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Chapter 1-5

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Business Administration
BUS 201
Andrew Gemino

Business systems (Chapter 1) What is a business? : Organization that seeks to earn profits by providing goods and services Profit: Sales revenue - Businesss expenses Nonprofit organizations: Business that does not seek profit Economic system: The way in which a nation allocates its resources among its citizens Economic systems differ by the factors of production: 1. Labor a. The mental and physical training and talents of people human resources b. Influenced by human capital 2. Capital a. The funds needed to operate an enterprise 3. Entrepreneurs a. An individual who organizes and manages labor, capital, and natural resources to produce goods and services to earn a profit b. Runs a risk for failure. 4. Natural resources a. All physical resources used in the production of goods and services in their natural state: i.Land, water, mineral deposit and trees 1. Information resources: a. Market forecasts, economic data, and specialized knowledge Command Economy: An economic system in which government controls all or most factors of production and makes all or most production decisions Communism: A type of command economy in which the government owns and operates all industries. Socialism: A kind of command economy in which the government owns and operates the main industries while individuals own and operate less crucial industries. Market economy: An economic system in which individuals control all or most factors of production and make all or most production decisions. Market: An exchange process between buyers and sellers of a particular good or service. Input market: Firms buy resources that they need in the production of goods and services Output market: Firms supply goods and services in response to demand on the part of consumers Capitalism: An economic system in which markets decide what, when, and for whom to produce. Mixed Market Economy: An economic system with elements of both a command economy and a market economy; in practice, typical of most nations economies 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. Interactions between Business and Government How Government influences Business 1) Customer a) Buys thousands of different products and services from business firms 2) Competitor a) Competes with business through Crown corporations, which are accountable to a minister of parliament for their conduct. 3) Regulator a) Federal and provincial governments in Canada regulate many aspects of business activity through administrative boards. Example: Canadian Radio-television and Telecommunication (CRTC) Canadian wheat board b) Promoting competition i) Competition is crucial to a market economy, so government regulates business activity to ensure that a healthy competition exists among business firm. c) Protecting consumers i) The federal government has initiated many programs that protect consumers. (1) Hazardous Products Act (2) Tobacco act (3) Weights and measures act (4) Textile labeling act (5) Food and Drug Act 4) Achieving social goals: 5) Social goals, which promote the well-being of Canadian society, include things like universal access to health care, safe workplaces, employment insurance, and decent pensions. 6) Government legislation designed to protect the environment a) Canada water act b) Fisheries act c) Environmental contaminants act 7) Government as a Taxation Agent: a) Revenue tax: Taxes whose main purpose is to fund government services and programs b) Progressive revenue taxes: Taxes levied at a higher rate on higher income taxpayers and at a lower rate on lower income taxpayers. 8) Government as a Provider of incentives and Financial Assistance a) Federal, provincial, and municipal governments offer incentive programs that attempt to stimulate economic environment. 9) Government as a Provider of Essential Services: a) Various levels of government facilitate business activity through the services they supply. How Business Influences Government Businesses try to influence the government through: Lobbyists: A person hired by a company or an industry to represent its interests with government officials. Trade associations: An organization dedicated to promoting the interests and assisting the members of a particular industry. Demand and Supply in a Market Economy Market: An exchange process between buyers and sellers of a particular good or service. Law of demand: The principle that buyers will purchase (demand) more of a product as price drops. Law of supply: The principle that producers will offer (supply) more of a product as price rises. Demand and supply schedule: Assessment of the relationships between different levels of demand and supply at different price levels. Demand curve: Graph showing how many units of a product will be demanded at different prices Supply curve: Graph showing how many units of a product will be supplied at different prices Market Equilibrium price: Profit Maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal Surplus: Quantity supplied > Quantity demanded Shortage: Quantity supplied < Quantity demanded Private enterprise: An economic system characterized Private property: ownership of the resources used to create wealth is in the hands of individuals. Freedom of choice Profits: Anticipated profits influence individuals choices of which goods or services to produce. Competition: The vying among businesses in a particular market or industry to best satisfy consumer demands and earn profits. Degrees of competition: Perfect Competition: A market or industry characterized by a very large number of small firms producing an identical product so that none of the firms has any ability to influence price Example: Fast food chains Monopolistic competition: A market or industry characterized by a large number of firms supply products that are similar but distinctive enough from one another to give firms some ability to influence price Example: Automobile manufacturing Oligopoly: A market or industry characterized by a small number of very large firms that have the power to influence the price of their product and resource s Example: Airlines/ Beverages Monopoly: A market or industry with only one producer, who can set the price of its product and resources Example: Google Natural monopoly: A market or industry in which having only one producer is most efficient because it can meet all of consumers demand for the product. Example: BC Hydro The Environment of business (Chapter 2) External environment: Everything outside an organizations boundaries that might affect it Organizational boundary: Separates the organization from its environment Economic environment: Conditions of the economic system in which an organization operates Aggregate output and the standard of living: Aggregate output: The total quantity of goods and services produced by an economic system during a given period. To put I simply an increase in aggregate output is economic growth. An increase in aggregate output = economic growth Output per capita goes up and the system provides relatively more of the goods and services that people want.
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