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Chapter 1

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Simon Fraser University
Business Administration
BUS 201
Peter Tingling

BUS 201 – Introduction to a Network Economy Study Guide Chapter 1 Business and Profit Business – an organization whose goal is to earn profits by selling goods and services Profit – what remains after a business subtracts its expenses from its sales revenues Not-for-profit – an organization that seeks to provide services to the public. They run on government grants or self generated funds from sales of goods or services (eg. Hospitals, charities) Economic system - the allocating of a nation’s resources among its citizens. They differ in the way they manage factors of production Factors of production – resources used to produce goods and services (labour, capital, entrepreneurs, natural resources, information resources) Labour/human resources – the people working for a company, and the physical and mental capabilities of the employees Capital – the funds needed to start up a business and keep it running. May come from owners’ personal investments, the sale of stock to investors, profits, and loans. Entrepreneurs – one who runs the risk of failure in creating a business; organizes and manages labour, capital, and natural resources. Natural resources – physical resources used in the production of goods and services (land, water, mineral deposits, trees) Information resources – expertise and specialized knowledge of employees, market forecasts, and economic data that a business requires Types of Economic Systems  Can be privatized or government controlled Command economy: production/allocation decisions and factors of production controlled by a centralized government  Communism: o government owns and operates all. o Citizens contribute to their abilities and receive economic benefits according to their needs o Gov’t ownership would be temporary, and would dissolve as society eventually takes control o Most communist countries favour a market-based economy BUS 201 – Introduction to a Network Economy Study Guide Chapter 1  Socialism o Government owns and operates select industries o Corruption would make gov’t operated businesses inefficient as posts would be filled based on affiliations rather than ability o High taxes from welfare system o Large portion of population work for the gov’t Market economy: production/allocation decisions controlled by producers and consumers through supply and demand. Transactions take place without much government interference. Market: mechanism for exchange between buyers and sellers of a good or service. Input/Output markets  Input – firms buy and are supplied resources from households  Output – firms supply goods/services in response to households’ demands  Eg. Companies buy labour from households who also use their savings to purchase company stock. In return, the company uses these buying patterns to determine what to produce, and sells their product to the households. Capitalism – allows private ownership of the factors of production  Encourages entrepreneurship by offering profits as an incentive Mixed Market economies  Incorporate elements of both command and market economies  Most countries rely on this  Privatization – the conversion of government enterprises into private companies  Nationalization – converting privately owned companies into government owned ones  Deregulation – reduction in number of laws affecting business activity and government agencies’ power  During the recession, the trend of deregulation has slowed and reversed  When governments in mixed market economies intervene, it leads to higher deficits Interactions between Business and Government The government as a customer:  Buys products from firms, such as office supplies, office buildings, computers, battleships, helicopters, highways, water treatment plants, management and engineering consulting services The government as a competitor: BUS 201 – Introduction to a Network Economy Study Guide Chapter 1  Crown corporations (Hydro Quebec, Canada Post, Canadian Wheat Board, etc)  Crown corporations exist at federal and provincial levels Government as a Tax Agent  Revenue (income) taxes provide for services and programs  Progressive Revenue Taxes impose higher taxes on high earners and lower taxes on the low earners  Regressive revenue taxes are the same rate for everyone  Restrictive Taxes are levied for the money, but also to control certain products (alcohol, tobacco, gasoline) Government as a Provider of Incentives and Financial Assistance  Offer incentives to stimulate economy (offering subsidies, tax rebates)  DFAIT promotes Canada as an ideal place to invest in to international clients  Canada Business program advises those beginning small businesses on gov’t programs, services, and regulations  Can cause barriers to international trade, by driving down the demand for foreign produced goods Government as a Provider of Essential Services  Provide infrastructure like streets and highways  postal service, money minting  Provide armed forces and statistical data for making business decisions  Fiscal and monetary policy to maintain stability Government as a Regulator  Administrative boards, tribunals, and commissions regulate businesses  Protect competition, the environment, and consumers  achieve social goals  eg (Canadian Radio-Television and Telecommunications commission (CRTC) Government Regulations:  protecting competition  prevent large companies from cutting prices and driving small companies out of the market (Walmart)  outlined in the Competition Act, w
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