Chapter 1 Summary

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3 Apr 2011
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Chapter 1
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 The mental and physical training and talents of people.
Capital The funds needed to operate an enterprise.
- Investment by owners, entrepreneurs, partners who start the business, or investors
who buy stock
Entrepreneurs An individual who organizes and manages labour, capital, and
natural resources to produce goods and services to earn a profit.
Natural Resources 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
Command Economy An economic system in which government controls all or most
factors of production and makes all or most production decisions.
Communism A type of command economy in which the government controls all or
most factors of production.
Socialism A kind of command economy in which the government owns and
operates the main industries, while individuals own and operate less crucial
- Large proportion of people work for the government
Market Economies An economic system in which individuals control all or most factors
of production and make all or most production decisions.
- B2B (business to business transactions) is more efficient than B2C (business to
consumer, ordering things over the internet).
- Very little government involvement.
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
whom to produce.
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 - Converting government enterprises into privately owned
Nationalization Converting private firms into government-owned firms.
Deregulation A reduction in the number of laws affecting business activity and in
the powers of government enforcement agencies.
- Deregulation freed companies to do what they wanted without government
How Government Influences Business
- Government buys products and services from different business firms.
- many business firms depend on government purchasing, if not for their survival, for their
level of prosperity.
- One of the reasons that government regulates business is to ensure that healthy
competition exists among business firms.
- Without restrictions, a large company could drive smaller businesses out of the market.
- Agreements between companies (e.g. merge) might reduce competition.
-Social Goals include universal access to health care, safe workplaces, employment
insurance and decent pensions. All these require interaction between firms and the
Revenue Taxes Levied by federal and provincial governments primarily to provide
revenue to fund various services and programs.
Progressive revenue taxes Levied at a higher rate on higher-income tax-payers and at
a lower rate on lower-income tax-payers
Regressive revenue taxes - Levied at the same rate regardless of the persons income
Restrictive Taxes levied partially for the revenue they provide, but also because
legislators believe that the products should be controlled
How Business Influences Government
Lobbyist A person hired by a company or industry to represent its interests to
government officials.
Trade Associations Owners of small business that cannot afford lobbyists often
join trade associations, which may act as an industry lobby to influence legislation.
Trade associations also conduct training programs relevant to the particular
industry, and they arrange trade shows at which members display their products or
services to potential customers. Most publish newsletters featuring articles on new
products, new companies, changes in ownership, and changes in laws affecting the
Canadian Market Society