but substitutable products
o pricing is important
3.Oligopoly
o FEW large sellers / competitors for similar products
o sellers have large control over price
o promotion is key to achieve perceived product differences as do not tend
to compete on price
4.Monopoly
o only one seller and price is based on demand
o product is unique but not substitutable
o marketing mix is unimportant
natural – resource-based due to a large investment
legal – for a limited time due to a patent / trademark
political – due to legal and regulatory powers
Limits of Free Markets
Inequality of Wealth- Causes National & World Tension
Greed Compromises Ethics
Potential Environmental Damage
Limitations Push Country towards Socialism = Government Regulation

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Current Economic Trends:
Canada
o has a MIXED ECONOMY as the government has always played a major
role in the economy to balance capitalism disadvantages
Communist countries
o many have moved to capitalist forms of economies to improve their
standards of living
Socialist countries
o have reduced government’s role in their economies
Business Cycles - rises and falls that occur over time
1. Economic boom
2. Recession – slowdown in economic activity
Consecutive quarters of GDP decline
3. Depression – severe recession
4. Recovery – a new expansionary phase begins when the economy stabilizes and starts
to grow
3 Major indicators in Canada’s economic conditions:
1) GDP
2) Unemployment rate
3) Price indexes
Gross Domestic Product
o the total value of goods and services produced in a country in a given year
GDP reflects:
o Level of employment
o productivity (goods and services)
o efficiency (education and processes)
Unemployment:
frictional unemployment – people who have
structural unemployment – unemployment caused by company restructuring, a
mismatch between the skills of employees, and / or the location of jobs
cyclical unemployment – due to a
seasonal unemployment – demand for labour varies over the year
Price indexes help measure the health of the economy by measuring levels of inflation,
disinflation, deflation and stagflation.
Consumer Price Index (CPI) – measures monthly changes in the price of a
basket of products bought by an average consumer
Industrial Product Price Index (IPPI) – reflects the prices that producers in
Canada receive as goods leave the plant gates to be sold
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