Chapter 1

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Published on 16 Feb 2011
School
UTSC
Department
Management (MGT)
Course
MGTA01H3
Professor
Page:
of 6
Business an organization that seeks to earn profits by providing goods and services
Profit the money that remains (if any) after a businesses expenses are subtracted from
its revenues
Expenses the money a business spends producing its goods and services and generally
running the business
Revenues the money a business earns selling its products and services
Businesses produce most of the goods and services we consume and employ the majority of
working people.
Create innovations and provide opportunities for other businesses, which serve as their
suppliers
Healthy business climate contributes directly to our quality of life and standard of living
New forms of technology, service businesses, and international opportunities promise to
keep production, consumption, and employment growing indefinitely
Business taxes help to support governments
Economic Systems around the World
A major determinant of how organizations operate is the kind of economic system that
characterizes the country in which they do business
Economics the study of how businesses, people make choices about:
What things to produce/consume
How best to produce things
How best to distribute wealth
Economic system allocates a nations resources among its citizens
Factors of Production
The key difference between economic systems is the way they manage factors of production
The basic resources that a countrys businesses use to produce goods and services
oLabour
oCapital
oEntrepreneurs
oCapital
oNatural resources
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oInformation resources
Labour (human resources) the mental and physical training and talents of people; sometimes
called human resources
oEg. Imperial oil requires a labour force with a wide variety of skills
Capital the funds needed to operate an enterprise
oNeed capital to start a business and to grow it
oMoney, or machines and technologies that money can buy
oE.g computers, phones, hammers, and tractors
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 items used in the production of goods and services in their natural state,
including land, water, mineral deposits, and trees
oExamples: coal, wheat, water, and wood
Information Resources 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
Types of Economic Systems
Economic system fancy way of saying a country
How different countries answer basic economic questions
Who should own or control the factors of production?
What should be produced, with the factors of production?
Command economy an economic system in which government controls all or most factors of
production and makes all or most product decisions
The government owns/controls most of the factors of production
The government makes most economic decisions
oCommunism a type of command economy in which the government owns and operates all
industries (North Korea)
oSocialism a kind of command economy in which the government owns and operates the
main industries, while individuals own and operate less crucial industries (Cuba)
Market economy a kind of command economy in which the government owns and operates the
main industries, while individuals own and operate less crucial industries
Individuals own/control the factors of production
Individuals make all/most of the decisions
oMarket a mechanism for exchange between the buyers and sellers of a particular good or
service
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Capitalism a kind of market economy offering private ownership of the factors of production and
of profits from business (none)
Mixed Market Economies an economic system with elements of both a command economy and a
market economy; in practice, typical of most nations economics (Canada, USA, France, UK)
oPrivatization the transfer of activities form the government to the public sector
oDeregulation - the reduction in the number of laws affecting business activity
Market : not a place a bunch of activities
E.g. house market, labour market
Exchanges between buyers and sellers
a market is an exchange process between buyers and sellers
Law of supply producers will offer more of a product as its price increase, less as it drops
Law of demand consumers will buy more of a product as its price drops, less as it rises
oCanada
Majority of factors (farmland, forests, mines) owned by private individuals
Government does intervene (taxation and regulation)
Government provides some services\
Degree of Competition
Not all markets are the same:
Ability of buyers to negotiategoodprices, depends on number of sellers in the market
Some markets have lots of sellers
Some markets have few sellers
Some markets have only one seller
1 st
degree (Perfect Competition)
Lots and lots of suppliers
All are small
More or less the same
Must sell at the same price
Ex. Carton of milk
2 nd
degree (Monopolistic competition)
Lots and lots of suppliers
Most are small
Most more or less the same
Some are big, can differentiate themselves
Most sell at the same price
Big suppliers can charge extra
Ex. Coffee shops vs. Starbucks
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Document Summary

Business an organization that seeks to earn profits by providing goods and services. Profit the money that remains (if any) after a businesses" expenses are subtracted from its revenues. Expenses the money a business spends producing its goods and services and generally running the business. Revenues the money a business earns selling its products and services. Businesses produce most of the goods and services we consume and employ the majority of working people. Create innovations and provide opportunities for other businesses, which serve as their suppliers. Healthy business climate contributes directly to our quality of life and standard of living. New forms of technology, service businesses, and international opportunities promise to keep production, consumption, and employment growing indefinitely. A major determinant of how organizations operate is the kind of economic system that characterizes the country in which they do business.