Ch.1: Introducing the ContemporaryBusiness World
Business: organization seeking to earn profit by providing products (may be tangible
o Profit: money that remains after a business expenses (money spent in
production and running the business) are subtracted from its revenues (money
earned through sale of products).
Economic system: way which nation allocates resources among citizens. Differ in
terms of resource ownership and resource control.
o These resources are call Factors of Production (5):
Labour (human resources) and the skills of a workforce
Capital (financial resources) needed to start and run an enterprise.
Natural Resources: all physical resources.
Information Resources (specialized knowledge): market
forecasts, demographics, help to achieve business goals.
Entrepreneurs: accept risks and opportunities; manage all other factors
of production in the firm.
o Types of Economic systems:
Command Economies (centralized government, government owns most
industries), communism (government owns all industries), socialism
(only some major industries are controlled).
Market Economies (individuals make decisions about factors of
market (mechanism for exchange), freedom of choice widely enjoyed.
Capitalism: Political idea with private ownership and
encouragement of entrepreneurship.
Mixed*Market Economies: most economic systems, elements of both
command and market. Current trend towards privatization (transfer
of government activities to public sector because government*managed
industries are inefficient) and deregulation (reducing laws that affect
o Governments influence business as 6 things:
$ Customers (Eg: office supplies, military supplies)
$ Competitors (Eg: Crown corporations owned by government compete
with private sector)
Protecting Competition: Eg: ensuring healthy
competition, protecting smaller firms
Protecting Consumers: Eg: safety standards, warning
Achieving Social Goals: Eg: safe workplaces, employment
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Protecting Environment: Eg: laws governing emissions and waste
Taxation Agent: Revenue taxes fund government programs, either
Progressive (higher tax rate for higher incomes) or Regressive (lower
incomes pay higher percentage of income). Restrictive taxes to
control certain activities (Eg: alcohol).
Provider of Incentives: Eg: subsidies, data on Stats Canada,
Provider of Essential Services: Eg: healthcare, highways, economic
Demand and Supply:
o Demand: willingness and ability for buyer to purchase product
Law of Demand: buyer purchases more when price drops
o Supply: willingness and ability for producer to offer product
Law of Supply: sellers offer more (more supply) when price increases
o Demand and Supply Schedule: relationships between demand and supply
at different price levels.
Demand Curve: how many units bought at different prices
Supply Curve: how many units offered at different prices
Market price/equilibrium price: intersection of both curves, profit
o Surplus: supply exceeds demand, money lost on unsold product
o Shortage: demand exceeds supply, money lost on potentially sold
product. (Increase in criminal behaviour also occurs).
Market economies rely on the Private Enterprise System characterized by 4 things:
o Private property rights (individuals own resources used to create wealth)
o Freedom of Choice (Eg: choosing who to hire, when and what to sell)
o Profits (primary motivation for risk*taking entrepreneurs)
o Competition (creates a push for efficiency and differentiation to gain advantage)
Degrees of Competition:
o Perfect Competition (Eg: Canadian Agriculture):
Many small firms so that no one can influence the price of the product.
Prices set exclusively from supply and
Products identical among competitors
Easy entry/exit into the market
o Monopolistic Competition (Eg: Fast*Food Restaurants) do not confuse with
Products offered from each firm seem to differ via branding. Offers
firms some control over pricing. Some product differentiation.
Many firms, but less than in perfect competition
Fairly easy entry/exit.
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o Oligopoly (Eg: Airline industry)
Difficult and capital*intensive entry into the market.
$ Few competitors, products may be similar or different.
$ Some control over prices, but one discount/hike will result in all the
other firms copying in order to compete.
Typically globalized organizations.
o Monopoly: (Eg: Liquor) do not confuse with monopolistic competition
No competitors, one firm. Large control over price.
Entry regulated by government.
Natural Monopoly: government designated monopoly because more
than one producer would be wasteful (Eg: power generation because
running 2 sets of power lines would be wasteful).
Ch.2: Understandingthe Environmentof Business
External environment everything outside an organizations boundaries
o Managers must understand this environment if the business is to compete within it
Economic environment conditions of economic system the organization operates within
o Eg: low inflation, moderate growth, moderate unemployment
Low inflation: cost of supplies is constant but organization cant increase
Business cycle: patter of short*term up/downs in an economy (expansions
o Recession: aggregate (grossed, combined) output, measured by real GDP, declines
Depression: severe/long*lasting recession
Aggregate output: total quantity of goods/services produced by economic system
in a given period.
o Increase in Aggregate output signifies an economic expansion
A higher standard of living results when aggregate output grows faster
population (increased output per capita and more services people want).
Standard of living: total quantity/quality of the goods and services that
can be purchased by a countrys citizen with the currency used in their
Gross Domestic Product (GDP): total value of all goods/services produced within
given period of time by national economy through domestic factors of production.
o Going up: growth
Gross National Product (GNP): same, but regardless of where the factors of
production are located.
o Eg: includes profit earned abroad by a Canadian company. Conversely, those
profits are included in the abroad countrys GDP, not GNP.