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
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
- 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
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
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
• 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
He also expected government ownership of production factors to be only
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 – 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
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
- 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