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Chapter 18


Rotman Commerce
Course Code
Michael Szlachta

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RSM Notes 1
Chapter 1
The concept of business and profit
Business: an organization that seeks to earn profits by providing goods and
Profit: what remains after a businesss expenses have been subtracted from its
Business exist to earn profits for owners and consumers have freedom of choice,
business won not be survived if there is no demand for its goods or services
Businesses produce most of the goods and services we consume and they
employ the majority of working people.
They create new innovations and provide opportunities of other business, which
serve as their suppliers
Business taxes help to support government at all levels
Economic system: They way in, which a nation allocates its resources among its
Factors of Production: the resources used to produce goods and services: labor,
capital, entrepreneurs, and natural resources
Labor: The mental and physical training and talents of people (human resource)
Capital: the funds needed to operate an enterprise, it is needed to start a new
business and then to keep it running and growing, a major source of capital for
small businesses is personal investment by owners
Entrepreneurs: an individual who organizes and manages labor, capital and
natural resources to produce goods and services to earn a profit but who also
runs the risk of failure
Natural resource: items used in the production of goods and services in their
natural state, including land, water, mineral deposits, and trees
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:
A command system: an economic system in which government controls all or
most factors of production and makes all or most production decisions
A market economic system: an economic system in which individuals control all
or most factors of production and make all or most production decisions

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Command Economic System:
It is proposed by the 19-century economist Karl Marx, communism is a system in
which the government owns and operates all sources of production
The free market economy is the best system”. 74% of Chinese people polled
agreed with the statement and this gives Chinese government strong support of
the communist economic ideology
Socialism: a kind of command economy in which the government owns and
operates the main industries, while individuals own and operate less crucial
The declining in popularity: most of people work for government and many
government-operated enterprises are inefficient, since management positions are
frequently filled based on political consideration rather than ability
Market Economies:
Market: a mechanism for exchange between the buyers and sellers of a particular
good or service
Eg: Internet shopping
B2C: business to consumer transactions, busying books over the Internet for
personal use
B2B: business to business transaction, involves in joining together to create
ecommerce companies that makes them more efficient when they purchase the
goods and services
Input and output markets
Input market: firms buy resources that they need in the production of goods and
Output market: firms supply goods and services in response to demand on the
part of consumers
Capitalism: an economic system in which markets decide what, when and for
who to produce
Sanctions the private ownership of the factors of production and encourages
entrepreneurship by offering profits as a incentive
Mixed Market economies
An economic system with elements of both a command economy and a market
economy, in practice, typical of most nations economies
Privatization: converting government enterprises into privately owned companies
Nationalization: the conversion of private firms into government-owned firms
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