Ch. 1: Introducing the Contemporary Business
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):
ƒ Labour (human resources) and the skills of a workforce
ƒ Capital (financial resources) needed to start and run an enterprise.
ƒ Natural Resources: all physical resources.
ƒ Information Resources (specialized knowledge): market
forecasts, demographics, help to achieve business goals.
ƒ Entrepreneurs: accept risks and opportunities; manage all other factors
of production in the firm.
o Types of Economic systems:
ƒ Command Economies (centralized government, government owns most
industries), “communism” (government owns all industries), socialism
(only some major industries are controlled).
ƒ 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:
6 Customers (Eg: office supplies, military supplies)
6 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
ƒ 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).
ƒ Provider of Incentives: Eg: subsidies, data on Stats Canada,
ƒ Provider of Essential Services: Eg: healthcare, highways, economic
Demand and Supply:
o Demand: willingness and ability for buyer to purchase product
ƒ Law of Demand: buyer purchases more when price drops
o Supply: willingness and ability for producer to offer product
ƒ 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.
ƒ Demand Curve: how many units bought at different prices
ƒ Supply Curve: how many units offered at different prices
ƒ 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):
ƒ Many small firms so that no one can influence the price of the product.
Prices set exclusively from supply and
ƒ Products identical among competitors
ƒ 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.