Business: an organization that produces or sells goods or services in an effort to make profit.
Profit: what remains after business expenses are subtracted from its revenues. It is also the intention to
Deficit is when a business spends more than it gains
Factors of Production
There are 4 factors of production
1. Natural Resources: raw materials including land
2. Labor: Human resources, it is the mental and physical capabilities of people
3. Capital (includes equipment): financial and technological resources
4. Entrepreneurs: people with initiative who take opportunities and risks; allocates and organize
resources in the best possible order/way.
- Knowledge (debatable)
Markets: a mechanism for exchange between buyers and sellers for a particular good or service.
There are two types:
- Command or Planned Economies: Government control or own all of the factors of production,
therefore they make most or all decisions
- Market Economy: Individuals own or control factors of production, individuals make most or all
- Communist Economy: government controls 100% of economic decisions
- Socialist Economy: government controls the majority of the factors of production, so it makes
most of the economic decisions
- Capitalist Economy: individuals own all factors of productions, they make 100% of the economic
- Mixed Economy: individuals control the majority of factors of production, and make most
economic decisions. Ex = Canada, France, USA, UK
Canadas majority of factors of productions are controlled by private individuals, most of the
decisions are made by individual. But the government intervenes and is involved in the economy,
through taxation and regulation; plus providing some services.
Privatization: Is the process by which government enterprises pass to be private owned companies.
1 Deregulation: reduction of the number of laws affecting business activity and in the powers of
government enforcement agencies.
HOW GOVERNMENTS INFLUENCES BUSINESS
- Government as a customer
- Government as competitor
- Government as a regulator
- Government as taxation agent
- Government as provider of incentives
- Governments as provider of essential services
DEMAND AND SUPPLY
The Laws of Demand and Supply
- Law of Demand: buyers will purchase more of a product as its price drops and less of a product
if price increases.
- Law of Supply: producers will offer more of a product for sale as its price rises and less as its
Demand and supply schedules are obtained from marketing research and other systematic studies
of the market.
Demand and Supply Curves
- A demand curve shows how many products will be demanded at different prices
- A supply curve show how many of the product will be supplied at different prices.
Market price or equilibrium price: the price at which the quantity of goods demanded and the quantity
of goods supplied are equal.
SURPLUS AND SHORTAGES
- Surplus: a situation in which the quantity supplied exceeds the quantity demanded.
- Shortage: the quantity demanded will be greater than the quantity supplied
DEGREE OF COMPETITION
- Perfect competition: lots of suppliers, all are small, more or less the same, and must sell at the
- Monopolistic Competition: lots of suppliers, most are small, most are more or less the same,
some that are big can differentiate themselves, most sell at the same price, big suppliers can
2 - Oligopoly: small number of suppliers, all are large, each tries to differentiate themselves,
industry is hard to enter and/or exit, and they follow or watch each other closely
- Monopoly: only one supplier, 100% of market share, can set whatever price they want
External environment: Is the outside of an organizations boundaries that might affect it.
Economic environment: refers to the condition of the economic system in which an organization
THE BUSINESS CYCLE:
Business cycle: is the pattern of short-term ups and downs in an economy
Recession: a period in which aggregated output declines.
Depression: if a recession last for a prolonged period it is called depression
AGGREGATE VALUE AND STANDARD OF LIVING
Aggregate output: the total quantity of goods and services produced by an economic system during a
Standard of living: the total quantity and quality of goods and services that they can purchase with the
currency used in their economic system.
CROSS DOMESTIC PRODUCT (GDP)
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.
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.
GDP per capita: is the GDP per person (total GDP / population)
Real GDP: is the adjusted GDP
Nominal GDP: is the non-adjusted GDP
Purchase power parity: principle that exchanges rates are set so that the prices of similar products in
different countries are about the same.
3 Productivity: a measure of economic growth that compares how much a system produces with the
resources needed to produce it.
Productivity = outputs / inputs
Higher Productivity is produced by:
- Better education
- Better trained labour
- More money == Better technology
- More and cheaper natural resources
Balance of Trade: is the economic value of all the products that a country exports minus the economic
value of its imported products.
- Positive balance of trade when there is more export than imports. Helps economic growth
- Negative balance of trade when there are more imports than exports. Inhibits economic growth
National Debt: amount of money that the government owes its creditors
Budget Deficit: when the government spent more money that it actually received
Stability: condition in an economic system in which the amount of money available and the quantity of
goods and services produced are growing at about the same rate.
Inflation: occurs when there are price widespread price increases throughout an economic system.
Consumer Price Index: measures the change in price of a basket of 600 different goods and services a
family might buy
Deflation: when the bank reduces interest rates in an attempt to increase consumer demand.
Unemployment: level of joblessness among people actively seeking work in an economic system
- Frictional Unemployment: people who are temporarily out of job while looking for a new job
- Seasonal Unemployment: people who are out of work because of the season nature of the jobs
- Cyclical Unemployment: people are out of work because of a downturn in the business cycle
- Structural Unemployment: people lack of skills needed to perform available jobs
MANAGING THE CANADIAN ECONOMY:
Fiscal Policies: policies by means of which governments collect and spend revenues.
Monetary Policies: policies by means of which the government controls the size of the nations money
Stabilization Policy: policy embracing both fiscal and monetary policies, whose goal is to smooth out
fluctuations in output and unemployment and to stabilize prices
- Highest interest rate, expensive to borrow, less consumption by consumers and producers.
- Lower interest rate, cheaper to borrow, more spending by both consumers and producers.