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Canada (158,212)
MGTA01H3 (583)
Chapter 1


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University of Toronto Scarborough
Management (MGT)
Chris Bovaird

Ch.1: Introducing the Contemporary Business World ~Provided to You by Education of CUAUTSC Business: organization seeks to earn profit by providing products (tangible goods or intangible service) ◦ Profit: money that remains after a business' expenses (money spent in production and running the business) are subtracted from its revenues (money earned through sale of products).  Economic system: way which nation allocates resources among citizens. Differ in terms of resource ownership and resource control ◦ These resources are called “ Factors of Production” ▪ Labour (human resources) and the skills of a workforce ▪ Capital (financial resources) need to start and run an enterprise ▪ Natural Resources: all physical resources ▪ Information Resources (specialized knowledge): market forecasts, demographics, help to achieve business goals ▪ Entrepreneurs accept risks and opportunities; manage all other factors of production in the firm ◦ Types of Economic systems: ▪ Command Economies (centralized government, government owns most industries), “communism? (government owns all industries), socialism (only some major industries are controlled) ▪ Market Economies ( individuals make decisions about factors of production): “ market” ( mechanism for exchange), freedom of choice widely enjoyed  Capitalism: Political idea with private ownership and encouragement of entrepreneurship ▪ Mixed-Market Economies: most economic systems, elements of both command and market. Current trend towards “privatization (transfer of government activities to public sector because government0managed industries are inefficient) and deregulation (reducing laws that affect business activities). ◦ Governments influence business as 6 things: ▪ Customers (e.g.: office supplies. Military supplies) ▪ competitors (e.g. Crown corporations owned by government compete with private sector) ▪ Regulator:  Protecting Competition: e.g.: ensuring healthy competition, protecting smaller firms  Protecting Consumers: e.g.: safety standards, warning labels  Achieving Social Goals: E.g.: safe workplaces, employment insurance  Protecting Environment: E.g.: Laws governing emissions and waste ◦ Taxation Agent: Revenue taxes fund government programs, either Progressive (higher tax rate for higher incomes) or Regressive (lower incomes pay higher percentage of income). Restrictive taxes to control certain activities (E.g.: alcohol) ◦ Provider of incentives: E.g.: Subsidies, data on Stats Canada, export insurance ◦ Provider of Essential Services: E.g.: healthcare, highways, economic stability plans  Demand and Supply ◦ Demand: willingness and ability for buyer to purchase product ▪ law of demand: buyer purchases more when price drops ◦ Supply: willingness and ability for producer to offer product ▪ Law of Supply : sellers offer more (more supply) when price increases ◦ Demand and Supply Schedule” relationships between demand and supply at different price levels ▪ Demand curve: how many units bought at different prices ▪ Supply curve: how many units offered at different prices ▪ Market price/ equilibrium price: intersection of both curves, profit is maximized  Market economies rely on the Private Enterprise System characterized by 4 things: ◦ Private property rights ( individuals own resources used to create wealth) ◦ Freedom of Choice ( e.g. Choosing who to hire, when and what to sell) ◦ Profits (primary motivation for risk-taking entrepreneurs) ◦ Competition ( creates a push for efficiency and differentiation to gain advantage)  Degrees of Competition ◦ Perfect Competition ( e.g. Canadian Agriculture) ▪ Many small firms so that no one can influence the price of the product Prices set exclusively from supply and demand ▪ Products identical among competitors ▪ Easy entry/exit into the market ◦ Monopolistic Competition ( e.g. Fast food restaurants) don not confuse with “monopoly” ▪ Products offered from each firm seem to differ via “branding”/ Offers firms some control over pricing. Some product differentiation, ▪ Many firms, but less than in perfect competition ▪ fairly easy entry/ exit ◦ Oligopoly ( E.g. Airline industry) ▪ Difficult and capital- intensive entry into the market ▪ Few competitors, products may be similar or different ▪ Some control over prices, but one discount/ hike will result in all the other firms copying in order to compete ▪ Typically globalized organizations ◦ Monopoly: ( e.g. Liquor) do not confused with “monopolistic competition” ▪ No competitors, one firm. Large control over price ▪ Entry regulated by government ▪ Natural monopoly: government designated monopoly because more than one producer would be wasteful ( e.g. Power generation because running 2 sets of power lines would be wasteful) Ch.2 Understanding the Environment of Business  External environment everything outside an organizations boundaries ◦ Managers must understand this environment if the business is to compete within it  Economic environment conditions of economic system the organization operates within ◦ e.g. low inflation, moderate growth, moderate unemployment ▪ low inflation : cost of supplies is constant but organization can't increase prices  Business Cycle : pattern of short-term ups/downs in an economy ( expansions and contractions) ◦ Recession: aggregate (grossed, combined) output. Measured by real GDP, declines ◦ Depression: severe/ long0lasting recession  Aggregate output: total quantity of goods/services produced by economic system in a period ◦ Increase in Aggregate output signifies an economic expansion ▪ A higher standard of living results when aggregate output grows faster than population ( increased output per capita and more services people want) ▪ Standard of living: total quantity/ quality of the goods and services that can be purchased by a country's citizen with the currency used in their economic system  Gross Domestic Product ( GDP): total value of goods/services produced within given period of time by national economy through domestic factors of production  Gross National Product (GNP): same but regardless of where the factors of production are located ◦ e.g. includes profit earned abroad by a Canadian company, Conversely, those profits are included in the abroad country's GDP, not GNP ▪ e.g. wages paid to Brazilian workers are part of Brazil's GNP even though profits are not  GPI: Genuine Progress Indicator: treats activities that harm our environment/ quality of life costs. E.g. Even if an oil spill creates jobs to clean up, it is assigned a negative value.  Real GDP: Real growth rate of GDP * the preferred method of calculation national income/output) is adjusted for inflation and change in country's currency value. This is what counts. ▪ Growth depends on utput increasing at faster rate than population Therefore, standard of living improves.  GDP per Capita: divide GDP by the population  Real GDP (definition above): GDP has been adjusted. NO ADJUSTMENT = Nominal GDP: measured in current dollars OR with all components valued at current prices.  Purchasing Power Parity: exchange rates set so that prices of similar products in different countries are about the same. It gives a better sense of standards of living.  Productivity: Measure of economic growth ◦ compares how much a system produces to the factors of production used ▪ Value of PutputéValue of input ◦ Prices in productive industries go down, because less factors of production are used. Therefore, standard of living increases. ◦ Standard of living improves only through increases in productivity ◦ Real growth GDP reflects productivity growth  Balance of Trade- Country`s exports – it`s imports ◦ Positive balance helps economic growth ◦ Negative balance of trade inhibits economic growth. AKA. Trade deficit: ▪ Creditor nation has positive ▪ Debtor nation – money that flows out of a country can`t be used to invest in productive enterprises either at home or overseas  National Debt – amount of money that government owes its creditors ◦ Budget Deficit – government spends more than it takes in ◦ selling bonds is a way for government ( e.g. Canada) to raise money ▪ The more money that the government borrows, the less is available for the increase of productivity of private enterprise  Stability- amount of money and quantity of goods produced are growing at about the same rate. The goal in an economic system. ◦ 3 Threatening factors to stability ▪ inflation – widespread price increases throughout economic system  Amount of money injected into system is more than output. Therefore prices go up. Higher prices then lower amount of purchasing power ▪ Consumer Price Index- measures inflation  Measure of prices of typical products purchased by consumers in urban area. A “ shopping cart” of 600 typical items, these items change to reflect changes in spending habits ▪ Deflation- period of generally falling prices  Bank of Canada reduced interest rates to increase demand ◦ either b/c productivity increases (good) OR consumers have high debt and do not wish to purchase (bad) ▪ Unemployment- level of joblessness among people actively seeking work.  Frictional unemployment: out of work while looking for new job  Seasonal unemployment: out of work b/c of job's seasonal nature  Cyclical unemployment: out of work b/c downturn of business cycle  Structural unemployment: they lack the skills needed to perform available jobs ◦ In low unemployment: shortage of labour, raise wages, profit margins fall, prices increase and more money consumers have to spend is erased by higher prices. Purchasing power falls ◦ In high unemployment: wages gets too high, cut workers; therefore demand will go down b/c less money consumers have to spend. Government then tries to correct by cutting taxes. Spending more money ( injecting into the system) prices go up as well b/c of increased consumer demand, then inflation and purchasing power declines  Government manages the Canadian economy through fiscal and monetary policies. These are also referred to as “ stabilization policy” (goal to achieve stability) ◦ Fiscal policies: means by which government collects and spends rev
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