Textbook Notes (369,198)
Canada (162,457)
RSM100Y1 (431)
John Oesch (214)
Chapter

1_-_Understanding_the_Canadian_Business_System.doc

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Department
Rotman Commerce
Course Code
RSM100Y1
Professor
John Oesch

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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: What remains after a business’s expenses have been subtracted from its rev- enues ‣ Canadian businesses exist to earn profits for owners ‣ Opportunities involve goods or services that consumers want/need, especially when no one else is supplying them or other businesses are doing so ineffectively or incom- pletely ‣ New forms of technology, service businesses, and international opportunities keep production, consumption, and employment growing indefinitely Economic Systems Around the World Economic System: The way nation’s allocate its resources among its citizens Factors of Production Factors of Production: Resources used to produce goods and services: labour, capital, entrepreneurs, and natural resources Labour Labour (Human Resources): The mental and physical training and talents of people Capital Capital: The financial resources needed to operate an enterprise ‣ Capital can include personal investment (individual entrepreneurs, business partners, or investors) and revenue Entrepreneurs Entrepreneur: An individual who organizes and manages labour, capital, and natural re- sources to produce goods and services to earn a profit but who also runs the risk of fail- ure Natural Resources Natural Resources: Production of goods and services from physical resources (land, water, mineral deposits, and trees) Information Resources Information Resources: Information (market forecasts, economic data, and specialized knowledge of employees) that is useful to help businesses achieve its goals Types of Economic Systems Command Economies Command Economy: Government controls all or most factors of production and makes all or most production decisions Communism: Type of command economy where the government owns and operates all industries ‣ China has a reputation for being a low-cost producer of goods Socialism: Type of command economy where the government owns and operates the main industries, while individuals own and operate less crucial industries Market Economies Market Economy: Individuals control all or most factors of production and make all or most production decisions Market: Mechanism for exchange between buyers and sellers of goods and services ‣ Ecommerce includes business-to-business (B2B) transactions as well as business-to- consumer (B2C) transactions ‣ B2B transactions exceed B2C transactions in dollar value ‣ B2C and B2B exchanges take place without much government involvement in market economies Input Market: Firms buy resources that they need in the production of goods and ser- vices from households (resource suppliers) Output Market: Firms supply goods and services in response to demand on the part of consumers Capitalism: Markets decide what, when, and for whom to produce Mixed Market Economies Mixed Market Economy: With elements of both a command economy and a market economy (typical of most nations’ economies) Privatization: Transfer of activities from the government to the private sector Nationalization: Conversion of private firms into government-owned firms Deregulation: Reduction in the number of laws affecting business activity and in the powers of government enforcement agencies Interactions Between Business and Government How Government Influences Business ‣ The government buys thousands of different products and services from business firms ‣ The government competes with business through Crown corporations ‣ Crown corporations account for a significant amount of economic activity in Canada ‣ Governments in Canada regulate aspects of business activity through administrative boards, tribunals, and commissions ‣ Reasons for regulating business activity include promoting competition, protecting consumers, achieving social goals, and protecting the environment ‣ Competition is crucial in a market economy ‣ Without restrictions, large companies would drive smaller firms out of the market ‣ Federal government has passed various laws that are designed to protect consumers (e.g. Tobacco Act) ‣ Social goals promote the well-being of our society (e.g. Universal access to health care) Revenue Taxes: Taxes whose main purpose is to fund government services and pro- grams (e.g. Income taxes) Progressive Revenue Taxes: Taxes levied at a higher rate on higher-income taxpayers and at lower rate on lower-income taxpayers Regressive Revenue Taxes: Taxes levied at the same rate regardless of a person’s in- come (e.g. Sales tax) Restrictive Taxes: Taxes levied to control certain activities that legislators believe should be controlled (e.g. Taxes on alcohol and tobacco) How Business Influences Government Lobbyist: A person hired by a company or industry to represent its interests to govern- ment officials Trade Associations: An organization dedicated to promoting the interests and assisting the members of a particular industry ‣ Corporations can influence legislation indirectly by influencing voters (e.g. Through advertising) The Canadian Market Economy Demand and Supply in a Market Economy Demand: The willingness and abilit
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