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Chapter 1-5

MGTA01H3 Chapter Notes - Chapter 1-5: Canadian Business, National Product, Market Economy


Management (MGT)
Course Code
Chris Bovaird

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Business Volume 1: Custom 2nd Edition Textbook Notes (MGTA01 2013)
Chapter 1: Understanding the Canadian Business System
o Business: an organization that produces or sells goods or services in an effort to
make a profit
o Profit is what remains after a business’s expenses have been subtracted from its
o Businesses exist to earn profits
Economic Systems Around the World
o Allocates a nation’s resources among its citizens
o Factors of production: the basic resources that a country’s businesses use to
produce goods and services
o Four factors of production: labour, capital, entrepreneurs, and natural resources
o People who work for a company
o Human resources
o Financial resources needed to operate an enterprise
o Personal investment by owners for small businesses
o People who accept the opportunities and risks involved in creating and operating
Natural Resources
o Land, water, mineral deposits, and trees
o Include all physical resources
Information Resources
o Specialized expertise and knowledge of people
o Various forms of economic data for their work
o Creation of new information or the repackaging of existing information for new
users and different audiences
Types of Economic Systems
o Manage factors of production
o Ownership can be private or by government
o Can differ in the way that decisions are made about production and allocation
o Command economy: relies on a centralized government to control all or most
factors of production and to make all or most production and allocation decisions
o Market economy: individuals producers and consumers control production
and allocation decisions through supply and demand
Command Economies
o Communism and socialism
o Communism is a system in which the government owns and operates all sources
of production
o Socialism: the government owns and operates only selected major industries

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Business Volume 1: Custom 2nd Edition Textbook Notes (MGTA01 2013)
Market Economies
o Mechanism for exchange between the buyers and sellers of a particular good or
o Capitalism: sanctions the private ownership of the factor of production and
encourages entrepreneurship by offering profits as an incentive
o Operation of demand and supply
Mixed Market Economies
o Command and market economies are viewed as opposites
o Mixed market economy: system featuring characteristics of both command and
market economies
o Privatization: the process of converting government enterprises into privately
owned companies
o Deregulation: the reduction in the number of laws affecting business activity and
in the powers of government enforcement agencies
Interactions Between Business and Government
Government as Customer
o Buys thousands different products and services from business firms
o Largest purchaser of advertising in Canada
Government as Competitor
o Competes with business through Crown corporations
o Exists for provincial and federal level
Government as Regulator
o Regulate through many administrative boards, tribunals, or commissions
o Provincial boards and commissions also regulate business through their decisions
o Protecting competition, protecting consumers, achieving social goals, and
protecting the environment
Government as Taxation Agent
o Revenue taxes are levied by governments primarily to provide revenue to fund
various services and programs
o Progressive revenue taxes are levied at a higher rate on higher-income taxpayers
and at a lower rate on lower-income taxpayers
o Regressive revenue taxes are levied at the same rate regardless of a person’s
o Restrictive taxes are levied partially for the revenue they provide, but also
because legislative bodies believe that the products in question should be
Government as Provider of Incentives
o Help stimulate economic development

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Business Volume 1: Custom 2nd Edition Textbook Notes (MGTA01 2013)
o Offer incentives through the many services they provide to business firms through
government organizations
o Municipal tax rebates for companies
Government as Provider of Essential Services
o Facilitate business activity through the wide variety of services they supply
o Examples: highways, postal service and minting money
o Maintain stability through fiscal and monetary policy
o Sewage, hospitals and police
o These activities create the kind of stability that encourages business activity
The Canadian Market Economy
Demand and Supply in a Market Economy
o Inputs used by a business and the products created by business have their own
o Decide what inputs to buy, what to make and in what quantities, and what prices
to charge
o Customers decide what to buy and how much they want to pay
The Laws of Demand and Supply
o Decisions about what to buy and what to sell are determined primarily by the
forces of demand and supply
o Demand is the willingness and ability of buyers to purchase a product or a service
o Supply is the willingness and ability of producers to offer a good or service for
o Law of demand: buyers will purchase more of a product as its price drops and less
of a product as its price increases
o Law of supply: producers will offer more of a product for sale as its price rises
and less as its price drops
The Demand and Supply Schedule
o Obtained from marketing research and other systematic studies of the market
o Understand the relationships among different levels of demand and supply at
different price levels
Demand and Supply Curves
o Demand curve shows how many products will be demanded at different prices
o Supply curve shows how many units of a product will be supplied at different
o When the demand and supply curves are plotted on the same graph, the point at
which they intersect is the market price or equilibrium price the price at which
the quantity of goods demanded and the quantity of goods supplied are equal
Surpluses and Shortages
o Surplus: a situation in which the quantity supplied exceeds the quantity demanded
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