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MGT Midterm Review

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University of Toronto Scarborough
Management (MGT)

Helen Li (MGTA01) Management MGTA01 Ch1: The concept of Business and Profit Terminology: Business: An organization that seeks to earn profits by providing goods or services Profit: The money that remains (if any) after a business’s expenses are subtracted from its revenue Expenses: The money a business spends producing its goods and services and generally running the business.  A.K.A =”costs” Revenues: The money a business earns selling its products and services  A.K.A= “sales”  Profits reward owners of businesses for taking risks involved in investing their time & money  Deficit=> when a business spends more than it gains  In Canada’s economic system => business’s earn profit for owners who are free to set them up  No demand for good/ service that business provides = will not survive (supply & demand concept)  Businesses produce most of the goods/ services we consume and enjoy (majority)  Healthy business climate => quality of life and standard of living  New forms of technology, service businesses & international opportunities => keep production, consumption and employment growing, indef.  Business profits => enhance personal incomes of millions of owners/ shareholders & businesses taxes help support all levels of government  Many businesses support charities & provide community leadership Ch2: Economic Systems Around the World Terminology: 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: The mental and psychical training and talents of people; sometimes-called human resources Helen Li (MGTA01) Capital: The finds needed to operate an enterprise Entrepreneur: An individual who organizes and manages labour, capital, and natural resources to produce goods and services to earn a profit, but who also runs the risk of failure Natural resources: Items used in the production of goods and services in their natural state, including land, water, mineral deposits, and trees Information resources: Information such as market forecast, economic data, and specialized knowledge of employees that is useful o 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 Communism: A type of command economy in which the government owns and operates all industries Socialism: A kind of command economy in which the government owns and operates the main industries, while individuals own and operate less crucial industries Market: A mechanism for exchange between the buyers & sellers of a particular good/ service Capitalism: A kind of market economy offering private ownership of the factors of production and of profits from business activity Mixed market economy: An economic system with elements of both a command/ market economy; in practice, typical of most economies (e.g. Canada, France, USA, UK) Privatization: The transfer of activities from the government to the public sector Deregulation: A reduction in the number of laws affecting business activity Revenue taxes: taxes whose main purpose is to find government services and programs Progressive revenue taxes: Taxes levied at a higher rate on higher-income taxpayers and at lower rate on lower-income taxpayers Regressive revenue taxes: Taxes that cause poorer people to pay a higher percentage of income than richer people pay Restrictive taxes: Taxes levied to control certain activities that legislators believe should be controlled  Economic systems differ in terms of who owns & controls these resources (“factors of production”)  Information resources are now often included as a fifth factor of production Helen Li (MGTA01)  Employees who are well trained & knowledgeable => real competitive advantage for a company  A major source of capital for small businesses is personal investment by owners  Revenue from the sale of products => key & ongoing source of capital once business runs smoothly  Jimmy Pattison & Izzy Asper (well known Canadian entrepreneurs)  James Kimsey started AOL => technical skills to understand how the internet works, conceptual skills to see its huge future potential, risk- taking acumen to his own career & capital on idea of AOL  Imperial Oil makes use of a wide variety of natural resources =>vast quantities of crude oil to process each year  Needs the land where the oil is located/ land for its refineries & pipelines  Two basic forms of command economies: communism & socialism th  Originally proposed by: Karl Marx (19 century/ German)  Envisioned a society in which individuals would ultimately contribute according to their abilities & receive economic benefits according to their needs  Expected government ownership of production factors to be temp.  Once society has matured => government would “whiter away” => workers gain direct ownership  Result: Most countries have now abandoned communism in favour of more market- based economy  Socialism => government owns & operate only selected major industries  Smaller businesses such as clothing and restaurants may be privately owned  Many government-operated enterprises are inefficient => management positions are frequently filled based on political considerations rather than on ability  Extensive public welfare systems => very high taxes  Result: Generally declining in popularity  Both buyers & sellers enjoy freedom of choice (demand & supply law)  Most countries of the former Eastern bloc have now adopted market mechanisms through a process called privatization  E.g. The postal system in most countries is government based & managed, regardless if country has command/ market economy  New enterprise reduced payroll, boosted efficiency and productivity & quickly became profitable  Deregulation frees companies to do what they want without government intervention => simplifying task of management Helen Li (MGTA01)  Evident in many industries, including airlines, pipelines, banking, trucking & communication How government influences Business 1. Government as Customer  Government buys thousands of diff products/ services from business firms; e.g. office supplies, office building, computers, battleships, highways, management & engineering consulting services, etc  Largest purchaser of advertising in Canada  Government expenditures on goods/ services amount to billions of $ each year 2. Government as Competitor  Competes with business through Crown corporations (exists between at both provincial & federal level & account for a significant & wide range of economic activity in Canada) 3. Government as Regulator  Federal & provincial government regulate many aspects of business activity  Government regulates through admin boards, tribunals, or commissions  At federal level => Canadian Radio-television and Telecommunications Commission (CRTC); issues & renews broadcast licenses  Canadian Transport Commission (CTC); makes decisions about route and rate applications for commercial air & railway companies  Canadian Wheat Board; regulates prices of wheat  Provincial boards & commissions regulate business through their decisions  Unfair to some business people but, important reasons for regulating business activity:  Protecting competition  Protecting consumers  Achieving social goals  Protecting the environment 4. Government as Taxation Agent  Taxes imposed & collected by federal, provincial and local governments (revenue taxes; e.g. income taxes =>provide revenue to find various services and programs) 5. Government as Provider of Incentives  Federal, provincial & municipal governments offer incentive programs => stimulate economic development (E.g. In Quebec, Hyundai Motors Helen Li (MGTA01) received $6.4 million to build production facility & additional $682 000 to train workers)  Offer incentives through many services they provide to business firms through government organizations (E.g. Export Development Corporation => assists Canadian exporters by offering export insurance against nonpayment by foreign buyers & long term loans to foreign buyer of Canadian products; Energy, Mines and Resources => provides geological maps of Canada’s potential mineral-producing areas; Statistics Canada => provides data & analysis on almost ever aspect of Canadian society)  Municipal tax rebates (for companies)  Government incentive programs may/ may not have desired effect of stimulating economy => may cause difficulties with trading partners 6. Government as Provider of Essential Services  Federal => Highways, postal service, minting of money, armed forces, statistical data on which to base business decisions  Tries to maintain stability through fiscal & monetary policy  Provincial & municipal => streets, sewage, sanitation systems, police & fire departments, utilizes, hospitals, education  ALL create kind of stability that encourages business activity Lecture 1 Main points of today’s lecture:  Definition of “business”  Revenues and expenses  Profit and Loss  Factors of production Business:  an organized effort,  to make or sell something,  to sell to customers,  who need or want something,  in order to make a profit.  Business’s exist from demand of others  The $$$ that comes in: “Revenues” or “Sales”  Profit - The difference between: $$$ in (revenues or sales) $$$ out (costs or expenses) Helen Li (MGTA01) Profit:  A key reason for a business to exist  Not all organisations are businesses  Hospitals, universities, churches  They provide services but not intended for profit  They are “not for profit” organisations Loss:  When expenses more than sales  Costs more to produce the products, and run the business, than the business generates through sales. Economics:  The study of how businesses, people make choices about:  What things to produce/consume  How best to produce things  How best to distribute wealth. Factors of Production:  Start with basic theory:  There are basic building blocks used to produce anything.  We call those basic building blocks: “Factors of production” Natural Resources:  raw materials found in ground, grown  from earth, or harvested from nature.  Examples: coal, wheat, water, wood Labour:  Businesses need people. i.e. human beings, workers Capital:  money, or machines and technologies that money can buy.  Examples: computers, phones, hammers, tractors Entrepreneurs:  the people who assemble and organise the other factors of production, the individuals who make it all happen Economic Systems:  Every society asks:  Who should own the factors?  Who should control the factors?  What should we make, with the factors?  Different countries answer these questions differently:  government in control OR individuals in control Helen Li (MGTA01) Economic Systems - 2 Types Governments: Individuals: own most factors own most factors control most factors control most factors make most decisions make most decisions Command Market Economies Economies Command or Planned Economies  Governments own/control factors of prod’n  Governments make all / most of decisions Command economies = Planned economy (better term)  Brightest, have access to recent data => make decisions Market Economies  Individuals own/control factors of production  Individuals make all / most of decisions Communist Economies:  Government owns/controls all the factors of  production makes 100% of economic decisions.  Examples: very few, probably North Korea Socialist Economies:  Government owns/controls majority of the factors of production, including principal industries, makes most of economic decisions.  Example: Cuba Pure Capitalist Economies:  Individuals owns/control all factors of production  Individuals make 100% of economic decisions  Examples: none Mixed Market Economies:  Individuals own/controls majority of factors  Individuals make most of economic decisions  Governments regulate and tax, run some business  Example: Canada, USA, UK, France Canada: “Mixed" Market Economy  Majority of factors (farmland, forests, mines) owned by private individuals.  Most decisions about factors (how many workers to hire, how much to pay them, how much technology to buy) made by individuals.  But, government does intervene and is involved in the economy (through taxation, and regulation, provides some services).  Mixed Economy – Simple Example  I decide where I work, I negotiate my salary with the University. But, the Government taxes me. Helen Li (MGTA01)  Walmart (owned by Walton Family) sits in shopping mall next to LCBO (owned by Ontario Government). How Market Economies Work  Market: Not a place - a bunch of activities.  e.g. housing market, labour market Market: Exchanges between buyers & sellers How Markets Work: Supply & Demand  The Law of Supply  Producers will offer more of a product as its price increases, less as it drops.  The Law of Demand  Consumers will purchase more of a product as its price drops, less as it rises Supply & Demand
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