Chapter 1-9 Study Guide! Very detailed!!

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University of Toronto Scarborough
Management (MGT)
Ingrid L.Stefanovic

*+,-./-. !"# Ch.1: Introducing the ContemporaryBusiness World Business: organization seeking to earn profit by providing products (may be tangible or service). 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 production): 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 business activities). o Governments influence business as 6 things: $ Customers (Eg: office supplies, military supplies) $ Competitors (Eg: Crown corporations owned by government compete with private sector) Regulator: Protecting Competition: Eg: ensuring healthy competition, protecting smaller firms Protecting Consumers: Eg: safety standards, warning labels Achieving Social Goals: Eg: safe workplaces, employment insurance Page 2 of 25 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, export insurance Provider of Essential Services: Eg: healthcare, highways, economic stability plans 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 is maximized. 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 demand. Products identical among competitors Easy entry/exit into the market o Monopolistic Competition (Eg: Fast*Food Restaurants) do not confuse with monopoly 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. Page 3 of 25 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 prices. Business cycle: patter of short*term up/downs in an economy (expansions and contractions) 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 than 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 economic system. 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.
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