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Chapter 1

MGTA01: Chapter 1 - Understanding the Canadian Business System

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Management (MGT)
Chris Bovaird

Sara Manazir MGTA01 – Winter 2014 Chapter 1 – Understanding the Canadian Business System The concept of Business and Profit Business – An organization that produces or sells goods or services in order to make a profit. Profit – The money that remains after, if any after a business’s expenses are subtracted from its revenues. Expenses – The money a business spends producing its 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’ - Define the nature of Canadian businesses and identify its main goals.  The prospect of earning profits encourages individuals and organizations to open and expand businesses. The benefit of business activities also extend to wages paid to workers and to taxes that support government functions. Economic Systems around the World Economic System – The way in which a nation allocated its resources among its citizens. They differ in terms of who owns and controls these resources, known as the ‘factors of production’. Factors of Production – the basic resources that a county’s businesses use to produce goods and services: labour, capital, entrepreneurs, and natural resources. 1. Labour – The mental and physical training and talents of people; sometimes called human resources. For example, in a major corporation, all members of the corporation who contribute to running and maintaining the business, its liabilities and assets are forms of labour. 2. Capital – The funds needed to operate an enterprise in the form of money or technology that money can buy. Capital is needed to start new businesses and to keep them running and growing. - A major source of capital for small businesses is personal investments, which can come from individual entrepreneurs, from partners who start businesses together or from investors who buy stock. - Revenue from the sales of products is a key source f capital once a business has opened its doors 3. Entrepreneurs – An individual who organizes and manages labour, capital, and natural resources to produce goods and services to earn a profit, but who also runs the risk of failure. The entrepreneur is able to identify unmet consumer needs, such as advertising and selling a good or service. The entrepreneur is able to spot a promising opportunity and develop a good plan for capitalizing on it. For example, some successful entrepreneurs are Steve Jobs, and Mark Zuckerburg. 4. Natural Resources - Items used in the production of goods and services in their natural state, including land, water, mineral deposits and trees. Once just limited to resources that could only be produced in nature, it now relates to include all physical resources. For example, Imperial Oil needs vast quantities of crude oil but also needs the land where oil is located and land for refineries and pipelines. Sara Manazir MGTA01 – Winter 2014 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 goals. Types of Economic Systems  Factors of production are managed by different types of businesses in different ways. Command Economy –An economic system in which government controls all or most factors of production and makes all or most production decisions. Market Economy – An economic system in which individuals all or most factors of production and make all or most production decision through supply and demand Command Economies: • Communism – Originally proposed by Karl Marx, communism is a system in which the government owns and operates all sources of production  Marx envisioned a society in which individuals would ultimately contribute according to their abilities and receive economic benefits according to their needs.  He also expected government ownership of production factors to be only temporary  Once society has matured, government would “wither away” and the workers would gain direct ownership • Socialism – a kind of command economy in which the government owns and operates the main industries, while individuals own and operate less crucial industries.  socialism owns and operates only selected major industries and smaller businesses such as clothing stores and restaurants may be privately owned  workers in socialist countries are usually allowed to choose their occupations but despite this, a large population generally works for the government Market Economies: Market – a mechanism for exchange between buyers and sellers of a particular good or service - To understand how a market economy works, suppose there are two vendors selling apples, one selling it for cheaper than the other. If they are both the same quality, the customer will buy the cheaper ones, but if one are fresh and the other rare not, he will buy the more expensive ones. • Capitalism - a kind of market economy offering private ownership of the factors of production and of profits from business activity  referred to as a political basis of market processes, which sanctions the private ownership of the factors of production  economic basis of market processes is the process of demand & supply Sara Manazir MGTA01 – Winter 2014  encourages entrepreneurship by offering profits as an incentive Mixed Market Economies: Mixed market economy - An economic system with elements of both market and command economies; in practice, typical of most nations’ economies. - Privatization – the process of converting government enterprises into privately owned companies.  Canada has recently privatized its air traffic control system, and Netherlands its postage system - Deregulation – the reduction in the number of laws affecting business activity and in the powers of government enforcement agencies.  Usually frees companies to do what they want without government intervention, hence simplifying the task of management Interactions between Business and Government How Government Influences Business: Government as Customer - Government purchases thousands of different products and services from business firms - The government is also the largest purchaser of advertising - Many businesses depend on government purchases, if not for their survival, at least for a certain level of prosperity Government as Regulator - the government competes with other business as Crown corporations, which are accountable to a minister of Parliament for their conduct - Crown corporations exist at both the federal and provincial level, and account for a significant and wide variety of economic activity in Canada Government as Regulator - Government regulates business through many administrative boards, tribunals or commission. - At the federal level, examples include the Canadian Radio-Television and Telecommunications Commission (CRTC), which issues and renews broadcast licenses, the Canadian Transport Commission (CTC) which makes decisions about route and rate applic
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