Bus201 Chapter 1.doc

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Chapter 1
Understanding the Canadian Business System
The Idea of Business and Profit
-business managers must pay attention to many different things, including the actions of competitors,
rapid technological change, new product development, corporate strategy, risk management, stock prices
-Business is an organization that produces or sells goods or services in an effort to make a profit
-Profit is what remains after a business’s expenses have been subtracted from its revenues
-prospect of earning profits is what encourages people to start and expand businesses
-Not-for-profit organizations an organization that seeks to earn profits by providing goods and
services
Economic Systems Around the World
-a major determinant of how organizations operate is the kind of economic system that characterizes the
country in which they do business
-economic system- allocates a nation’s resources among its citizens
Factors of Production
-factors of production- the resources used to produce goods and services: labour, capital, entrepreneurs,
and natural resources
1) Labours the mental and physical training and talents of people; human resources
2) Capital- the funds needed to operate an enterprise
3) Entrepreneurs- an individual who organizes and manages labour, capital, and natural resources to
produce goods and services to earn a profit, but who also runs the risk of a failure
4) Natural Resources- items used in the production of goods and services in their natural state, including
land, water, mineral deposits and trees
5) Information Resources- information such as market forecasts, economic data, and specialized
knowledge of employees that is useful to a business and that helps it achieve its goals
Types of Economic Systems
-some systems, ownership is private
-factors of production are owned by the government
-command economy- an economic system in which government controls all or most factors of
production and makes all or most production decisions
-market economy- an economic system in which individuals control all or most factors of production and
make all or most production decisions
1) Command economies
two basic forms: communism and socialism
communism is a type of command economy in which the government owns and operates all
industries
less extensive command economic system (socialism), a kind of command economy in which
the government owns and operates the main industries, while individuals own and operate
less crucial industries
many government operated enterprises are inefficient, since management positions are
frequently filled based on political considerations rather than ability
extensive public welfare systems have also resulted in very high taxes
socialism is generally declining in popularity
2) Market Economics
a market is a mechanism for exchan
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ge between the buyers and sellers of a particular good or service
Business to business (B2B) involves joining together to create e-commerce companies that
make them more efficient when they purchase the goods and services they need
B2B and B2C exchanges take place without much government involvement
Input and Output Markets
in the input market, firms buy resources from households, which then supply those
resources
in the output market, firms supply goods and services in response to demand on the
part of the households
political basis for the free market economy is capitalism (an economic system in
which markets decide what, when, and for whom to produce)
3)Mixed Market Economies
mixed market economy an economic system with elements of both a command economy
and a market economy
privatization- the transfer of activities from the government to the private sector
nationalization- the transfer of activities from private firms to the government
Deregulation a reduction in the number of laws affecting business activity
Governments in mixed market economies have intervened in the economic system in an
attempt to stabilize it, but this has led to higher deficits and more control of business activity
Interactions between Business and Government
How Government Influences Business
Government as a Customer
Government buys thousands of different products and services from business firms,
including office supplies, office buildings, computers..
Many businesses depend on government purchasing
Government as a Competitor
Government also competes with business through Crown corporations
Government as Regulator
Federal and provincial governments in Canada regulate many aspects of business activity
through administrative boards, tribunals, and commissions
Canadian Wheat Board regulates the price farmers receive for their wheat
Canadian Radio-Television and Telecommunications Commission (CRTC) regulates
and supervises all aspects of the Canadian broadcasting system
Reasons for regulating business activity include protecting competition, protecting
consumers, achieving social goals, and protecting the environment
Promoting Competition
o Competition is crucial to a market economy, so government regulates business
activity to ensure that healthy competition exists among business firms
o The Competition Act prohibits agreements among companies that are designed to
reduce competition
o Businesses often complain that the competition bureau is too slow in approving
or denying merger plans
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