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MGTA01H3 (583)
Chapter 1

Chapter 1 to Chapter 10 (detailed, easy to understand).docx

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Management (MGT)
Chris Bovaird

EXAM STUDYChapter 1 Chapter 10 MGTA03Summer2011 Chapter 1 Understanding the Canadian Business System The Concept of Business and Profit o Business an organization that seeks to earn profits by providing goods and services to people o Profit the money that remains after a business expenses are subtracted from its revenuesfundamental reason for a business to exist o Expenses the money a business spends producing its goods and services and generally running the business aka costs o Revenues the money a business earns selling its products and services aka sales o Not all organisations are businesses example hospitals universities churchesthey do not provide services and are thus not intended for profit o A loss occurs when a business costs more to produce the products and run than the business can generate through sales example GMloss of 31 billion dollars o In Canadabusinesses exist to earn profits for owners who are free to set them up o But consumers also have freedom of choice therefore business must take into account what consumers want or need in order to be successfulo Business create most innovations and opportunities for other businesses which serve as their supplierso Many businesses support charities and provide community leadership Economic Systems Around the World o Economic system the way in which a nation allocates its resources among its citizens o Factors of production the resources used to produce goods and services labour capital entrepreneursnatural resources o The difference between economic systems is how they manage these factorso Natural Resources the items used in the production of goods and services in their natural state including land water mineral deposits and trees o Labour the mental and physical training and talents of peoplealso called human resources o Capital the funds needed to operate an enterpriserevenue from the sale of products is a key and ongoing source of capital o Entrepreneurs an individual who organizes and manages labour capital and natural resources to produces goods and services to earn a profit but who also runs the risk of failure o There is a new fifth factor of production called information resources Types of Economic Systems o Different systems manage the factors of production in different way who should own the factors who should control the factors what should be produced with the factors etc o There are 2 types commandplanned economies and market economies o Commandplanned economies an economic system where the government controls all or most factors of production and makes all or most production decisionso Communism a type of command economy in which the government owns and operates all industries example North Korea 1 o Socialist a kind of command economy in which the government owns and operates the main industries while individuals own and operate less crucial industries example Cubainefficient because management positions are usually filled based on political considerations rather than ability o Market economies an economic system in which individuals control all or most factors of production and make most or all production decisions o Market a mechanism for exchange between buyers and sellers of a particular good or service o Capitalism a kind of market economy offering private ownership of the factors of production and of profits from business activity o Mixed Market an economic system with elements of both a command economy and a market economy typical of most nations economiesgovernments regulate and tax and also run some businesses example Canada USA UK o Most countries have now adopted market mechanisms through a process called privatization o Privatization the transfer of activities from the government to the public sectoro Another trend is deregulation o Deregulation the reduction in the number of laws affecting business activityHow Government Influences Business o Government as customer government buys from businesses example government is the largest purchaser of advertising in Canada o Government as competitor government competes with businesses through crown corporations o Government as regulator government regulates business through administrative boards tribunals or commissions o Government as a taxation agent taxes are imposed and collected o Revenue taxes taxes whose main purpose is to fund government services and programs o Progressive revenue taxes higher taxes on higher income and lower on lower income o Regeressive revenue taxes taxes which causes poorer people to pay higher taxes than the richer people o Restrictive taxes taxes on products that should be controlled example gas tobacco alcohol o Government as provider of incentives incentive programs that helpt stimulate economic development o Government as a provider of essential services postal highway making etc Canadian Market Economy o Canadamixed economymajority of factors farmland forests mines are owned by private individuals most decisions about the factors how many workers to hire how much to pay them how much technology to buy are made by individuals but the government does intervene and is involved through taxation regulation and also provides some services Demand and Supplyin the Market Economy o Markets work through supply and demand o The law of supply producers will offer more of a product as its price increases less as it drops o The law of demand consumers will purchase more of a product as its price drops less as it rises o Demand and supply schedule assessments of the relationships between different levels of demand and supply at different price levelsultimately there will be the point where the price charged is the same as the price a maximum number of costumers are willing to pay equilibrium price and quantity 2 o Demand curve shows how many products will be demanded at a different prices o Supply curve shows how many products will be supplied at different prices o Equillibrium price the profit maximizing price at which the quantity of goods demanded and the quantity of goods supplied are the same o Surplus situation in which quantity supplied exceeds quantity demanded o Shortage situation in which quantity demanded exceeds quantity supplied Private Enterprise and Competition in a Market Economy o Market economies rely on private enterprise system an economic system characterized by private property rights freedom of choice profits and competition o Private Property Rights ownership of the reasources used to create wealth is in the hands of the individuals o Freedom of choice you can sell your labour to any employer you choose and you can choose which products you buy produces can choose who to hire and what to produce o Profits the lure of profits leads some people to abandon the security of working for someone else and to assume the risk of entrepeneurship anticipated profits also influence the individuals choices on which goods to produce o Competition the vying among businesses in a particular market or industry to best satisfy consumer demands and earn profits o Perfect competition a market or industry characterized by a very large number of very small firms producing an identical productso that none of the firms have the ability to influence pricelots of suppliers with same productmust sell at same price example a carton of milk o Monopolistic Competition a market or industry characterized by a large number of firms supplying products that are similar but distinctive enough from one another to give firms some ability to influence pricelots of suppliers mostly small with some difference of pricemost sell at the same price big suppliers can charge extra example coffee shops vs starbucks o Oligopoly a market or industry characterized by a small number of very large firms that have the power to influence the price of their product andor servicessmall number of suppliers who try to differentiate and watch one another closelyindustry hard to enter and hard to exit example Canadian banking industry o Monopoly a market or industry with only one producer who can set the price of its product or servicesonly one supplier 100 sharescan set whatever price example LCBO o Natural monopoly an industry in which having one producer is the most efficient because it can meet all the demands for the product MGTA03Summer2011 Chapter 2 Understanding the Environment of Business The Economic Environmento All business operate within a larger external environmento External environment everything outside an organizations boundaries that might affect it o External environment plays a major role in whether the business will be successful or not o Managers should not only react to changes in the external environment but also be proactive and try to influence the environment o Economic environment conditions of the economic systemin which an organization operates 3
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