Understanding the Canadian Business System
Business: an organised effort, to make or sell something, to sell to customers, who need or want
something, in order to make a profit.
Customers need and want things and they will pay for them.
Profit is what remains after business’s expenses have been subtracted from its revenues.
The difference between money in (revenues or sales) and money out (costs or expenses)
A business exists to make a profit
Not all organisations are businesses: e.g. hospitals, universities, churches
These do provide services: but not intended for profit
Expenses: the money a business spends producing it’s goods and services and generally running
the business (also referred to as “costs”).
Revenues: the money a business earns selling its products and services. Also referred to as “sales”.
Most profitable companies in 2005 were Royal Bank of Canada ($3.3 billion), Manulife
Financial ($3.2 billion), and Imperial Oil Ltd. ($2.6 billion)
Businesses must take into account what consumers want or need (demand for it’s goods or
Someone who can spot a promising opportunity and then develop a good plan can succeed
Loss: When expenses more than sales
Ex. It costs more to produce the products, and run the business, than the business can
generate through sales.
GM lost so much money b/c of useless cars (Hummers), fuel was inefficient, paid 6 different
people do to the same thing, products cost a lot (buying raw materials from wrong people)
Phoenix Coyotes lost money b/c no one goes to their games with a small fan base
Economics: The study of how businesses, people make choices about: What things to
produce/consume, how best to produce things, how best to distribute wealth
Economic system: the way in which a nation allocates its resources among its citizens
Who should own the factors?
Who should control the factors?
What should we make, with the factors
Factors or Production: basic building blocks used to produce anything; the basic resources that a
country’s businesses use to produce goods and services
1. Natural Resources- raw materials found in ground, grown from earth, or harvested from
nature. Examples: coal, wheat, water, wood
2. Labour- the people who work for a company, sometimes called human resources (ranging
from managers to geologists to truck drivers)
3. Capital- the funds needed to operate an enterprise (First borrowing money and using it to
build the business); money, or machines and technologies that money can buy. Ex. computers, phones, hammers, tractors. Major source of capital for small businesses is
personal investment by owners. Investments can come from individual entrepreneurs,
partners, or investors who buy stock
4. Entrepreneurs- the people who assemble and organize the other factors of production, the
individuals who make it all happen, but who also run the risk of failure; Society or culture
that encourages a spirit of enterprise, people who want to try
5. Information Resources- information such as market forecasts, economic data, and
specialized knowledge of employees that is useful to a business and that helps it achieve its
2 Types of Economic Systems
The way different countries answer basic economic questions:
who should own the factors of product’n?
who controls the factors of productn?
Who decides what should be produced, with the factors?
Every country on Earth, every country is different (takes a slightly different approach to
answer these questions)
Command or Planned Economies
Governments own/control factors of production; Governments make all / most of decisions
Decisions like where one will make this, who’s involved, what to buy
Communism: a system in which the government owns and operates all sources of production.
Marx envisioned the government would “wither away” and workers would gain direct
ownership, but he was wrong, and most countries abandoned communism in favour of a
more market- based economy
Examples: very few, probably North Korea
Socialism: a kind of economy in which the government owns and operates the main industries,
which individuals own and operate less crucial industries. Example: Cuba
Socialist still have private enterprises, private businesses, but 80% is in the hands of the
Individuals own/control factors of production; Individuals make all / most of decisions
Country of Market Economies say Government doesn’t know anything about what its people
The information will take too long to get them
All decisions made by private individuals
Ex. Buying apples, different price, different quality, freedom of choice
Capitalist Economies: individuals owns/control all factors of production. Individuals make 100%
of economic decisions. Offers private ownership of the factors of production and of profits from
Get no taxes, no role for government, very few laws for how to conduct your business Mixed Market Economies: individuals own/controls majority of factors. Individuals make most of
economic decisions. Governments regulate and tax, run some business. Example: Canada, USA, UK,
Deregulation: a reduction in the number of laws affecting a business activity
Canada is a "mixed" Economy:
Majority of factors (farmland, forests, mines) owned by private individuals.
Most decisions about factors (how many workers to hire, how much to pay them, how much
technology to buy) made by individuals.