chpt 1 and 2

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17 Jun 2011

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Business- an organization that produces or sells good to make a profit
Profit = expense – revenue
Businesses must take into account what consumers demand
Businesses succeed when business can identify unmet consumer needs or better ways of satisfying consumer
Business = good, improve our quality of life, help support government and charities
Economic system- the way a nation allocates its resources among citizens
Factors of production- natural resources labour capital, entrepreneurs information?
Labour- also called human resources, to work for people
Capital- financial resources. Small businesses get capital from personal investment from owners
Entrepreneurs- people who accept the risks in creating and operating business james Kinsey- invented AOL
who understood how internet works and its potential
Natural resources- items used in production of goods and services in natural state
Information- economic data, market forecasts which help a business achieve its goals eg create new information
or repackage existing information for new users
Types of economic systems
Command economy- relies on government to control all or most factors of production/allocation decisions
Market economy- individuals producers and suppliers control production through supply and demand
Command economies- proposed by karl marx,
Communism- gov’t owns and operates all sources of production . individuals would contribute according to
abilities and receive economic benefits according to their needs. Gov’t would then wither away once society has
Socialism- gov’t only owns major industries smaller eg restaurants or clothing stores can be privately owned.
Very high taxes, management positions are filled on political considerations rather than on ability. Gov’t
operated enterprises are inefficient
Market economies- mechanism for exchange between buyers and sellers
Capitalism- private ownership of factors of production encouraging entrepreneurship by offering profits as an
incentive producers can supply whatever they want however they want and consumers can purchase what
they want however they want
Mixed market economies contains both command and market characteristics of economy
Privatization- process of converting government enterprises into privately owned companies eg Canada air
traffic control system this makes it more efficient productive and profitable
Deregulation reduced # of laws which affect business activity ( less gov’t intervention) eg airlines banking
Interactions between business and gov’t ( how gov’t influences business) (CCRETI- customer competitor
regulator essential services taxation agent incentives)
Gov’t as a customer--? Gov’t buys many things from businesses ( eg office supplies buildings many
businesses depend on the gov’t for survival
Gov’t as a competitior competes with business through crown corporations
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Gov’t as a regulator gov’t regulates eg CRTC (tv, radio) issues licenses, rail routes, regulates prices of wheat
REASONS to regulate business activity CCSgE ( competition, protect consumers, reach social goals and
protect environment)
Gov’t as a taxation agent (3RP- revenue restrictive regressive progressive)
Revenue tax- taxes by gov’t used to fund various services and programs
Progressive tax high tax for high income, low tax for low income
Regressive tax sales tax ( same tax for all incomes) taxes that cause poorer ppl to pay a higher percentage of
income than richer people pay
Restrictive tax tax on tobacco, alcohol, gasoline
Gov’t as a provider of incentives programs to stimulate economy ( eg provide export insurance, mines
provide geological maps of potential mining areas) tax rebates, assistance programs
Gov’t provider of essential services provies highway, postal services. Maintain stability through fiscal and
monetary policy , police, hospitals fire departments
The Canadian market economy
Demand- willingness/ ability for buyer to purchase
Supply--> willingness to offer good for sale
Law of demand buyers buy more if price is low
Law of supply producers supply more if price is high
Demand and supply schedule analysis to understand how many pizzas sold at different prices
Demand curve shows how many products demanded at one price
Supply curve product supplied at certain price
Surplus quantity supplied exceeds quantity demanded and business will lose money making extra pizzas
Shortage quantity demand will be greater so businesses will miss out on the money they could have made 
could lead to stealing ( eg aluminum stolen to make money)
Private enterprise system one that allows individuals to pursue own interests with minimal gov’t restrictions
Requires 4 elements PPRFCPC private property rights, freedom of choice, profits competition
PPR ownership of resources to create wealth
FC get any job you choose and companies choose who to hire what to produce
Profits lures ppl to be entrepreneurs and abandon working for somebody else
Competition motivates companies to operate more efficiently must convince customers their product is
cheaper/ better
Degrees of competition
Perfect competition firms are small, product is identical, lots of firms eg milk
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