MGTA03 - Chapter One

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University of Toronto Scarborough
Management (MGT)
Janelle Le Boutillier

Management – Chapter One: Understanding the Canadian Business System The Concept of Business and Profit Business – An organization that produces or sells goods or services in an effort to make a profit. Profit – The remains after a business’s expenses have been subtracted from its revenues. - Profits reward the owners of businesses for taking the risks involved in investing their time and money. The amounts can be large if the business is managed well. - In Canada’s economic system, businesses exist to earn profits for owners who are free to set them up. - Consumers also have the freedom of choice in choosing how to pursue profits, businesses take into account what consumers want or need. - Businesses produce most of the goods and services we consume and employ the majority of working people. Economic Systems Around The World - A major determinant of how organizations operate is the kind of economic system that characterizes the country in which they do business. - Economic systems differ in terms of who owns and controls the resources, known as the “factors of production.” Economic System – The way in which a nation allocates its resources among its citizens. Factors of Production – The basic resources that a country’s businesses use to produce goods and services. Economists focused on four factors of production: labour, capital, entrepreneurs and natural resources. Information resources now included as a 5 factor. 1) Labour – The people who work for a company, sometimes called human resources. It is the mental and physical capabilities of people. 2) Capital – The financial resources needed to operate an enterprise. You need capital to start a new business and then to keep it running and growing. Ex. Obtaining and using labour. - A major source of capital for small businesses is personal investment by owners. - Investments can come from individual entrepreneurs, from partners who start businesses together or from investors who buy stock. - Revenue from the sale of products is a key and ongoing source of capital once a business has opened its doors. 3) Entrepreneurs – The people who accept opportunities and risks involved in creating and operating businesses are entrepreneurs. 4) Natural Resources – Land, water, mineral deposits, and trees are examples of natural resources. It is the items used in the production of goods and services in their natural state. 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 - Different types of economic systems manage the factors of production in different ways. - In some systems, ownership is private; in others, the government owns the factors of production. - Economic systems also differ in the way that decisions are made about production and allocation. 1) Command Economies – A type of command economy in which the government owns and operates all industries. - Two most basic forms of command economies are communism and socialism, originally proposed by Karl Marx. - Communism is a system in which the government owns and operates all source of production. - Most countries have abandoned communism in favour of a more market based economy. - Socialism is a less extensive command economic system where the government owns and operates only selected major industries. - Smaller businesses such as clothing stores and restaurants may be privately owned. - Although workers in socialist countries are usually allowed to choose their occupations or professions, a large proportion generally works for the government. - Many government-operated enterprises are inefficient, since management positions are frequently filled based on political considerations rather than on ability. - Extensive public welfare systems have also resulted in very high taxes. Because of these factors, socialism is generally declining in popularity. 2) Market Economies – A mechanism for exchange between the buyers and sellers of a particular good or service. - In market economies, both buyers and sellers enjoy freedom of choice. The seller can sell for however much they want and buyers have the right to buy or not according to that price. - Capitalism is a kind of market economy offering private ownership of the factors of production and of profits from business activity. - The economic basis of market processes is the operation of demand and supply. 3) Mixed Market Economies – An economic system with elements of both a command economy and a market economy; in practice, typical of most nations’ economies. - Most countries of the former Eastern bloc have now adopted market mechanisms through a process called privatization which is the process of converting government enterprises into privately owned companies. - Another trend is deregulation which is the reduction in the number of laws affecting business activity and in the powers of government enforcement agencies. Interactions Between Business And Government How Government Influences Business 1) Government as Customer - Government buys thousands of different products and services from business firms, including office supplies, office buildings, computers, battleships, helicopters, highways, water treatment plants, and management and engineering consulting services. - Government is the largest purchaser of advertising in Canada. - Many businesses depend on government purchasing if not for their survival, at least for a certain level of prosperity. 2) Government as Competitor - Government competes with business through Crown corporations, which are accountable to a minister of parliament for their conduct. - Crown corporations exist at both the provincial and federal level and account for a significant and wide variety of economic activity in Canada. 3) Government as Regulator - Federal and provincial governments in Canada regulate many aspects of business activity. - Government regulates business through many administrative boards, tribunals, or commissions. - At the federal level, example the Canadian Wheat Board regulates the prices of wheat. - Provincial boards and commissions also regulate business through their decisions. - Several important reasons for regulating business activity include protecting competition and consumers, achieving social goals and protecting the environment. 4) Government as Taxation Agent - Taxes are imposed and collected by federal, provincial, and local governments. - Revenue taxes (ex. Income taxes) are levied by governments primarily to provide revenue to fund various services and programs. - Progressive revenue taxes are levied at a higher rate on higher-income taxpayers and at a lower rate on lower-income taxpayers. - Regressive revenue taxes (ex. Sales tax) are levied at the same rate regardless of a person’s income. They cause poorer people to pay a higher percentage of their income for taxes than rich people. - Restrictive taxes (ex. Taxes on alcohol, tobacco) are levied partially for the revenue they provide but also because legislative bodies believe that the products in question should be controlled. 5) Government as Provider of Incentives - Federal, provincial and municipal governments offer incentive programs that help stimulate economic development. - Governments also offer incentives through the many services they provide to business firms through government organizations. - There are many other government incentive programs including municipal tax rebates for companies that locate in certain areas, design assistance programs and remission of tariffs on certain advanced technology production equipment. - Government incentive programs may or may not have the desired effect of stimula
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