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MGTA01H3 (583)
Chapter 2

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University of Toronto Scarborough
Management (MGT)
Bill Mc Conkey

Chapter 2 : Understanding the environments of Business Purpose of economic system  Assemble / organise resources: resources can be factors of production (natural resources, labour, capital, entrepreneurs, information and technology)  Make things people want;  So people will buy them;  Creating profits for businesses;  So everyone will be better off. The Economic Environment -External Environment: consists of everything outside of organization’s boundaries that might affect it. It also determines the success or failure of any organization. - must understand the of environment facing their company, and then strive to operate and compete within it. -Economic Environment: refers to the conditions of the economic system in which an organization operates. Eg: McDonalds Canadian operations functioning in an economic environment characterized by moderate growth, unemployment and low inflammation. - Three key goals of the Canadian environment: economic growth, economic stability and full employment. 1. Economic growth (is economy producing things?) a) The business cycle o Pattern of short-term ups and downs (expansion and contraction) in an economy o Has four recognizable phases  peak ,  recession: period during which aggregate output declines. If lasts too long, it is called depression  Trough  Recovery b) Aggregate output and the standard of living o Aggregate output is main measure for growth o It is the total quantity of goods and services produced by an economic system during a green period o When output grows more quickly than population o Two things follow 1. Output per capita : quantity of goods and services produced per person goes up 2. System provides relatively more of the goods and services that people want  Both lead to higher demand of living  Growth leads to higher standards of living  Must look at nation’s economic system growth to determine the improvement in standard of living o Gross domestic product  Total value of all goods and services produced within a given period by a national economy through domestic factors of production  GDP is the going up, nation is experiencing economic growth  Includes profits earned by Canadian economy abroad  As our GDP goes up, our standard of living also goes up  United states has always have had largest GDP in the world  Even though Canada’s GDP is lowest, it does not mean that our standard of living is low as compare to US.  Growing GDP when people making more stuff  Falling GDP: fewer people making less stuff, usually leads to recession.   2006-2008 was growing, on average there is a growth rate of about 2.6% Same trends for mostly for western and European countries Every so often, GDP shrinks (took place between 2008-2010) we see a negative growth. What is the reason behind high GDP? o We take too much risk o Become less wise about what we invest in  Some of the eastern countries such as India and China grow at a faster rate than western countries. They do it by industrializing areas that were unindustrialized before  What is produced is decided and what is bought is also decided.  Growth comparison of different countries in past years  Fully developed countries have lower growth rates. o GNP (gross national product)  Often used to determine the total value of all goods and services produced by a national economy within a given period regardless of where the factors of production are located. o GDP and GNP are important because they allow us to track an economy’s performance over time o Genuine progress indicator (GPI)  Tracks activities that harm the environment or our quality of life as cost and gives it a negative value Real Growth Rates  GDP and GNP usually differ slightly, but GDP is the preferred method of calculating national income and output  Real growth rate of GDP and actual growth rate of GDP are adjusted for inflation and change in the value of the country’s currency is actual ones that counts GDP per Capita  GDP Per person  Total GDP / total population  At individual level, GDP per capita is a better measure  Displays the GDP per capita around the world  Australia produces a lot of natural resources which is common with Canada Rank Country GDP / capita 1. Luxembourg $ 108,921 2. Norway $ 84,840 3. Switzerland $ 66,934 4. Denmark $ 55,988 5. Sweden $ 48,832 6. United States $ 47,184 7. Netherlands $ 47,159 8. Canada $ 46,148 Source: T
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