BUSINESS CUSTOM 2/E VOL. 1 Chapter 1 Readings (very detailed and helpful)

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Published on 26 Feb 2011
Management (MGT)
of 4
Chapter 1: Understanding the Canadian Business System
The concept of business and profit
Business: An organization that seeks to earn profits by providing goods and services
Profit: The money that remains (if any) after a businesss expenses subtracted from its
Expenses: The money a business spends producing its goods and services and generally
running the business. Also referred to ascosts
Revenues: The money a business earns selling its products and services. Also referred to
No matter how efficient a business is, it wont survive if there is no demand for its goods
and services
Someone who can spot a promising opportunity and then develop a good plan for
capitalizing on it can succeed
Economic systems around the world
Economic system: The way in which a nation allocated its recourse among its citizens
Factors of production: The resources used to produce foods and services such as labour,
capital, entrepreneurs, and natural resources
oLabour: The mental and physical training and talents of people; sometimes called human
Employees who are well trained and knowledgeable can be a real competitive
advantage for a company
oCapital: The funds needed to operate an enterprise
Major sources of capital for small businesses is personal investment by owners
Investments come fromindividual entrepreneurs, partners who start biz together,
or from investors who buy stock
oEntrepreneur: 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
oNatural resources: Items used in the production of goods and services in their natural
state, including land, water, mineral deposits, and trees
oInformation resources (not so important): 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
Command economies: An economic system in which government controls all or most
factors of production and makes all or most production decisions
oCommunism: A type of command economy in which the government owns and operates
all industries
oSocialism: A kind of command economy in which the government owns and operates the
main industries, while individuals own and operate less crucial industries like clothing
stores and restaurants
Market economies: An economic system in which individuals (producers and
consumers) control all or most factors of production and make all or most production
decisionsfreedom of choice
How market economy worksCustomer goes to fruit stand to buy apples…one vendor
charges $1 per kg…another is charging $1.50…comes down to customers choice….customer
will go with which is cheaper or fresher
oMarket: A mechanism for exchange b/w the buyers and sellers of a particular good or
oCapitalism: A kind or market economy offering private ownership of the factors of prod.
and of profits from business activity
Mixed market economies: An economic system with elements of both a command
economy and a market economy; in practice, typical of most nations’ economies
oPrivatization: The transfer of activities from the government to the public
sectorCanada privatized its air traffic control system
oDeregulation: A reduction in the number of laws affecting business activitybusiness is
free to do whatever without any gvnt. interventionevident in industries like airlines,
pipelines, banking, trucking, communication
Interactions b/w business and government
How government influences business:
Government as Customer:
oGovernment buys lots of services and products from business firms (office supplies,
office buildings, computers, helicopters…)
oBusinesses depend on gvnt purchasing…for survival or some prosperity
oGvnt expenditures amounts to billions of $/yr.
As competitor:
othrough Crown corporations that exist at both the provincial and federal level
oCrown corporations account for a significant variety of economic activity in Canada
As regulator:
oGvnt regulates business through administrative boards, tribunals, or commissions
oAt federal level...
Cnd Radio-television and telecommunications commission (CRTC) issues and
renews broadcast licenses
Cnd transport commission (CTC) makes decisions about route and rate
applications for commercial air and railway companies
Canadian Wheat Board regulates prices of wheat
oImportant reasons for regulationprotects competition, consumers, environment and
helps achieve social goals
As taxation agent:
oTaxes are imposed and collected by federal, provincial, and local government
oRevenue taxes: Taxes whose main purpose is to fund gvnt services and programs
income taxes
oProgressive revenue taxes: Taxes levied at a higher rate on higher-income taxpayers and
at a lower rate on lower-income taxpayers
oRegressive revenue taxes: Taxes that cause poorer people to pay higher percentage of
income than richer people pay…sales tax
oRestrictive taxes: Taxes levied to control certain activities that legislators believe should
be controlled…taxes on alcohol, tobacco, gasoline
As provider of incentives:
oFederal, provincial, and municipal gvnts offer incentive programs that help
stimulate economic development
oGvnts also offer incentives through the many services they provide to business
firms through gvnt organization…the Export Development Corporation, Energy Mines
and Resources Canada, Statistics Canada
oOther incentive programsmunicipal tax rebates, remission of tariffs, design
assistance programs
oConsmay or may not have desired effect on economy, cause difficulties with our
trading partners
As provider of essential services:
oFederal…provides highways, postal service, minting of money, armed forces, statistical
data, maintains stability through fiscal and monetary policy
oProvincial and municipal…streets, sewage, sanitation systems, police and fire
departments, hospitals, education, utilities
The Cnd market economy:
Demand and Supply in a Market Economy
Laws of Demand and Supply
oDemand: the willingness and ability of buyers to purchase a product or service
oSupply: the willingness and ability of producers to offer a good or service for sale
oLaw of demand: the principle that buyers will purchase (demand) more of a product as
price drops
oLaw of supply: the principle that producers will offer (supply) more of a product as price
The Demand and Supply Schedule: assessment of the relationships between different
levels of demand and supply at different price levels
Demand and Supply Curves
oDemand curve: graph showing how many units of a product will be demanded (bought) at
different prices
oSupply curve: graph showing how many units of a product will be supplied (offered for
sale) at different prices
oMarket price (or equilibrium price): profit-maximizing price at which the quantity of
good demanded and the quantity of goods supplied are equal
Surplus and Shortages