Management Chapter 1 Notes.docx

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University of Toronto Scarborough
Management (MGT)
Zachariah Campbell

Management Test 1 Notes The Concept of Business and Profit Business – An organization that seeks to earn profits by providing goods and services. Profit – What remains (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”. Profit rewards business owners for taking risks that are involved in investing their time and money in businesses. If a business is managed well, these amounts can become very large. In Canada’s economic system, businesses exist to earn profits for owners who are free to set them up. To better pursue profits, businesses must take into account what consumers want or need because consumers have freedom of choice. Businesses survive off of the demand for their goods. It does not matter how efficient a business is, if there is no demand for its goods, the business will not survive. Identifying unmet consumer needs and/or better ways of satisfying consumer needs help to make businesses successful. Businesses produce most of the goods and services we consume and employ the majority of working people. A healthy business climate contributes directly to our quality of life and standard of living. Profits from businesses help to enhance the personal income of millions of owners and stockholders and taxes on businesses support governments at all levels. Economic Systems Around The World Economic System – The way in which a nation allocated its resources among its citizens. Economic systems differ in terms of who owns and controls these resources, known as the “factors of production.” Key differences between economic systems are the way in which they manage the factors of production. Factors of Production – The resources used to produce goods and services: labour, capital, entrepreneurs and natural resources. Labour The people who works for a company represent the first factor of production, labour. Labour – The mental and physical training and talents of people; sometimes called human capital. Businesses require a labour force with a wide variety of skills to do business. Ex, Imperial Oil – Needs managers, geologists, truck drives, etc. Well-trained and knowledgeable employees are a competitive advantage for a company. Capital Obtaining and using labour and other resources require capital. Capital – The funds needed to operate an enterprise. New businesses need capital to start up and to continue running and growing. A major source of capital for small businesses is personal investment by owners. That investment can come from individual entrepreneurs, from partners who start a business together, or from investors who buy stock. Revenue from sales is a key source of capital for a business once it has opened its doors. Entrepreneurs 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. Natural Resources Natural Resources – Items used in the production of goods and services in their natural state, including land, water, mineral deposits and trees. Information Resources is now often considered a fifth factor of production. Information Resources Information Resources – Information such as market forecasts, economic data and speciality knowledge of employees that is useful to a business and that helps it achieve its goals. Information resources play a major role in today’s economic systems, which used to be dominated by the production of tangible goods. Types of Economic Systems Different types of economics systems manage the factors of production differently and in the way that decisions are made. The government owns the factors of production in some systems and in others it is owned privately. Command Economy – An economic system in which the government controls all or most of the factors of production and makes all or most of production decisions. Market Economy – An economic system in which individuals control all or most of the factors of production and make all or most of the production decisions. Command Economies The two most basic forms of command economies are communism and socialism. Communism is a (command economy) system in which the government owns and operates all sources of production. Most countries have abandoned communism in favour of a more market-based economy. A less extensive command economy system exists, called socialism. Socialism – A type of command economy in which the government owns and operates the main industries, while individuals own and operate less crucial industries. Ex, individuals would own smaller businesses such as clothing stores and restaurants. Citizens are usually free to choose their any profession, but most choose to work for the government. Many of the government enterprises are inefficient because management positions are often filled based on political considerations instead of ability. Socialism is declining in popularity. Market Economies Market – A mechanism for exchange between the buyers and sellers of a particular good or service. Capitalism – A kind of market economy offering private ownership of the factors of production and of profits from business activity. Mixed Market Economies Command and market economies, in their pure form, are often seen as two extremes. In reality, most countries use some form of a mixed market economy. Mixed Market Economy – An economic system with elements of both a command economy and a market economy; in practice, typical of most nations’ economies. Privatization – The transfer of activities from the government to the public sector Deregulation – A reduction in the number of laws affecting business activity How Government Influences Business Government as a customer: The government buys thousands of products and services from business firms (office suppliers, office buildings, helicopters, water treatment plants, consulting services, etc.). The government is also the larges purchaser of advertising in Canada. Many businesses depend on government purchasing
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