Chapter 1 Understanding the Canadian Business System
4 Basic factors of production
-labour, capital (revenue, investments), entrepreneurs, natural resources
-Information resources are also very critical
-Command: The government has more control over small business in communism rather than socialism.
-Market: Either Capitalist or Mixed.
-Revenue taxes: progressive (tax the rich) or regressive (tax the poor)
-law of: demand (people buy more when prices are lower), supply (business provide more when prices are higher)
-intersection of demand curve (price vs demand) and supply curve (price vs supply) is the market/equilibrium price.
-Private enterprise require: private property rights, freedom of choice, profits, competition
-Perfect competition exists when there are many small firms offering similar products and prices are set by
-Monopolistic competition works when large or small firms makes their prices distinctive enough to have an influence of
the price. Most sell at the same price but large companies could sell for little more.
-Oligopoly occurs when few large firms dominate the market.
-In natural monopolies like utilities, it is most efficient to have just one supplier.
Chapter 2 Understanding the Environments of Business
-Goals of an ideal economy: growth, stability and full employment.
-Business cycle is short term and consists of peak, recession, trough and recovery.
-Economic growth is measured by aggregate output—the total quantity of goods and services produced.
-When output growth exceeds that of the population, it results in higher standard of living—goods and services available
to a citizen.
-GNP and GDP both measures the goods and services produced by a country but GDP only measures production via
domestic means, while GNP takes account the output of cer tain companies abroad. Production of foreign firms in
domestic soil can be part of the GDP. Wages are part of the respective country’s GNP.
-GPI takes into account factors that could harm a country’s environment and quality of life (e.g. oil spills).
-GDP is the most common measure when adjusted for inflation and currency values (real GDP). If the GDP is not
adjusted for current values and prices, than it is consider a nominal GDP. Read pg 24
-Growth depends on output increasing faster rate than population.
-Purchasing power parity gives a better sense of standard living by setting exchange rates so that prices for similar
products are the same in different countries. Thus, it gives an idea what people could buy in their economies.
-Productivity: how much a system produces with the resources needed to produce it. Standard of living improves only
though increases in productivity. Real growth in GDP reflects growth in productivity.
-Balance of Trade: Expor t minus impor t. Negative balance of trade is trade deficit. A nation can be either a creditor or a
debtor depending on balance of trade.
-National debt: it’s not necessarily a bad thing. The government can sell bonds and owe money to businesses and
individuals. Therefore, less money available through private borrowing and investments and increases productivity.
-Households enjoy higher standards of living when there is balanced growth in the quantity of goods demanded and the
quantity of goods supplied. Living standards are stable when purchasing power parity remains stable.
-Stability: When amount of money available = quantity of goods made. Inflation, deflation and unemployment can
contribute towards fluctuations in stability.
-When inflation happens, there is more money to spend, but same quantity of products available; decreases the
purchasing power of your money because prices of products goes up. If
-Consumer Price Index (CPI): cost of a “basket” of 600 different goods and services that a typical urban family might
buy. The CPI can reflect changes in pattern of consumer purchases. The CPI is a measure of inflation because it is
correlated with price increases.
-When deflation occurs, there is less consumer demand—national banks try to reduce interest rates to promote consumer
spending. Deflation may occur due to increase in cost of savings, or consumers have high levels of debt and unwilling to
buy. There is a continual falling price; therefore law of demand doesn’t work
-There are four types of unemployment: frictional unemployment (temporary), seasonal unemployment, cyclical
unemployment (due to downturn in the business cycle), and structural unemployment (lack skills for jobs).