Management Test 1 Notes
The Concept of Business and Profit
Business – An organization that seeks to earn profits by providing goods and
Profit – What remains (if any) after a business’s expenses are subtracted from its
Expenses – The money a business spends producing its goods and services and
generally running the business. Also referred to as “costs”.
Revenues – The money a business earns selling its products and services. Also
referred to as “sales”.
Profit rewards business owners for taking risks that are involved in investing their
time and money in businesses. If a business is managed well, these amounts can
become very large.
In Canada’s economic system, businesses exist to earn profits for owners who are
free to set them up.
To better pursue profits, businesses must take into account what consumers want
or need because consumers have freedom of choice.
Businesses survive off of the demand for their goods. It does not matter how
efficient a business is, if there is no demand for its goods, the business will not
Identifying unmet consumer needs and/or better ways of satisfying consumer needs
help to make businesses successful.
Businesses produce most of the goods and services we consume and employ the
majority of working people.
A healthy business climate contributes directly to our quality of life and standard of
Profits from businesses help to enhance the personal income of millions of owners
and stockholders and taxes on businesses support governments at all levels.
Economic Systems Around The World
Economic System – The way in which a nation allocated its resources among its
Economic systems differ in terms of who owns and controls these resources, known
as the “factors of production.”
Key differences between economic systems are the way in which they manage the
factors of production. Factors of Production – The resources used to produce goods and services: labour,
capital, entrepreneurs and natural resources.
The people who works for a company represent the first factor of production,
Labour – The mental and physical training and talents of people; sometimes called
Businesses require a labour force with a wide variety of skills to do business. Ex,
Imperial Oil – Needs managers, geologists, truck drives, etc.
Well-trained and knowledgeable employees are a competitive advantage for a
Obtaining and using labour and other resources require capital.
Capital – The funds needed to operate an enterprise.
New businesses need capital to start up and to continue running and growing.
A major source of capital for small businesses is personal investment by owners.
That investment can come from individual entrepreneurs, from partners who start a
business together, or from investors who buy stock.
Revenue from sales is a key source of capital for a business once it has opened its
Entrepreneurs – 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 is now often considered a fifth factor of production.
Information Resources – Information such as market forecasts, economic data and
speciality knowledge of employees that is useful to a business and that helps it
achieve its goals.
Information resources play a major role in today’s economic systems, which used to
be dominated by the production of tangible goods.
Types of Economic Systems
Different types of economics systems manage the factors of production differently
and in the way that decisions are made. The government owns the factors of
production in some systems and in others it is owned privately. Command Economy – An economic system in which the government controls all or
most of the factors of production and makes all or most of production decisions.
Market Economy – An economic system in which individuals control all or most of
the factors of production and make all or most of the production decisions.
The two most basic forms of command economies are communism and socialism.
Communism is a (command economy) system in which the government owns and
operates all sources of production. Most countries have abandoned communism in
favour of a more market-based economy.
A less extensive command economy system exists, called socialism.
Socialism – A type of command economy in which the government owns and
operates the main industries, while individuals own and operate less crucial
industries. Ex, individuals would own smaller businesses such as clothing stores and
restaurants. Citizens are usually free to choose their any profession, but most
choose to work for the government. Many of the government enterprises are
inefficient because management positions are often filled based on political
considerations instead of ability. Socialism is declining in popularity.
Market – A mechanism for exchange between the buyers and sellers of a particular
good or service.
Capitalism – A kind of market economy offering private ownership of the factors of
production and of profits from business activity.
Mixed Market Economies
Command and market economies, in their pure form, are often seen as two
extremes. In reality, most countries use some form of a mixed market economy.
Mixed Market Economy – An economic system with elements of both a command
economy and a market economy; in practice, typical of most nations’ economies.
Privatization – The transfer of activities from the government to the public sector
Deregulation – A reduction in the number of laws affecting business activity
How Government Influences Business
Government as a customer:
The government buys thousands of products and services from business firms
(office suppliers, office buildings, helicopters, water treatment plants, consulting
services, etc.). The government is also the larges purchaser of advertising in Canada.
Many businesses depend on government purchasing