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Chapter 3

RSM 100 Chapter 3 Economic Challenges Facing Contemporary Business

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Rotman Commerce
Khan, Michael

RSM100-­‐John_Oesch-­‐textbook_notes-­‐created-­‐by-­‐lavender.y   Chapter  3  Economic  Challenges  Facing  Contemporary  Business     3.1  Microeconomics  vs.  Macroeconomics   • Demand  &  Supply  &  Equilibrium       3.2  Four  different  types  of  market  structures  in  a  private  enterprise  system     vs.  Three  major  types  of  economic  systems   • Economic  Systems   ü Private  enterprise  /  capitalism  /  market  economy   © Market  Structures     Pure  competition   Monopolistic   Oligopoly   Monopoly   #  Competitors   Many   Few  to  many   Few   None   Ease  of  entry   Easy   Somewhat   Difficult   Regulated   by   difficult   government   Similarity   of   Similar   Different   Similar/   None     goods   different   Price  control   None   Some   Some     Considerable   in  pure   monopoly,   little   in   regulated  monopoly   Example   Farmer   Fitness  center   Bell  /  rogers   Rawlings  sporting  goods   ü Regulated  monopoly:  firm  that  granted  exclusive  rights  in  a  specific  market  by  a   local,  provincial,  or  federal  government   ü Planned  economies   © Economic  system  where  business  ownership,  profits,  and  resource  allocation  are   shaped  by  a  plan  to  meet  government  goals,  2  forms:     © Socialism:  government  owns  and  operate  the  major  industries   © Communism:  all  property  is  shared  equally  by  the  people  in  community  under   the  direction  of  a  strong  central  government   ü Mixed  economies     © Draws  both  private  enterprise  economies  and  planned  economies  to  different   degrees   © Privatization:  the  conversion  of  government-­‐owned  and  operated  companies  to   privately  held  businesses     3.3  Four  stages  of  business  cycle   • Prosperity   ü Low  unemployment,  more  spending,  expanding  business   • Recession  (economic  contraction  that  lasts  for  six  months  or  longer)   ü Less  spending,  slow  production     • Depression   • Recovery   RSM100-­‐John_Oesch-­‐textbook_notes-­‐created-­‐by-­‐lavender.y   ü Start  spending  again,  unemployment  decline   • Productivity:     ü Relationship  between  #  units  produced  and  #  inputs  needed   ü Focus  on  labor  productivity  /  output  per  labor-­‐hour   ü GDP   (gross   domestic   product):   sum   of   all   goods/services   produced   within   a   country  during  a  specific  time  period   • Price-­‐Level  Change   ü Inflation:  rising  prices  caused  by  a  combination  of  excess  consumer  demand  and   higher  costs  of  raw  materials,  component  parts,  human  resource,  and  other  factors   of  production   ü Core  inflation  rate:  inflation  rate  after  energy  prices  and  food  prices  are  removed   ü Hyperinflation:  economic  situation  marked  by  soaring  prices   ü Demand  pull  inflation:  caused  by  excess  consumer  demand   ü Cost-­‐push  inflation:  caused  by  increase  in  the  costs  of  factors  of  production   ü Deflation:  prices  keep  falling   ü CPI   (consumer   price   index):  measurement  of  the  monthly  average  change  in   prices  of  goods  and  services   • Employment  Levels   ü Unemployment  rate:  %  of  total  workforce  actively  seeking  work  but  currently   unemployed   ü Frictional  unemployment:  who  are  looking  for  jobs   ü Seasonal  unemployment:  in  seasonal  industry   ü Cyclical  unemployment:  jobless  due  to  cyclical  contraction  in  the  economy   ü Structural  unemployment:  remain  unemployed  for  a  long  time,  little  hope     3.4  Monetary
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