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Canada (161,878)
Commerce (596)
COMM 103 (179)
Chapter 2

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COMM 103
Gary Bisonnette

Alexandra Hill COMM 103 – 006 October 11 & 14 Chapter 2: The Canadian Economic Environment Canada and Its Economic System - Factors that are essential to ensure that our economy remains strong and competitive now and in the future: o Productivity gains, strong business investment, technological innovation, moderate wage increases, and a favourable currency exchange rate Contributing Factors to Economic Development - Political stability, manageable levels of national debt, established factors of production, national monetary policy and banking system, sufficient levels of investment, low inflation, absence of corruption, effective legal system, comparative advantage o Conclude Canada is a safe and lucrative place to operate business - Core requirement for stability and growth of an economic system is its ability to service and promote both the current and future economic activity Underlying Economic Model - An economic system that grows and encourages economic risk must have three fundamental market composition principles: o The law of supply and demand o Allowance for private ownership, entrepreneurship and wealth creation o Extent of government involvement in influencing economic activity and direction - Law of supply and Demand o Ability to the market, in dependent of external influences, to determine the price for which a product or service will be bought or sold o Demand is the number of purchases who are willing to pay or a product and or service at various price points  Elastic (quantity demanded changes significantly due to a change in price) or Inelastic (movement in price does not result in significant changes in demand) o Supply is the quantity of a product or service producers are willing to provide the market at various price points o Supply schedule represents the amount of product and/or service which a producer is willing to offer at a particular price point Alexandra Hill COMM 103 – 006 October 11 & 14 o The point where the quantity supplied equals the quantity demanded, with the price point set by this equalization  No shortage or surplus of goods at the agreed upon price  Prices fall too low => shortage  Prices move higher => surplus  When surpluses and shortages occur, market will correct itself back to equilibrium price o Prices may be influenced by external mechanisms:  Duties, tariffs, subsidies, or regulatory practices o Factors that affect demand:  Consumer income, consume preference, the number of product and/or services substitutes, and cost base reductions due to technology and productivity improvements - Allowance for Private Ownership, Entrepreneurship, and Wealth Creation o Openness of the market to support, encourage and promote the concepts of private enterprise, personal ownership, entrepreneurship, and wealth creation o USA and Canada support these concepts in a climate of risk versus return - Government Involvement in Influencing Economic Activity and Direction o Relates to the varying roles which gov’t can play in everyday economic activities o Can act as customer, regulator, manager, taxation agent, economic stimulation, and competitor - Open systems are: o Governed mostly by law of supply and demand o Provides full access to the principles of private ownership, entrepreneurship, and wealth creations o Possess an absence of regulation on the part of a gov’t o Foreign trade and movements in labour and capital are unrestricted - Controlled Systems are: Alexandra Hill COMM 103 – 006 October 11 & 14 o Gov’t fully controls the economic direction and activity o Economies that operate minimal external trade - Mixed Economic systems: o Contain elements of both open and controlled systems Canada – A Mixed Economic System - Economy allows the law of supply and demand to significantly influence the market - Private ownership, entrepreneurship, wealth creation and risk VS return are present - Gov’t becomes more/less engaged when it believes that it would be the best interest of our nation in order to protect and regulate industries as well as manages taxation, regulation, national debt targets, provincial transfers and monetary policy control The Economy in Simple Terms - Economy can be based on the basis of four fundamental factors: o Expenditures  Purchases are deemed to be of value in meeting nutrition needs and in improving overall quality of life o Savings  Dollars which you set aside today and support economic activity and wealth creation for the future o Capital Asset Investment  Investments that are made today to expand your capacity to conduct and expand productivity, and overall economic capacity o Credit  Borrowing of dollars to support expenditures or investments being made Economic Activity = Expenditures + Savings + Investments + Credit - Too much credit will delay economic growth and large amounts of economic productivity must be used to repay this debt instead of generating new economic growth opportunities - Too much savings result in tendency to reduce economic growth due to expenditure reductions Alexandra Hill COMM 103 – 006 October 11 & 14 The Economic Growth Cycle - Gross Domestic Product (GDP) is the total market value of goods and services which a nation produces domestically over a defined period of time (determines if a country is growing or contracting) - Factors that contribute to economic growth (total value of GDP): o Goods and services produced and purchased for consumption o Business investments within economy o Goods produced for export purchases o Gov’t spending - Economic contraction will result in the reversal of the process Managing the Movement in the Economy - Managing the economy must stimulate investment and control inflation - Gov’t of Canada, regulatory agencies, provincial gov’ts, and crown corporations try to maintain an equilibrium between growth and inflation Trends Impacting the Canadian Market - Inflation Alexandra Hill COMM 103 – 006 October 11 & 14 o Negative impact on growth of economic activity o Psychologically negatively impacts confidence levels of consumers and business operators o Heavy reliance on energy for production and transportation needs => upward pressure on cost base associated with products and services => higher prices for consumers o Some restaurants in the food industry escape inflation in ingredients utilizing economies of scale and long-term contracts - Geographic Clustering o Occurs when regional economies develop into what are considered to be distinct from one another and separated by significant enough geographic space where interdependency upon each other is minimized o Interdependency exists at regional and national levels to reduce any negative consequences on the economy  Danger occurs when separation occurs at a broader macro level that does not allow the gov’t to implement economic actions to control expansion or contraction via monetary policy or inflation control mechanisms - Currency Exchange Rate impact o Having a strong Canadian Dollar:  Reduces the price of goods and services being imported into the country  Made trips to USA cheaper for Canadians  Revenue received from exports grow => lead to strong profits  Price of Canadian goods and services increase make it more expensive when compared to other countries  Cost of visiting Canadians by US residents is more expensive - Branch Market Impact o Many global organizations look to purchase Canadian owned companies o Fear of Canada becoming a branch market economy o Canadian Gov’t has been challenged to change the Investment Canada Act to prevent foreign companies to purchase Canadian owned companies Alexandra Hill COMM 103 – 006 October 11 & 14 - Sustainability and Green Initiatives o Companies seek market positioning advantages and cost advantages through green-based strategies o Emphasis on green products, more eco-friendly packaging, reduced carbon emissions, and greater sensitivity to the use of finite resources - Aging Workforce, Immigration, and Multiculturalism o Canada’s work force is aging  Resulting in need to hire and train at least 39 000 workers  Concerned about intellectual capital shortages  Immigration to encouraged to bring skills into the workforce • Immigrants must find a country that is welcoming and allows them to contribute to social and cultural growth • Need to find workers that have the required language and critical thinking
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