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Management (MGT)
Chris Bovaird

Management Ch. 1 The Concept of Business & Profit Business – an organization that produces or sells goods or services in order to make a profit Profit – what remains after a business’s expenses have been subtracted from its revenues.  Profits reward businesses for taking the risks involved with investing their time & money. Expenses (Costs) - The money a business spend producing its goods & services & generally running the business. Revenues (Sales) - The money a business earns selling its products & services. In Canada’s economic system Businesses exist to make a profit for owners who are free to set them up  Consumers have a freedom of choice  In choosing how to get profits, businesses MUST take into account what consumers want or need  Someone who can spot a promising opportunity develop a good plan for capitalizing on it can succeed  Involves identifying an unmet need or better way of satisfying needs  Businesses produce most of the goods & services we consume & employ majority of the working ppl  They create most new innovations & provide opportunities for other businesses, which serve as their suppliers  New forms of technology, service businesses & int’l opportunities promise to keep production, consumption & employment growing indefinitely  Business profits enhance personal incomes of millions of shareholders and owners  Business taxes help to support govt at all levels Therefore, businesses are beneficial for all members of society in different ways. Economic systems around the World Economic system- allocates a nation’s resources among its citizens They differ according to who owns & controls these resources Factors of Production Labour : The mental and physical training & talents of people ; also called human resources.  Carrying out a business requires a labour force with a variety of skills  Employees who are well-trained & knowledge are an asset to the business Capital: The funds needed to operate an enterprise  Obtaining & using labour & other resources requires capital  Capital is required to start a business & allow it to grow  Major source of capital for small businesses  personal investment by owners  Investments can be made by individual entrepreneurs, investors who buy stocks or partners  Revenue – key & ongoing source of capital once a business is started Entrepreneurs: An individual who organizes and manages the labour, capital and natural resources to produce good & services to earn a profit, also the one who takes the risk of failure Natural Resources: Items used in the production of goods & services in their natural state, incl. land, water, mineral deposits, and trees Information Resources: Information such as market forecasts, economic data, & specialized knowledge of employees that is useful to a business & that helps it achieve its goals  Businesses rely heavily on market forecasts, economic data , specialized expertise of ppl  Much of what they do results in the creation of new information or repackaging of existing information for new users & different audiences  AOL is in the information business Types of Economic Systems Economic systems differ in the way that they manage the factors of production and how decisions are made about production and allocation. Command Economies Communism:  2 basic forms are communism and socialism  Proposed by Karl Marx, communism is a system where the gov’t owns and operates all industries  Marx envisioned a society where ppl contribute according to their abilities & receive economic benefits according to their needs  Marx expected govt ownership to be temporary until society had matured, but type of system has been rejected Socialism: A command economy where the govt owns and perate the main industries, while individuals own and operate less crucial industries  Govt owns & operates major industries, while small businesses such as clothing stores & restaurants are owned privately  Workers in socialist countries choose their profession, but most work for govt  Govt managed enterprises are in efficient b/c workers not hired based on ability, but through political considerations  Involves extensive welfare systems with high taxes  Socialism declining in popularity due to this Market Economies Market: A mechanism for exchange between the buyers and sellers of a particular good or service  Sellers are free to charge whichever price & buyers are free to buy from whoever they want  Freedom of choice for buyers and sellers Capitalism: A kind of market economy offering private ownership of the factors of production and of profits from business activity.  Employees are free to work wherever they like & companies can manufacture w.e they want to & consumers can buy whatever they want to  Encourages entrepreneurship by offering profits as an incentive  Supply and demand is the economic basis for market processes Mixed Market Economies Mixed Market Economy: It is an economic system with elements of market & command economy. Typical of most nations’ economies Privatization: Transfer of activities from the gov’t to public sector Process of converting gov’t enterprises to privately owned companies Deregulation: Reduction in the number of law governing business activity & powers of gov’t enforcement agencies  Enables companies to do whatever they want w/out gov’t intervention & simplifies management of a business  Evident in airlines, banking, trucking, communication Interactions b/w Business and Gov’t How Gov’t Influences Business and Government Government as a Customer:  Gov’t buys thousands of products & services from business firms  Largest purchaser of advertising in Canada  Many businesses are reliant on the govt for a major portion of their revenue  Govt expenditures on goods & services = Billions $$$ Government as Competitor:  Gov’t competes with businesses through Crown Corporations, which are accountable to a minister of parliament for their conduct  Exist at provincial & federal level & account for a significant amount of economic activity in Canada Government as a Regulator: Federal & provincial governments in Canada regulate many aspects of business activity  Forms: administrative boards, commissions, tribunals  Federal examples : CRTC ( Canadian Radio-Television & Telecommunications Commission)  CRTC- they make decisions abt which issues & renews broadcast licenses  CWB- regulates prices of wheat Reasons for regulation: protecting competition, protecting customers, Achieving social goals, & protecting the environment Government as Taxation Agent: Taxes are imposed & collection by all 3 levels of govt. Revenue taxes (income taxes)  levied by govts primarily to provide revenue to fund various programs & services. Progressive revenue taxes  higher rate on higher income taxpayers & lower rate on lower-income taxpayers. Regressive revenue taxes ( sales tax)  levied at the same rate regardless of income levels. Restrictive taxes (on alcohol, cigs, and gasoline)  levied partially for the revenue, but also b/c legislative bodies believe it needs to be controlled. Government as Provider of Incentive: All 3 levels of gov’ts offer incentive programs & services that help stimulate economic development.  Through training programs, building of facilities, interest-free loans & suspension of duties. Ex: Hyundai & Toyota  Through the services they provide to firms through govt organizations. Ex: Stats Can, Export Development Corp. They may or may not stimulate the economy, also create difficulties with trading partners. Government as Provider of Essential Services: All 3 levels of gov’t facilitate business activity through the services they supply: Federal: highways, postal service, minting of money, army, stats on which to base business decisions Also tries to maintain stability through fiscal & monetary policies. Provincial & Municipal: streets, sewage, sanitation, police & fire, healthcare, education All of these activities create stability which encourages business activity Demand & Supply in a Market Economy Laws of Demand & Supply On all economic levels, decisions abt what to buy & sell determined by demand & supply. Demand : willingness & ability of a consumer to purchase a product & service. Supply: Willingness & ability of a producer to offer a goods or service for sale.  Law of Demand: Buyers will buy more if the price drops and less if it increases.  Law of Supply: Producers will offer more of a product for sale as it’s price rises & less if price drops Demand & Supply Schedules : assessment of relationships b/w different levels of demand & supply at different price levels. Demand Curve : Graph shows how many products will be (bought) demanded at different prices. Supply Curve: Grpah shows how many products will be supplied at different prices Market Price or Equilibrium: Profit maximizing price at which: quantity of goods demanded = quantity of goods supplied Surplus: Situation when quantity supplied is greater than quantity demanded. Business will lose money they could’ve made by producing more pizzas. Shortage: Situation when quantity demanded is greater than quantity supplied. Leads to higher prices of commodities & increase in criminal behaviour possibly. Private Enterprise & Competition in a Market Economy Market economies rely on a private enterprise system. Private enterprise system: A system characterized by private property, freedom of choice, profits & competition.  Allows individuals to pursue their own interests with minimal govt restriction Private Property rights: Ownership of resources used to create wealth in in the hands of individuals Freedom of Choice: You can sell your labour to any employer, choose which products to buy, who to hire, what to produce Profits: Profits persuade some ppl to take the risk of an entrepreneurship; anticipated profits can influence individuals’ choices on which goods & services to produce Competition: Motivates the efficient running of businesses.  Occurs when 2 or more businesses vie for the same resources or customers.  To gain advantage , a business must produce efficiently & be able to sell at a reasonable profit  To achieve goals, business must convince consumers that its products are better or cheaper  Competition forces all businesses to make products better or cheaper. Degrees of Competition Perfect Competition has two requirements : 1. All firms in an industry MUST be small. 2. The number of firms in the industry must be large. Under these conditions, no one single firm is powerful enough to affect the price of a product Prices are determined by market forces – demand & supply The 2 conditions reflect these principles: 1. Products are so similar for all firms that buyers view them as identical 2. Both buyers & sellers know the selling & receiving price for others 3. Easy to enter or leave the market for each firm – very small 4. Going prices set by demand & supply & accepted by sellers & buyers Example: Cdn agriculture Monopolistic Competition: Fewer sellers are involved in monopolistic competition than in perfect, however there is attempt to make products SEEM different b/c there are still a lot of buyers. Differentiating strategies include brand names & advertising.  Still easy to come & leave the market although businesses are small & large  Small stores can respond to fashion tastes as quickly as big stores  Product differentiation also gives sellers some control over prices Oligopoly Small number of very large firms that have the power to influence prices of products & resources. An oligopoly exists when there are only a few sellers in an industry.  Hard to enter the industry due to large capital investment required  Example: airline, automobile and steel industries  Oligopolists have more control over their strategies than monopolistically competitive, however one firm can significantly affect the sales of every other firm  For example, when one firm lower their prices, the others follow suit, therefore prices of comparable goods are similar Monopoly When an industry only has ONE producer, who can set the price of its product & resources. Natural Monopoly: A market or industry in which having only 1 producer is most efficient b/c it can meet all of consumers’ demand for the product. The need for natural monopoly is constantly being challenged. EX: Royal Mail in Britain, other companies allowed to compete after 350 yrs.  Firm, complete control over price, however constraint is the drop in demand due to price rise  In Canada, laws such as the Competition Act forbid many monopolies & the price the prices charged by natural monopolies are watched by provincial utilities board Ch 2: Understanding the Environment of Business All businesses regardless of shape, size, location or mission operate within a large external environment. External Environment: consists of everything outside of an organization’s boundaries that might affect it  it plays a major role in determining the success or failure of an organization. No single firm can control the environment, they need to be proactive & try to influence the environment Economic Environment: Conditions of the economic system in which the organization operates. EX: McDonalds Canada operates in an economic environment characterized by moderate growth, moderate unemployment & low inflation. Thus, most ppl can buy from them, but it also means that they have to pay higher wages to attract employees & they can’t increase their prices. 3 Goals of the Cdn economic system: Growth, Stability & full employment Economic Growth Business Cycle: Patterns of short-term ups & downs in an economy. It has 4 recognizable phases: peak, recession, trough, recovery Recession: Period during which the aggregate output, as measured in GDP, decline for 2 straight quarters. If a recession lasts for a prolonged period, it’s called a Depression. Aggregate Output & the Standard of Living Main measure of growth in the business cycle is aggregate output. Aggregate Output: total quantity of goods & services produced by an economic system during a given period. When output grows faster than the population, 2 things follow: Output per capita- quantity of goods/services per person- goes up & the system provides more of the goods/services that ppl want. When these 2 things occur, standard of living gets higher. Standard of Living: Total quantity & quality of goods/services that ppl can purchase with the currency used in their economic system. Growth influences a higher standard of living. Gross Domestic Product GDP : total value of goods & services produced within a given period by a national economy thru domestic factors of production. If GDP goes up, economic growth occurs. Thus, profits made by a foreign company in Canada are included. Gross National Product (GNP) : total value of all goods & services produced by a national economy within a given period regardless of where the factors of production are located. Thus, profits made by a Canadian company abroad are included. Both measures are useful for the economic growth b/c they track an economy’s performance over time. Genuine Progress Indicator ( GPI ) : treats activities that harm the environment or harm our quality of life as costs & gives them negative values.  Introduced by a company called Redefining Progress. New GPI measure shows that while GDP has been increasing for many years, GPI has been falling since 1970s. GDP and GNP differ, but GDP preferred method for calcula
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