MGTA01H3 Chapter Notes - Chapter 1: Planned Economy, Economic System, Market Price

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Published on 21 Apr 2013
Management (MGT)
Business: an organization that seeks to earn profits by providing goods and servicees
Profit: the money that remains after a business’ expenses are subtracted from its revenues
Expenses (costs): The money a business spends producing its good s and services and generally running the
Revenues (sales): The money a business earns selling its goods and services.
Consumers have the freedom of choice
Economic system: the way in which a nation allocates its resources among its citizens
Factors of production: the resources used to produce goods and services
o Labour: the mental and physical training and talents of people
o Capital: the funds needed to operate an enterprise
o Entreprenuers: 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
o Natural resources: Items used in production of goods and services in their natural state, including land,
water, mineral desposits, and trees
o Information resources (the “fifth” factor): 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
Command Economy: an economic system in which govt controls all or most factors of production and makes all
or most decisions
o Communism: a type of command economy in which the govt owns and operates all industries
Karl Marx (pg 8)
o Socialism: A kind of command economy in which the govt owns and operates the MAIN industries, while
individuals own and operate less crucial industries
Market economy: an economic system in which individuals control all or most factors of production and make all
or most production decisions
o 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 economy: an economic system with elements of both a command economy and a market economy,
in practice, typical of most nations’ economies
o Privatization: the transfer of activities from the govt to the public sector
Ie. The postal system in most countries is govt own and managed regardless of whether the
country has command or market economy
Deregulation: a reduction in the number of laws affecting business activity
Govt roles: customer, competitor, regulator, taxation agent, provider of incentives, and provider of essential
Demand: the willingness and ability of buyers to purchase a product or service
o Law of demand: the principle that buyers will purchase (demand) more of a product as price drops
Supply: the willingness and ability of producers to offer a good or service for sale
o Law of supply: The principle that producers will offer (supply) more of a product as price rises
Demand and supply schedule: assessment of the relationships between different levels of demand and supply at
different price levels
Demand curve: graph showing how many units of a product will be demanded (bought) at different prices
Market price (equilibrium price): profit-maximizing price at which the quantity of goods demanded and the
quantity of goods supplied are equal
Surplus: situation in which quantity supplied exceeds quantity demanded
Shortage: situation in which quantity demanded exceeds quantity supplied
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