Textbook Notes (362,870)
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MGTA01H3 (583)
Chapter 1

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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Economic Systems Around the World A Canadian business is different in many ways from one in China. An economic system allocates a nations resources among its citizens. Factors of Production The key difference between economic systems is the way in which they manage the factors of production- the basic resources that a country’s businesses use to produce goods and services. Labour The people who work for a company represents the first factor of production, labour.  Sometimes called human resources, labour is the mental and physical capabilities of people  Employees who are well trained and knowledgeable can be a real competitive advantage Capital Obtaining and using labour and other resources requires capital- the financial resources needed to operate an enterprise  You need capital to start a new business and keep it running and growing  A major source of capital for small business is personal investment by owners.  Investments can come from individual entrepreneurs, from partners who start a business together, or from investors who buy stock Entrepreneurs The people who accept the opportunities and risks involved in creating and operating businesses are entrepreneurs.  An entrepreneur has the technical skills to understand a product, the conceptual skills to see a products future potential, and the risk-taking acumen to bet one’s own career and capital on the idea Natural Resources Land, water, mineral deposits, and trees are examples of natural resources.  Newer perspectives however, tend to broaden the idea of “natural resources” to include physical resources.  For an oil company natural resources would not only include the crude oil, but also the land where the oil is located, as well as for the refineries Information Resources While the production of tangible goods once dominated most economic systems, today information resources play a major role. Information resources include information such as market forecasts, economic data, and specialized knowledge of employees that is useful to a business and that helps it achieve its goal.  Businesses themselves rely heavily on these types of information  Much of what they do results in either creation of new information or the repackaging of existing information for new users and different audiences Types of Economic Systems Different types of economic systems manage the factors of production in different ways. In some systems, ownership is private; in others, the government owns the factors of production. Economic systems also differ in the way that decisions are made about production and allocation 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 Command Economy Two main forms of command economies: Communism: a type of command economy in which the government owns and operates all industries. For example, North Korea  Proposed by the 19 century German economist Carl Marx  Marx envisioned a society in which individuals would ultimately contribute according to their abilities and receive economic benefit according to their needs  He also expected government ownership to only be temporary, and once society had matured, government would “wither away” Socialism: a kind of command economy in which the government owns and operates the main industries, while individuals own and operate less crucial industries. For example, Cuba More than 50% government control.  Although workers in socialist countries are usually allowed to choose their occupations or professions, a large proportion generally work for the government  Government operated enterprises are inefficient since management positions are frequently filled based on political considerations rather that ability  Extensive public welfare systems have also resulted in very high taxes Market Economies A market is a mechanism for exchange between the buyers and sellers of a particular good or service. Basically, both buyers and sellers enjoy freedom of choice Capitalism: a kind of market economy offering private ownership of the factors of production and of profits from business activity  It encourages entrepreneurship by offering profits as incentives  The economic basis of market processes is the operation of demand and supply Mixed Market Economy In their pure forms, command and market economies are often viewed as two extremes or opposites Most countries rely on some form of mixed market economies: an economic system with elements of both command economy and a market economy; in practice, typical of most nations’ economies. Less than 50% government control. Most countries of the former Eastern Bloc have now adopted market mechanisms through a process called privatization: the process of converting government enterprises into privately owned companies  What privatization usually does is reduce payroll, boost efficiency and productivity, and quickly become profitable Interactions Between Business and Government How Government Influences Business Government as Customer Government buys thousands of different products and services from business firms  Many businesses depend on government purchasing, if not for their survival, at least for a certain level of prosperity The government is also the largest purchase of advertising in Canada Government expenditures on goods and services amount to billions of dollars each year Government as Competitor Government also competes with business through Crown corporations, which are accountable to a minister of parliament for their conduct Crown corporations exist at both the provincial and federal level, and account for a significant and wide variety of economic activity in Canada Government as Regulator Federal and provincial governments in Canada regulate many aspects of business activity Government regulates business through many administrative boards, tribunal, or commissions For example, the Canadian Radio-television, and Canadian Transport Commission (CTC) There are several important reasons for regulating business activity  Protecting competition, protecting consumers, achieving social goals, and protecting the environment Government as Taxation Agent Taxes are imposed and collected by federal, provincial, and local governments Revenue Taxes: taxes whose main purpose is to fund government services and programs. Example, income taxes Progressive Revenue Taxes: Taxes levied at a higher rate in higher-income taxpayers and at a lower rate on lower-income taxpayers. Regressive Revenue Taxes: taxes that cause poorer people to pay a higher percentage of income than richer people pay. Example, sales tax Restrictive Taxes: taxes levied to control certain activities that legislators believe should be controlled. Example, taxes on alcohol, tobacco, and gasoline Government as Provider of Incentives Federal, provincial, and municipal governments offer incentives programs that help stimulate economic development  In Quebec, for example, Hyundai Motors received $6.4 million to build a production facility and an additional $682,000 to train workers Governments also offer incentives through many services
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