Commerce: Understanding Canadian Business
Chapter 2:How Economic Issues Affect Business
1. Economics: The study of how society chooses to employ resources to produce goods and services and distribute them for
consumption among various competing groups and individuals.
2. Macroeconomics: the part of economic study that looks at the operation of a nation’s economy as a whole.
3. Microeconomics: the part of economic study that looks at the behaviour of people and organizations in particular markets.
4. Resource development: the study of how to increase resources and the creation of the conditions that will make better use of
those resources (e.g. recycling).
5. Invisible hand: a phrase coined by Adam Smith to describe the process that turns self-directed gain into social and economic
benefits for all.
6. Capitalism: an economic system in which all or most of the factors of production and distribution are privately owned and
operated for profit.
7. Supply: the quantity of products that manufacturers or woners are willing to sell at different prices at a specific time.
8. Demand; the quantity of products that people are willing to buy at different prices at a specific time.
9. market price; the price determined by supply and demand.
10. Perfect Competition: the market situation in which there are many sellers in a market and no seller is large enough ti dictate
the price of a product.
11. Monopolistic competition: the market situation in which a large number of sellers produce products that are very similar but
that are perceived by buyers as a different.
12. Oligopoly: a form of competition in which just a few sellers dominate the market.
13. monopoly: a market in which there is onlyone seller for a product or service.
14. Socialism: an economic system based on the premise that some, if not most, basic businesses should be owned by the
government so that profits can be evenly distributed among the people.
15. Communism: an economic and political system in which the state (the government) makes all economic decisions and owns
almost all of the major factors of production.
16. Free-market economy: an economy in which the market largely determines what goods and services are produced, who get
them and how the economy grows.
17. command economy: an economy in which the government largely decides what goods and services are produced, who gets
them, and how the economy will grow.
18. mixed economies: economic systems in which some allocation of resources is made by the made by the market and some by
19. Gross domestic product (GDP): the total value of goods and services produced in a ountyr in a given year.
20. Standard of living: the amount of goods and services people can buy with the money they have.
21. Quality of life: the general well-being of a society in terms of political freedom, a clean natural environment, education,
health care, safety, free time, and everything else that leads to satisfaction and joy.
22. Productivity: the total output of goods and services in a given period divided by the total lahours of labor required to provide
23. unemployment rate; the percentage of the labour force that actively seek work but is unable to find work at a given time.
24. Inflation: a general rise in the prices of goods and services over time.
25. Disinflation: a situation in which price increases are slowing (the inflation rate is declining).
26. Deflation: a situation in which prices are declining.
27. Stagflation: a situation in which the economy is slowing but prices are going up regardless.
28. Consumer price index (CPI): most statistics that measures the pace of inflation or deflation.
29. Business cycles 9economic cycles): the periodic rises and falls that occur in economies over time.
30. Recession: two or more consecutive quarters of decline in the GDP
31. Depression: a severe recession. Summary:
1. Capitalism is an economic system in which all or most of the means of production and distribution (e.g, land, factories,
railroads, and stores) are privately owned and operated for profit.
Who decides what to produce under capitalism/
In capitalist countries, business people decide what to produce; how much to pay workers; how much to charge for goods
and services; whether to produce certain goods in their own countries, import those goods, or have them made in other countries;
and so on.
How does the free market work
The free market is one in which decisions about what to produce and in what quantities are made by the market- that is, by
buyers and sellers negotiating prices for goods and services. Buyers’ decision in the marketplace tell sellers what to produce and
in what quantity. When buyers demand more goods, the price goes up, signaling suppliers to produce more. The higher the price,
the more goods and services suppliers are willing to produce. Price, that, is the mechanism that follow free markets to work.
What is supply and demand?
Supply refers to the quantity of products that manufacturers or owners are willing to sell at different prices at a specific time.
Demand refers to the quantity of products that people are willing to buy at different prices at a specific time. The key factor in
determining the quantity supplied and the quantity demanded id price.
What is the relevance of the equilibrium point?
The equilibrium point, also referred to as the equilibrium price, is the point whre the qunaity demanded is the same as the quantity
supplied. In the long run, the price becomes the market price.
LO1 Explain what capitalism is and how free markets work. As part of this discussion, define supply and demand and explain the
relevance of the equilibrium point.
2. Socialism is an economic system based on the premise that some businesses should be owned by the government.
What are the advantages and disadvantages of socialism?
Socialism creates more social equity. Compared to workers in capitalist countries, workers in socialist countries not only receive
more education and health care benefits but also work fewer hours, have longer vacations, and receive more benefits in general,
such as child care. The major disadvantage of socialism is that it lowers the profits of ownersand managers, thus cutting the
incentive to start a business or to work hard. Socialist economies tend to have a higher unemployment rate and a slower growth
rate than capitalist economies.
LO2: Define socialism and its benefits and negative consequences.
3. Under communism, the government owns almost all major production facilities and dictates
what gets produced and by whom.
How also does communism differ from socialism?
Communism is more restrictive when it comes to personal freedoms, such as religious freedom. With communism, one can see
shortages in item such as food and clothing, and business people may not work as hard as the