Study Guides (238,613)
Canada (115,253)
Commerce (679)
Rita Cossa (19)

Test #1 Review Chapters 1-5.docx

29 Pages
Unlock Document

McMaster University
Rita Cossa

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 ALMOSTALL 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 Socialism Communism Mixed (USA) (Sweden) (North Korea) Economy (Canada) Social & -private -public -public -private Economic ownership ownership ownership ownership Goods -Freedom -some private -emphasis on -gout control of -Free Trade ownership equality some -very high -many institutions taxation limitations on -high taxation -emphasis on freedom -emphasis on equality balance btwn freedom and equality Motivation of -much incentive -capitalist -very little -similar to Workers -workers highly incentive incentive capitalism rewarded -gout control of wages Control over -complete -some markets -total gout -some gout Markets freedom of controlled by control control trade gout & some -no gout control are free trade of markets -trade restrictions Choices in the -many products -variety in -very little -similar to Market available market place choice among capitalism competing products 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 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 • Raw Materials Price Index (RMPI) – reflects the prices paid by Canadian manufacturers for key raw materials Inflation = general rise in prices of G&S overtime. Disinflation = a situation in which a price increases slowly (inflation rate is declining). Deflation = means prices are declining. Stagflation = a situation in which the economy is slowing but prices are going up regardless. Productivity: • measured on a national scale in terms of GDP o unemployment leads to decrease in GDP • anything that increases productivity or reduces labour costs makes a business, and a country, more competitive as prices can be lower • increases in productivity lead to standard of living improvements • gains in the past few decades have been due to the introduction of increasingly efficient machinery, equipment, and processes Improve productivity by: • promote investment in machinery and equipment o new technology and ideas shared through economy -Invest in education and SKILLS of ppl o knowledge spillover o production and adoption of new technology • Open the Economy to TRADE and INVESTMENT o exporting companies have higher productivity o low trade barriers allow countries to focus on strengths Economic Conditions: • II. Microeconomic Conditions o ability to buy is tied to income • changes in income, income distribution, consumer spending and savings o Disposable income - $ left after paying taxes • as disposable income rises, more families and individuals can afford the “good life” (standard of living) o Discretionary income - $ left after paying taxes and necessities Chapter 4 Review • Canada was formed in 1867 and the federal government was given power to ‘regulate trade and commerce’ • Special efforts were needed to unify Canada once the western provinces joined Confederation o Canada’s small population spreads across the country, most of which is near the U.S. border o Trading patterns are north/south • ANational Policy was developed to protect Canadian manufacturing by using high tariffs When Canada was formed in 1867, gout was given the power to “regulate trade and commerce.” Government activities associated with business can be divided into SIX categories: 1) Crown Corporations – there are hundreds of such companies, and they play an important role in the economy. CC sometimes competes with for-profit businesses. 2) Laws and Regulations – these cover a wide range, from taxation and consumer protection to environment controls, working conditions and labour-management relations. 3) Taxation and Financial Policies –All levels of gout collect taxes 4) Government Expenditures – gouts payout millions of dollars to Canadians. When these recipients spend this money, businesses benefits. 5) Purchasing Power – gouts are very large purchasers of ordinary supplies, services and materials to operate the country. 6) Services – these include many different direct and indirect activities, among them helping companies go international, brining companies to Canada, and training and retraining the workforce. Crown Corporations = companies owned by the federal or provincial gout. -provide services that were not being provided by businesses (ex;AirCanada) -also provide special services that could not be made available (ex: Bank of Canada) • a company that is owned by the federal or provincial government • created to provide services that were not being provided by businesses o Air Canada in the 1930s –national air carrier created o bail out a major industry in trouble o CNR in 1919 o provide some special services that could not otherwise be made available o Bank of Canada Privatization = the process of gouts selling Crown Corporations Deregulation = gout withdrawal of certain laws and regulations that seem to hinder competition • Caution: you don’t want to exchange a public monopoly for a private monopoly 2. Laws and Regulations • laws are derived from four sources o the Constitution Act o precedents established by judges o federal and provincial statutes o federal and provincial agencies o consider business registration, reporting requirements, and general information • Industry Canada administers a variety of laws affecting business including the Competition Act (e.g., discriminatory pricing, price fixing, etc.) Free Trade Btwn Provinces • Inter-provincial trade is a $300 billion industry in Canada as many Canadian companies and individuals face obstacles when trying to do business within Canada but outside of their home province or territory. • Some trade barriers exist because governments created them to protect their economies from outside competition. -Ex: manufacturing within country • Governments also put policies in place to protect the environment, establish workforce standards, or achieve other regulatory purpose. • Estimates on the costs of these inter-provincial barriers in Canada are 14 billion per year. Why are inter-provincial trade barriers damaging to the economy? -These protectionist barriers discourage competition, distort market forces and reduce efficiency and ultimately, the competitiveness of the Canadian economy. ***by implementing barriers, it can make it more difficult for businesses to operate from province to province. *** 3. Taxation and Financial Policies • Canada RevenueAgency administers tax laws for the Government of Canada and for most provinces and territories as well as various social and economic benefit and incentive programs that are delivered through the tax system • taxes (income and corporate) are how all levels of government raise money and redistribute wealth • taxes are a source of funding for government operations and programs as well as a method of encouraging or discouraging taxpayers (e.g., sin taxes) -Sin Tax= tobacco, alcohol, etc,.. • municipalities are under the jurisdiction of the province -includes property taxes, other taxes and fees Fig 4.4 Average Canadians total expenditures 2011 41.5% Tax 19.6% Shelter 10.5% Food 3.5% Clothing 25% Other o Fiscal Policy • the federal government’s effort to keep the economy stable by increasing or decreasing taxes or government spending (first half involves taxation) • federal and provincial governments constantly use the lever of fiscal policy to stimulate specific geographic and industrial areas (may be trying to help certain industries) • the government spends money in many areas including social programs, highways, the environment, and so on • Deficit o government spends more money than it brings it o one can decrease a deficit by cutting government spending or increasing sources of revenues (e.g., increase taxation) o national debt / FEDERALdebt: o the sum of federal government debt over time • approx. $676 billion and your share is $19,154 Federal Budget = Most years the Government releases one major document that sets out where and how it plans to collect and invest taxpayers’money. General Budget: • public debt is not the same as the aggregate of the population’s consumer debt • the federal, provincial, and municipal governments are separate entities and each level issues its own budget Monetary Policy = the management of money supply and interest rates. -When economy is booming, BoC raises interest rates to control inflation (making money more expensive to borrow), vice versa. Overall, the gout makes two major efforts to control the economy, fiscal policy (taxes and spending), and monetary policy (control over interest rates and money supply). The economic goal is to keep the economy growing so that more people can climb up the economic ladder and enjoy a satisfying quality of life. Subprime Mortgages = loans are targeted at people who do not qualify for regular mortgages because their credit records are not good enough or that they do not have a credit history. (USAsuffered b/c of this in 2008). Gout Expenditures: • governments pay out billions of dollars to the o unemployed (EI) o old-age pensions (e.g., OAS, CPP, and QPP) o low-income families o workers compensation (WC) o direct and indirect aid packages are provided by all levels of government o Equalization transfer program (ex: Quebec) o tax reductions o tariffs and quotas on imports o grants, loans, and loan guarantees FinancialAid - all levels of gout offer variety of direct assistant programs to businesses ( gout grants, loans, consulting advice, information, etc..) - some gout aid is designed to help industries of companies that are deemed to be very important (Ex: Bombardier) - Some of these rescue efforts end in costly failures 5. Purchasing Policies • the federal government is the single largest purchaser in Canada • provinces tend to favour companies within their boundaries • companies need to go through a bidding process in order to get large government contracts • conducting business with federal, provincial/territorial, municipal and/or foreign level governments has benefits and challenges • make a profit • increase the firm’s market and range of products sold • enhance the firm’s reputation which in turn may help it attract more customers • **government procurement has a demanding bidding process that is strictly regulated • firm will be competing with equally motivated businesses • the federal government alone makes total purchases over $300 billion annually • in some provinces, government organizations may also include government boards, councils, committees, commissions and publicly-funded academic, health and social service organizations • it can be demanding to fully understand government procurement and to properly target potential niches o in large cities alone - such as Montréal, Toronto and Vancouver - there are several hundred public organizations that function differently for their procurement 6. Services • there is an array of direct and indirect activities • there are many sources available to assist businesses o National Research Council of Canada helps turn ideas and knowledge into new products and processes o Industry Canada provides information as well as network contacts o Business Development Bank of Canada has a Consulting Services Group dedicated to helping businesses o Export Development Canada provides Canadian exporters with financing as well as foreign market expertise Canadian Political Structure • Acountry’s political system is designed to integrate the different parts of a society into one functioning unit. • It has an enormous impact on how business is conducted domestically and internationally. • The political system is influenced by many factors: o the population o the size and influence of politicians and, o Individuals, business and interest groups • Canada is an independent federal democracy. • It has two levels of government designed to meet the diverse needs of Canada’s population: the federal government and the provincial government. • The structure of government and the distribution of legislative powers between federal and provincial jurisdictions are outlined in Canada’s ConstitutionAct. • These two levels are generally mutually exclusive, although federal powers prevail in the event of a conflict. • The answer: FEDERALISM Canada is a Federal State • Afederal state is one that brings together a number of different political communities with a common government for common purposes. • There are separate “provincial” or “state” governments for the particular purposes of each community. Other examples includeAustralia, Switzerland, and the U.S. • Canada has 10 provinces and 3 territories, each with its own capital city. • Issues that affect provincial residents, but do not necessarily affect all Canadians, are governed at the provincial level. Canada is a Democracy • Canada’s democratic system involves wide participation by citizens in the decision-making process, including legal and political issues. • In representative democracy, majority rule is achieved through periodic elections. In most democratic countries, multiple political parties may participate in the election process. • Democracies also differ in the degree of centralized control. For example, Canada gives significant political power to the provinces at the expense of its federal government. Canada is a Constitutional Democracy • From the days of French colonization and British rule to today, Canadians have lived under a monarchy. • Although Canada had been a self-governing “Dominion” in the British Empire since 1867, full independence for Canada was only established in 1931. • Elizabeth II, Queen of the United Kingdom, is also Canada’s Queen. In her capacity as Queen of Canada, she delegates her powers to a Canadian Governor General. • Thus, Canada is a constitutional monarchy: the Queen reigns but does not govern. Canada is a Parliament Democracy • The roots of Canada’s parliamentary system lie in Britain. • In keeping with the traditions handed down by the British Parliament, the Canadian Parliament is composed of o The Queen (who is represented in Canada by the Governor General) o the Senate o the House of Commons ConstitutionalAct • The British NorthAmericaAct, 1867 (now renamed the ConstitutionAct, 1867), with the amendments at the end of 1981, did 12 things: o 1. created the federation, the provinces, the territories, the national Parliament, the provincial legislatures and some provincial Cabinets o 2. gave the national Parliament power to create new provinces out of territories and to change provincial boundaries with the consent of the provinces concerned o 3. set out the power of Parliament and the provincial legislatures o 4. vested the formal executive power of the Queen and created the Queen’s privy Council for Canada (the legal basis of the federal Cabinet) o 5. gave Parliament power to set up the Supreme Court of Canada o 6. guaranteed separate schools o 7. guaranteed Quebec’s distinctive civil law o 8. guaranteed certain limited rights equally to the English and French languages in the federal Parliament and courts and in the legislatures and courts of Quebec and Manitoba o 9. gave Parliament power to assume the jurisdiction over property and civil rights o 10. it prohibited provincial tariffs o 11. it gave the provincial legislature the power to amend the provincial constitutions, except as regards the office of the Lieutenant-Governor o 12. it gave the national government (the Governor-in-Council, that is, the federal Cabinet) certain controls over the provinces • Provided for the termination of the British Parliament’s power over Canada and the partition (the transfer of a governmental power from a former mother country to a newly independent one) of our Constitution o 1. established processes for amending the Constitution o 2. the new ConstitutionAct sets out the Canadian Charter of Rights and Freedoms that neither Parliament nor any provincial legislature acting alone can change o 3. gave the provinces wide powers over their natural resources o 4. certain parts of the Constitution are placed beyond the power of Parliament or any provincial legislature to touch • e.g., the monarchy cannot be touched except with the unanimous consent of the provinces o 5. gave the national Parliament exclusive authority over “Indians”, including the Inuit o 6. contains a section on equalization and regional disparities Canadian Charter of Rights and Freedoms • 1. Democratic rights (e.g., right to vote) • 2. fundamental freedoms (conscience, religion, thought, expression, peaceful assembly, association) • 3. mobility (to enter, remain in, or leave Canada) • 4. Legal Rights • 5. equality rights (no discrimination) • 6. official language rights • 7. minority language education rights in certain circumstances FOUR Major Transfer Programs • 1)The Canada Health Transfer (CHT) and the Canada Social Transfer (CST) are used to fund health care, post-secondary education and social assistance and social services, early childhood development and childcare. • 2)Equalization ensures that less prosperous provinces can provide reasonably comparable public services without their taxes being out of line with those of more affluent provinces. • 3)Territorial Formula Financing (TFF) provides territorial governments with funding to support public services, in recognition of the higher cost of living in the north. Equalization • Equalization is a federal government program for reducing fiscal disparities among provinces • Equalization entitlements are determined by measuring provinces’ability to raise revenues – known as "fiscal capacity” • These payments enable less prosperous provincial governments to provide their residents with public services that are reasonably comparable to those in other provinces, at reasonably comparable levels of taxation • While provinces are free to spend the funds on public services according to their own priorities, these payments are intended to fund Medicare, post-secondary education, and smaller programs Federal gout is responsible for issues that affect citizens across Canada. In charge of: -trade regulations -incorporation of federal companies -taxation -monetary system -hospital insurance and Medicare -national defense -unemployment -immigration -criminal law Provincial gout is responsible for: -regulation of provincial trade and commerce -natural resources within their boundaries -incorporation of provincial taxes -direct taxation of provincial purposes -licensing -health and social services -municipal affairs -property law -labour law -education Municipalities provide services: -water supply -sewage -roads -side walks etc The Senate • The Senate, also called the Upper House, is patterned after the British House of Lords. • The Senate usually has 105 members and these appointed members are divided essentially among Canada’s main regions of Ontario, Quebec, the West, the Atlantic Provinces and the Territories and Nunavut. • The Senate has the same powers as the House of Commons, with a few exceptions. House of Commons • The House of Commons is the major law-making body. • It has members from each of the constituencies or electoral districts. Currently, there are 308 members. • The Canadian Constitution requires the election of a new House of Commons at least every five years. *Voters elect a single member for their electoral constituency, in one round of balloting The Cabinet • The real executive authority is in the hands of the Cabinet, under the direction of the PM. • In general, it is the PM who chooses the ministers from among the members of parliament in the governing party • Strictly speaking, the PM and the Cabinet are the advisers of the monarch. Power, however, lies with the Cabinet and the head of state (the Governor General) acts on its advice. • The Government of Canada, headed by its Cabinet of ministers, performs its duties through the intermediary of the federal departments and agencies, special boards, commissions and state-owned corporations. • Cabinet develops government policy and is responsible to the House of Commons Chapter 1 Review Risk Reward Trade-Offs • Since not all businesses make a profit, starting a business can be risky • Risk is the chance an entrepreneur takes of losing time and money on a
More Less

Related notes for COMMERCE 1B03

Log In


Don't have an account?

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.