Very Detailed MGTA03 Chapter 1 - Textbook

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Department
Management (MGT)
Course
MGTA01H3
Professor
Mc Conkey& Bovaird
Semester
Winter

Description
CHAPTER 1 - UNDERSTANDING CANADIAN BUSINESS SYSTEM THE CONCEPT OF BUSINESS & PROFIT, p5 Business Busn - organization that strives to earn profit by producing & selling goods/services PROFIT - money remaining (if at all) after subtracting the business's revenue by the business's expenses - Are the "reward" the business owners get for taking risks dealing with investing time & money - Given the business is managed well, the amount can be large - Example: RBC - $3.3bil; Manulife Financial - $3.2bil; Imperial Oil Ltd - $2.6bil. EXPENSES - aka "costs"; money the business spends for producing goods & services, and for running the business REVENUE - aka "sales"; money earned by business after selling its products & services Business in Canadian Economic System (2) - Exist for the owners who are free to set them up to earn profits - Must consider the consumer's demands (ie. want/needs) when going for profits, as they have freedom of choice - Ie. can choose to buy or not buy => If there is no demand for goods or services that a business offers, then business will not be successful, regardless of how efficient it may be at producing them - Example: Snow-blower shop set up near equator, or skirt-shop set up in Antarctica - Businesses can be successful if they a) Offer the consumer needs that are not met by other businesses Or b) Have better ways to satisfy the consumer's needs - Oppurtunity to succeed: if no one else is supplying that need, or other businesses are not providing it efficiently or completely THE CONCEPT OF BUSINESS & PROFIT, p6 Businesses - Produce majority of goods & services people consume and employ most working people - Potential to introduce new innovations - Can provide oppurtunities for other businesses, which are their suppliers - Quality of business situation affects quality of life & standard of living - Production, consumption & employment are guaranteed to grow on and on given new forms of the following arise: - Technology - Service businesses - International oppurtunities. - Business profits - Can improve personal income of numerous owners & stockholders - Business taxes - Help to support government at any level. - Other businesses support charities, provide community leadership ECONOMIC SYSTEMS AROUND THE WORLD, p6 ECONOMIC SYSTEM - way in which nation allocates its resources among its civilians - “Resources” => "Factors of production" - who owns & controls resources - Makes one economic system differ from another Factors of Production, p6 FACTORS OF PRODUCTION: Basic resources used by a country's businesses to produce goods & services 1. LABOUR: mental & physical capabilities & talents of people - Aka human resources - People who work for company - Example: Imperial Oil - Huge company - Requires its labour department consisting of people with various skills - Example: managers, geologists, truck drivers - Company can attain a true competitive advantage over other companies if its employees are well-trained and knowledgable 2. CAPITAL: financial resources (aka funds) required to run an enterprise (aka organization/business) - Needed for obtaining & using resources, Example: Labour, to begin a new business and to keep business progressing and ongoing - Example: Inco - Requires. $mil. To run its operations, buy & replace new equipment - Small businesses have personal investment by owners as a major source of capital; coming from individual entrepreneurs, partners who begin business together, or investors who purchase stock - Important & ongoing source of capital as soon as business starts = revenue coming from selling products 3. ENTREPRENUERS: person who organizes & manages labour, capital & natural resources to earn a profit by producing goods & services, but also has risk of failure - Those people that accept the oppurtunties & risks that is associated with running a business - Example: Jimmy Pattison, Izzy Asper - Example: AOL creator Jimmy Kimsey - Technical skills to comprehend the mechanics of the internet (labour) - Conceptual skills to realize its future potential (labour) - Had the skill to make correct decisions, while being risky 4. NATURAL RESOURCES: items used to produce goods & services; they are present in their natural state - Example: land, water, mineral deposits, trees - Can also include all physical resources as well - Example: Imperial Oil - Uses multifarious natural resources - Also uses land where oil is stationed, and land for refineries & pipelines (physical resources) 5. INFORMATION RESOURCES: Information that business can utilize & rely upon, and can help it achieve its goals - Example: Market forecasts, economic data, and specialized knowledge coming from employees - These have replaced physical goods production in the role of importance - Creating new info OR - Modifying existing information for new users & different audiences - Example: America Online (AOL) - In exchange for monthly access fees, it provides numerous online services for its subscribers Types of Economic Systems - Each type of economic system has distinguished ways of managing factors of production - Example: ownership of these factors varies from being private, to government owned - Example: how are decisions made about production & allocation 1. COMMAND ECONOMIES – government tha: controls all/most factors of production, makes all/most production decisions Two Basic Types of Command Economies SOCIALISM COMMUNISM = Government owns & runs MAIN industries, = Government owns & runs all industries but individuals own & run LESS important industries -Government owns & runs only selected major - First proposed by Karl Marx, 19th century industries German economist - Private ownership of smaller businesses >- Example: restaurant, convenience stores Marx's vision - Society where individuals are ultimately 1- Majority of workers work for government, contributing based on their abilities & receive despite permitted to choose economic benefits based on their needs occupation/profession - Government only temporarily has ownership of production factors 2- Because management position are often given - Workers gain direct ownership once society to individuals who are politically favourable has matured, leaving government control aside instead of for their ability, government-operated - Contemporary times: most countries don't use enterprises tend to be inefficient. communism, and instead use market-based economy. 3- Very high taxes are resulting from a large # of public welfare systems ^- Above 3 factors are causing decline in socialism for its popularity 2. MARKET ECONOMIES MARKET = mechanism for exchange between buyers & sellers of particular good/service - Example: fruit stand selling apples - vendor A - sells apples for $1/kg - vendor B - sells apples for $1.50/kg - if apples are of same quality, customer would buy from A because they are less expensive - if B's apples are fresher, then they buy from B - Sellers can charge whatever they want, and customers are free to buy what they select => both buyer & seller have freedom of choice - Example: Ford - People are free to work for Ford, or another employer - Can invest in Ford, or other in other companies - The company itself can make whatever vehicles it wants, and put whatever price - Consumers free to buy whichever car they want CONTRAST COMMAND ECONOMY - Areas of work for individuals, manufacturing by companies, and what is available for consumers, what price the goods/services are at, are all controlled by the government - They can tell them what to set it at, what to not set at, where they can work, where they cannot etc. - Individuals may be told where they can work, where they cannot --> Capitalism = type of market economy that offers private ownership of: - Factors of production - Profits from business activity - Encourages entreprenuship by offering profits as a reward to continue  Mixed-market economies: has properties of both COMMAND ECONOMY & MARKET ECONOMY; typical type for most nations Reality of Command, and Market Economies - looked as 2 extremes, and so mixed-market is like the one in the middle Mixed Market Economy (con.) Privatization = converting government businesses into privately-owned companies => Shifting of activities from government to public sector - Example: Netherlands converting its postal system from government-owned to private-owned - Most countries have postal sys. government-owned, regardless of if COMMAND or MARKET economy - Example: Canada did for air traffic control sys. --> Benefits gained from privatization (as far as the above ex's are concerned) - decr'ed payroll = 2. [ C usually singular ] the total amount of money paid to the people employed by a particular company - improved efficiency & prod'ivity - quickly becoming profitable Deregulation = decrease in amount of laws that impact business activity, and powers of government enforcement agencies - Gives companies the liberty to do what they want without the government getting involved - From this, able to simplify task of managing the company - Seen in numerous industries (Example: pipelines, banking, trucking, comm'ion) INTERACTIONS BETWEEN BUSINESS & GOVERNMENT --> How Government Influences Business 1. Government as Consumer - Government purchases numerous different products and services from business firms - Example: office supplies, buildings, computers, militiary equipment, treatment plants, highways, consulting services - Largest purchaser of advertising in Canada - Many businesses rely on government spending - To survive - To prosper - Example: for buying a building for them to work at 2. Government as Competitor - Competes with other businesses via Crown corporations (aka government-owned businesses) - Their conduct is watched over by a minister of parliament - Crown corporations are present in provincial & federal level - responsible for significant & various range of ongoing economic activity in Canada 3. Government as Regulator regulator /ˈreg.jʊ.leɪ.tə r / /-t ɚ/ noun [ C ] 2. an official who makes certain that the companies who operate a system, such as the national electricity supply, work effectively and fairly - Many aspects of business activity are regulated by Canada's federal & provinicial governments - Done via many administrative boards, tribunals (legal courts that examine prob's occurring), commisions Government regulation at federal level - Example: Canadian Radio-television, Telecommunications Commission (CRTC) - Issue & renew broadcast licenses - Example: Canadian transport commission - Makes decisions for commercial air & railway companies when it comes to route & rate applications (requests) - Example: Canadian wheat board - Regulates wheat prices Government regulation at provincial level - Regulate business via decisions coming from provincial boards & commissions Government as Regulator - Business people may complain about equity (fairness) issues when it comes to how government regulates Key Reasons for Regulating Business Activity - Protecting competition, consumers and environment - For achieving social goals 4. Government as Taxation Agent levy /ˈlev.i/ noun [ C ] an amount of money, such as a tax, that you have to pay to a government or organization They imposed a 5% levy on alcohol. - Government at all levels (federal, provincial, local) administer the collection of taxes REVENUE TAXES - taxed by government mainly to provide revenue to fund various services & programs - Main purpose: fund government services & programs - Example: income taxes PROGRESSIVE REVENUE TAXES - follows the rule of: a) higher-income taxpayers are taxed at a higher rate, and b) low-income taxpayers are taxed at lower rate => People with low-income have to pay less money in taxes than high-income people REGRESSIVE REVENUE TAXES - tax at a same rate regardless of the individual's income => Regardless of if the person is high income or low income, they will have to pay same amount of $ in taxes - Causes poorer individuals have to pay a greater portion of their income for these taxes than rich people do => Example: sales tax; - make poorer people pay greater % of income than richer people pay RESTRICTIVE TAXES = Taxes imposed to control particular activities that legalists believe should be controlled - Example: taxing the sale of alcohol, tobacco, gasoline - Are taxed for a) revenue they provide & b) because law-administrating organizations think that sale of these products should be controlled 5. Government as Provider of Incentives incentive /ɪnˈsen.tɪv/ /-t ɪv/ noun [ C or U ] 1. something which encourages a person to do something Tax incentives have been very effective in encouraging people to save and invest more of their income. 2. A payment or concession to stimulate greater output or investment: "tax incentives for investing". - Government as the provider of "encouragment" - Facilitate the progress in economic development by offering incentive programs - All levels of government do this - Example: Quebec - Provincial government gives $6.4mil for building production facility, $682,000 to train workers for Hyundai Motors - Example: Toyota & Hyundai received incentives in form of interest-free loans, training incentives ($ for training), suspension of tax collection from company Incentives (con.) - are also offered by government via government organizations providing services to business firms - Example: Export Development Corporation >- Helps Canadian exporters by providing export insurance - Against no-payment return from foreign buyers; - for LT-loans to foreign buyers of Canadian products - Example: Energy, Mines and Resources Canada - Provides locations of possible mineral-producing areas in Canada - Example: Statistics Canada - gives data & analysis on nearly every topic about Canadian society Government Incentive programs - Muncipal tax return for companies in certain areas - design-assistance - cancellation of charges (ie. tariffs) on specific technological prod. equipmt - goal: stimulate growth of economy >- Outcome not always as such - Example: can cause difficulties when it comes to relationships with trading partners 6. Government as Provider of Essential Services - Occurs at all levels of government (federal, provincial, local) - Supply a variety of services t
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