Chapter 1 Notes

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Published on 18 Apr 2013
School
UTSC
Department
Management (MGT)
Course
MGTA02H3
Professor
Page:
of 47
Chapter 1: Understanding the Canadian Business System
The Concept of Business and Profit
Terms:
=> Business: An organization that produces or sells goods or services in an effort to make a
profit.
=> Revenues: The money a business earns selling its products and services.
=> Expenses: The money a business spends producing its goods and services, and generally
running the business.
=> Profit: The money that remains (if any) after a business‟s expenses are subtracted from its
revenues.
Economic Systems around the World
Terms:
=> 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: labour, capital,
entrepreneurs and natural resources.
=> Labour: Also referred to as human resources, labour is the mental and physical capabilities
of people. An example can be seen in a major corporation. All members of the corporation who
contribute to running and maintaining the business, its liabilities and assets are forms of labour.
=> Capital: The funds used to operate an enterprise. A major source of capital for small
businesses is personal investments, which can come from individual entrepreneurs, from partners
who start businesses together or from investors who buy stock. Another form of capital can be
the revenue that enters the business once it successful enters the economic market.
=> Natural resources: Items used in the production of goods and services in their natural state,
including land, water, mineral deposits and trees. Once just limited to resources that could only
be produced in nature, it now relates to include all physical resources.
=> Entrepreneurs: The people who accept the opportunities and risks involved in creating and
operating businesses. An example can be seen in the establishment of Facebook, by Mark
Zuckerburg, who had the technical skills to understand the benefits of connecting to the Internet,
and realized the potential behind network connections between its users. The entrepreneur is able
to identify unmet consumer needs, such as advertising and selling a good or service. The
entrepreneur is able to spot a promising opportunity and develop a good plan for capitalizing on
it.
=> Information resources: information such as market forecasts, economic data, and
specialized knowledge of employees that is used to a business and that helps it achieve its goals.
=> Command economy: an economic system in which government controls all or most factors
of production and makes all or most production decisions.
=> Market economy: An economic system in which individuals control all or most factors of
production and make all or most production decisions.
=> Mixed market economy: An economic system with elements of both market and command
economies
=> Privatization: the process of converting government enterprises into privately owned
companies.
=> Deregulation: reduction in the number of laws affecting business activity.
Communism:
- two basic forms of command economies are communism and socialism
- originally proposed by Karl Marx, communism is a system in which the government owns and
operates all sources of production.
- Marx envisioned a society in which individuals would ultimately contribute according to their
abilities and receive economic benefits according to their needs.
- he also expected government ownership of production factors to be only temporary
- once society has matured, government would “wither away” and the workers would gain direct
ownership
Socialism:
- less extensive command economic system than communism
- socialism owns and operates only selected major industries
- smaller businesses such as clothing stores and restaurants may be privately owned
- workers in socialist countries are usually allowed to choose their occupations
- despite this, a large population generally works for the government
Capitalism:
- a kind of market economy offering private ownership of the factors of production and of profits
from business activity
- it is referred to as a political basis of market processes, which sanctions the private ownership
of the factors of production
- encourages entrepreneurship by offering profits as an incentive
Interactions between Business and Government
How the government influences business:
Government as customer:
- government purchases thousands of different products and services from business firms
- the government is also the largest purchaser of advertising
- many businesses depend on government purchases, if not for their survival, at least for a certain
level of prosperity.
Government as competitor:
- the government competes with other business as Crown corporations, which are accountable to
a minister of Parliament for their conduct
- Crown corporations exist at both the federal and provincial level, and account for a significant
and wide variety of economic activity in Canada
Government as regulator:
- government regulates business through many administrative boards, tribunals or commission.
- at the federal level, examples include the Canadian Radio-Television and Telecommunications
Commission (CRTC), which issues and renews broadcast licenses, the Canadian Transport
Commission (CTC) which makes decisions about route and rate applications for commercial air
and railway companies, and the Canadian Wheat Board, which regulates the price of wheat.
- at the provincial level, provincial boards and commissions regulate business through their
decisions.
- other several important reason for government regulation on businesses include:
=> protecting competition
=> protecting consumers
=> achieving social goals
=> protecting the environment
Government as taxation agent:
- revenue taxes are taxes whose purpose is to fund government services and programs
- progressive taxes are levied on a higher rates on higher income tax payers, and at lower rate on
lower income tax payers
- regressive taxes are levied at the same rate, regardless of person‟s income (fixed rate)
- restrictive taxes levied to control certain activities that legislators believe should be controlled
(examples include alcohol, tobacco and gasoline)
Government as provider of incentives:
- government offers incentive programs in order to stimulate the economy (Hyundai Motors
received $6.4 million to build a production facility, and an additional $682,000 in order to train
workers)
- government also offers services through government organizations (Stats Canada, which
provides data on Canadian economy)

Document Summary

=> business: an organization that produces or sells goods or services in an effort to make a profit. => revenues: the money a business earns selling its products and services. => expenses: the money a business spends producing its goods and services, and generally running the business. => profit: the money that remains (if any) after a business s expenses are subtracted from its revenues. => 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: labour, capital, entrepreneurs and natural resources. => labour: also referred to as human resources, labour is the mental and physical capabilities of people. An example can be seen in a major corporation. All members of the corporation who contribute to running and maintaining the business, its liabilities and assets are forms of labour. => capital: the funds used to operate an enterprise.