Textbook Notes (368,317)
Canada (161,798)
RSM219H1 (136)
Chapter 1

Chapter 1 Notes

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Rotman Commerce
Chris Bovaird

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 business’s expenses are subtracted from its revenues  Expenses – the money a business spends producing its good and services and generally running the business  Revenues – the money a business earns selling its products and services ECONOMIC SYSTEMS AROUND THE WORLD  Economic system – the way in which a nation allocates its resources among its citizens Factors of Production  Factors of production – the resources used to produce goods and services: labour, capital, entrepreneurs, and natural resources o Labour – the mental and physical training and talents of people; sometimes called human resources o Capital – the funds needed to operate an enterprise o Entrepreneur – an individual who organizes and manages labour, capital, and natural resources to produces goods and services to earn a profit, but who also runs the risk of failure o Natural resources – items used in the production of goods and services in their natural state, including land, water, mineral deposits, and trees o Information resources – 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 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 Command Economies  Communism – a type of command economy in which he government owns and operates all industries  Socialism – a kind of command economy in which the government owns and operates the main industries, while individuals own and operate less crucial industries Market Economies  Market – a mechanism for exchange between the buys and sellers of a particular good or service o Capitalism – a kind of market economy offering private ownership of factors of production and of profits from business activity Mixed Market Economies  Mixed market economy – an economic system with elements of both a command economy and a market economy; in practice, typical of most nations’ economies  Privatization – the transfer of activities from the government to the public sector  Deregulation – a reduction in the number of laws affecting business activity INTERACTIONS BETWEEN BUSINESS AND GOVERNMENT How Governments Influences Businesses  Government as Customer – government buys thousands of different products and services from business firms, including office supplies, office buildings, computers, battleships, helicopters, highways, water treatment plants, and management and engineering consulting services  Government as Competitor – government also competes with business through Crown corporations which are accountable to a minister of parliament for their conduct  Government as Regulator – federal and provincial governments in Canada regulate many aspects of business activity o Protecting Competition. One of the reasons that the government regulates business is to ensure that healthy competition exists among business firms, because competition is crucial to a market economy o Protecting Consumers. The federal government has initiated many programs that protect consumers o Achieving Social Goals. Social goals promote the well-being of our society o Protecting the Environment. Key government legislation designed to protect the environment  Government as Taxation Agent – taxes are imposed and collected by the federal, provincial, and local governments o Revenue taxes – taxes whose main purpose is to fund government services and programs o Progressive revenue taxes – taxes levied at a higher rate on higher-income taxpayers and at a lower rate on lower income taxpayers o Regressive revenue taxes – taxes that cause poorer people to pay a higher percentage of income than richer people pay o Restrictive taxes – taxes levied on control certain activities that legislators believe should be controlled  Government as Provider of Incentives – federal, provincial, and municipal governments offer incentive programs that help stimulate economic development  Government as Provider of Essential Services – the federal, provincial, and municipal governments facilitate business activity through the wide variety of services they supply THE CANADIAN MARKET ECONOMY Demand and Supply in a Market Economy The Law of Demand and Supply  Demand – the willingness and ability of buyers to purchase a product or service  Supply – the willingness and ability of producers to offer a good or service for sale  Law of demand – the principle that buyers will purchase (demand) more of a product as price drops  Law of supply – the principle that producers will offer (supply) more of a product as price rises Demand and supply schedule – assessment of the relationships between different levels of demand and supply at different price levels Demand and Supply Curves  Demand curve – graph showing how many units of a product will be demanded (bought) at different prices  Supply curve – graph showing how many units of a pro
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