My MGTA01 Glossary for midterm.docx

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Demand and Supply in a Market Economy [Market] an exchange process between buyers and sellers. !Amarket is NOT a specific place in economic terms. [Input Market] In the input market, firms buy resources from households. e. g. labour, capital, entrepreneurs, natural resources, information resources [Output Market] In the output market, firms supply goods and services in response to demand on the part of the households. e. g. goods, services [Demand] The willingness and ability of buyers to purchase a product or service for sale [Supply] The willingness and ability of producers to offer a good or service for sale [Law of Demand] The principle that buyers will purchase (demand) more of a product as price drops [Law of Supply] The principle that producers will offer (supply) more of a product as price rises [Demand and Supply Schedule] Assessment of the relationships between different levels of demand and supply at different price levels Pizza Example IF the price of a pizza is $25 (a high price) THEN more pizza will be produced The Law of Suppy IF the price of a pizza is $5 (a low price) THEN less pizza will be produced IF the price of a pizza is $25 (a high price) THEN people may buy less The Law of Demand IF the price of a pizza is $5 (a low price) THEN people may buy more With analysis, we can find out Demand and Supply Schedule how many pizza will be sold at different prices [Demand Curve] Graph showing how many units of a product will be demanded (bought) at different prices [Supply Curve] Graph showing how many units of a product will be supplied (offered for sale) at different prices [Market Price (Equilibrium Price)] Profit-maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal. (Q , P ) E E The Equilibrium Piont the point where the demand curve and the demand curve intersect Q E The Equilibrium Quantity PE The Equilibrium Price [Surplus] Situation in which quantity supplied exceeds quantity demanded, price will go down then [Shortage] Situation in which quantity supplied is less than quantity demanded, price will come up then Note: Shortage will still result in the producer earning lower profit than producing QE, although consumers might may more because of the shortage. Examples that demonstrate the ideas about shortage and surplus Ginseng 1982 25 metric tons $187 per kilogram 1999 2200 metric tons $33 per kilogram Private Enterprise and Competition in a Market Economy [Private Enterprise]An economic system on which market economies rely; it’s characterized by private property rights, freedom of choice, profits, and competition Degrees of Competition [Perfect Competition] Amarket or industry characterized by a very large number of small firms producing an identical product so that none of the firms has any ability to influence price e.g. CanadianAgriculture; gas stations; milk Principles for Perfect Competition: 1. Buyers view each firm as identical to those of other firms 2. Both buyers and sellers know the prices that others are paying and receiving in the marketplace 3. Easy for firms to enter or leave the market 4. Prices are set by the law of demand and supply and accepted by both sellers and buyers [Monopolistic Competition] Amarket or industry characterized by a large number of firms supplying products that are similar but distinctive enough from one another to give firms some ability to influence price. How to survive in monopolistic competition: Differentiating Strategies: 1. brand names (Tide and Cheer) 2. design or styling (Polo and Tommy Hilfiger jeans) 3. advertising (Coke and Pepsi) [Oligopoly] Amarket or industry characterized by a small number of very large firms that have the power to influence the price of their product and/or resources. e. g. Steel Industry; Automobile Industry; Airline Industry; Canadian banking industry Note: Oligopolists have more control over strategies than monopolistic competitive firms, but the actions of one firm can significantly affect the sales of every other firm in the industry. [Monopoly] A market or industry with only one producer who can set the price of its product and/or resources The only firm has complete control over the price but its only limit is how much consumer demand will fall as its price rises In Canada, the Competition Act forbids many monopolies; and prices charged by natural monopolies are watched by provincial utilities boards. [Natural Monopoly] A market or industry in which having only one producer is most efficient because it can meet all of consumers’demand for the product e.g. provincial electric company in Canada Characteristic Perfect Monopolistic Oligopoly Monopoly Competition Competition Number of Many Many (fewer than in Few None Competitors perfect competition) Ease of Entry Relatively easy Fairly easy Difficult Regulated by government Similarity of Identical Similar Can be similar No directly competing Products or different goods or services Level of Control None Some Some Considerable over Price Examples milk; stationary stores; Canadian Public Utility; gas stations coffee shops banking LCBO (Starbucks) industry Four things to consider when identifying the degree of competition: 1. Number of competitors 2. Ease of entry 3. Similarity of products 4. Level of control over price Chapter 2 The Economic Environment [External Environment] Everything outside an organization’s boundaries that might affect it e. g. Economic Environment, Technological Environment, Socio-cultural Environment, Business Environment, Political-Legal Environment, Global Environment Emerging Challenges and Opportunities [Economic Environment] Conditions of the economic system in which an organization operates e. g. growth, unemployment, inflation Key goals of Canadian economic system: 1. economic growth 2. economic stability 3. full employment Economic Growth [Business Cycle] Pattern of short-term ups and downs (expansions and contractions) in an economy It has 4 recognizable phases – peak, trough, recession (period of contraction), and recovery (period of expansion) Periods of expansion and contraction can vary from several months to several years [Recession] Period (for two consecutive quarters) during which aggregate output, as measured by real GDP, declines [Depression] Particularly severe and long-lasting recession [Aggregate Output] (The main measure of growth in the business cycle) Total quantity of goods and services produced by an economic system during a given period (usually one year) [Output Per Capita] The quantity of goods and services produced per person [Standard of Living] Total quantity and quality of goods and services that a country’s citizens can purchase with the currency used in their economic system Aggregate output IF Output •Output per Higher increases Economic grows more •More goods up Standard of or Growth quickly than and services Living GDP goes up Population are produced [Gross Domestic Product (GDP)] Total value of all goods and services produced within a given period by a national economy through domestic factors of production Poor countries usually have the greatest capacity for growth because they start from a low base [Gross National Product (GNP)] Total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located The profits earned by a Canadian company abroad are included in Canada’s GNP, but not GDP The profits earned by a foreign company located in Canada are included in Canada’s GDP a Canadian-owned manufacturing plant in Brazil labour - mostly Brazilian capital - mostly Canadian so wages paid to Brazilian workers → Brazil’s GNP profit → Canada’s GNP & Brazil’s GDP GDP and GNP are useful measures of economic growth and they track an economy’s performance over time. However, GDP is the preferred method of calculating national income and output [Genuine Progress Indicator (GPI)] Give negative values (costs) to activities that harm the environment or our quality of life GDP goes Clean Up 1986 Exxon up Oil Spill Polution GPI falls [GDP per capita] GDP per person, measured by dividing total GDP by the total population of a country Ameasure of relative wealth of ‘average citizen’ GDP per capita is a better measure than GDP when measuring the economic well-being of the average person [Nominal GDP] GDP measured in current dollars or with all components valued at current prices If not specified, GDP refers to nominal GDP Nominal GDP is the value of GDP, simply as it is measured [Real GDP] GDP calculated to account for changes in currency values and price changes (inflation) Abetter measure than GDP to show how well a country is doing [Purchasing Power Parity] Principle that exchange rates are set so that the prices of similar products in different countries are about the same It gives us a better sense of standards of living around the world [Productivity] Measure of economic growth that compares how much a system produces with the resources needed to produce it Standard of living improves only through increases in productivity. Real growth in GDP reflects growth in productivity 𝑜𝑢𝑡𝑝𝑢𝑡𝑠 (𝑝𝑟𝑜𝑑𝑢𝑐𝑡𝑠/𝑠𝑒𝑟𝑣𝑖𝑐𝑒𝑠) Productivity = 𝑖𝑛𝑝𝑢𝑡𝑠 (𝑝𝑒𝑜𝑝𝑙𝑒,𝑐𝑎𝑝𝑖𝑡𝑎𝑙) High productivity is produced by: 1. Better educated, better trained labour 2. More and cheaper natural resources 3. More capital invested to get better technology Factors that will help/hinder the growth of an economic system: 1. balance of trade 2. national debt [Balance of Trade] The total of a country’s export (sales to other countries) minus its imports (purchases from other countries) export more than help economic PositiveBalance import growth Balance of Trade Negative Balance import more than inhibit economic (Trade Deficit) export growth [National Debt] The total amount of money that the government owes its creditors Government also takes in revenues (like taxes, bonds) and has expenses (like military spending, social programs) [Budget Deficit] The result of the government spending more in one year than it takes in
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