MGTA03 – Chapter 1: Understanding the Canadian Business System
The University of Toronto is an organization but it is not a business because it is not providing services in order
to make a profit
What are we going to make and how are we going to make it?
What is the best way to produce these things?
If we make, sell, or provide, the right products and services, how do we distribute the wealth?
Business is the study of individual organizations, economics is the broad overview of how all organizations
operate and choose the best method to make a profit. (An organized effort to supply something to consumers)
Profit = the difference between Revenues and Expenses (P = R –E) where Revenues exceed Expenses
Loss = the difference between Revenues and Expenses where Expenses exceeds Revenues
Profit is the main motivation for conducting business
Not all businesses operate in order to earn a profit (i.e. universities, hospitals, not-for-profit organizations) and
some businesses regularly incur losses (e.g. Air Canada, General Motors)
Factors of production: “the basic theoretical and fundamental ingredients of any business”
•Natural resources that come from the Earth in some form or another (i.e. cotton, oil, leather)
•Labour provided by workers (i.e. sales persons, reporters, construction workers)
•Capital that funds a business or items that are purchased with money capital (i.e. phones, paper)
•Entrepreneurs who take responsibility for, assemble, and organization the other three factors of
production; the individuals who make it all happen
There were originally only three factors of production considered to exist.
People came together in thousands using materials to defeat Fascism after WWII (1940s-1960s)
During the 1970s people began to consider the fact that large governments could not comprehend the small
details of business and the best way to make profits
These people stood up and made their own products, provided their own services, and generated their own
More people were encouraged to possess this entrepreneurship quality and come together to form greater,
larger, more profitable businesses
Economic Systems make up the ways different countries attempt to answer the basic economic questions:
•Who should own or control the factors of production?
•What should we produce with the available factors?
•What is the best way to share this production?
Command (Centrally Planned) Economies
The government owns/controls most factors of production and makes most of the economic decisions