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Chapter 1-5

Chapter 1-5 notes from Business Volume One second custom edition

Management (MGT)
Course Code
Chris Bovaird

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Management Chapter 1-5 Textbook Notes (Review)
Chapter One: Introducing the Contemporary Business World
Factors of Production
The mental an d p hysic al trainin g an d talents of p eo ple; someti mes c alled h u man reso urc
The fu n d s n e e ded to o p erate a b u sines s
The p eo ple wh o start an d o p erate a b u sines s k n owin g v ery well the risks involved.
Organiz e s and manages lab o u r, c a pit al an d n atural reso u rc e s
Natural Resources
Items u sed in the pro d u ctio n of g oo d s an d servic e s in their n atural state.
Ex. Lan d, water, mineral d ep o sits an d tre e s
Information Resources
Includ e market fore c a sts, spe cializ e d ex p ertise an d kn owled g e of p eo ple, v ariou s forms o
e c o n o mic d ata.
Busines s es rely h e a vily o n such reso urc e s
Types of Economic Systems
Command Economies
Gov ernment co ntrols all or most of the fac tors of pro d u ction and makes all or most of the
pro d u ction d e cisio n s
Two most b asic forms inclu d e: Communism & Socialism
Communism: System in which the government owns and operates all factors of production.
Socialism: System in which the government owns and operates only selected major
Market Economies

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Market: a mechanism for exchange between the buyers and sellers of a particular good or
Both b u yers and sellers enjoy fr e e d o m of ch oic e p ertainin g to the p ric e of the g oo d/servi
an d where to b u y from
Capitalism: a type of market economy offering private ownership of the factors of
production and of profits from business activity.
Mixed Market Economy
A system fe a turing chara c teristics of b o th com m and an d market e c onomies.
Privatization: The transfer of activities from the government to the private sector.
Revenue Taxes: Taxes that fund government services and programs
Progressive Revenue Taxes: Taxes that are levied at a higher rate for high-income taxpayers, and
at a lower rate for low-income taxpayers.
Regressive Revenue Taxes: (Ex. Sales tax) are levied at the same rate regardless of a persons
Restrictive Taxes: (Ex. taxes on alcohol, tobacco, and gasoline) are levied partially for the
revenue they provide.
Private Enterprise and Competition in a Market Economy
Private Property Rights: Ownership of the resources used to create wealth is in the hands of
Freedom of Choice: You can sell your labour to any employer you choose and choose what
products to buy, and producers can choose whom to hire and what to produce.
Profits: influence individuals choices of which good or service to produce.
Degrees of Competition
Perfect Competition
All firms are small
There are a lot of firms in the in d u stry
Similar pro d u cts in e a c h firm

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Both buyers and sellers are aware of the prices that others are paying/receiving
Easy for firms to enter/leave the market
Prices are set by supply/demand and accepted by both sellers/buyers
Monopolistic Competition
Fewer sellers involved compared to perfect competition
Make products on sale seem unique
Ex. for clothing, Nike, Guess, H&M, etc
May be large or small
Can enter/leave market easily
They are able to control prices
A small amount of firms
Firms are very large
Can control prices charged
Ex. Ford, Toyota, ...etc
Difficult to enter market
Actions of one firm can significantly affect the sales of every other firm in the industry
Ex. if one cuts sales, the others will as well in order to keep business
Has only one producer
Has complete control over the price of its product
Only constraint is how much the demand will fall as the price goes up
Natural Monopolies
Market or industry in which having one producer is most efficient because it meets all th
consumers demand for the product.
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