STEN 1000 Chapter 2: Intro to Business (04-75-100) Textbook + Lecture notes - Ch. 2
20 Jun 2018
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CHAPTER 2 – THE CANADIAN ECONOMIC ENVIRONMENT
Canada and Its Economic System
- current member of G7/8 (US, Canada, Japan, GB, Germany, France, Italy + Russia)
- trading relationship with the US – 79% of external trade volume, 50% of import volume
- Strong, fair, equitable legal system; low corruption
- Comparative advantage – can produce a good relatively cheaper than other countries
- Foreign company/investors CHOOSE Canada
- Fully developed, diversified system (abundance of natural resources)
- Productivity gains, strong business investment, technological innovation, moderate wage
increases, and a favourable currency exchange rate are all key factors that are deemed to
be critical in ensuring that out economy remains resilient and competitive now and in the
future
Key Economic Influencers
Contributing Factors to Economic Development
- a core requirement to the stability and growth of any economic system lies in its ability to
service and promote both the current and future economic activity taking place
- Factors essential to Economic vitality/development (fig. 2.2):
- Established factors of production, political stability
- Manageable levels of national debt, national monetary policy and banking
system
- Low inflation, effective legal system
- Sufficient levels of investment, absence of corruption, competitive advantage
- Comparative advantage – the ability of a country to produce or supply goods or services
at a lower cost than other countries or to possess resources or unique services that are
unavailable elsewhere
- In Canada – especially in energy market sectors
- Foreign Direct Investment (FDI)
- When a company or individual from one country makes an investment into a
business within another country. This investment can reflect the physical
ownership of productive assets or the purchase of a significant interest in the
operations of a business
- Canada is viewed as a safe and lucrative
place to do business
- Both Europe and Asia/Oceania are active
investors in Canada
Underlying economic model ! Fundamental market
composition principles:
1. The law of supply and demand
= the ability of the market, independent of eternal
influences, to determine the price for which a product or
service will be bought and sold
- Price equilibrium – the point where the supply curve and demand curve meet – there is
neither surplus of shortage of goods
- Elastic demand – situation where the quantity demanded does not change significantly
due to change in price
2. Allowance for private ownership, entrepreneurship and wealth creation
- Refers to the openness of the market to support, encourage, and promote private
enterprise (entrepreneurship), personal ownership and wealth creation
- Ex. Canada and US fully support, China and India are allowing greater access, North
Korea less willing to provide such support
3. Extent of government involvement in influencing economic activity and direction
- Role of customer, purchasing goods and services
- Role of regulator – access restriction and competitive boundaries
- Role of manager – ex. Bank of Canada
- Role of taxation agent
- Role of economic stimulation agent – grant subsidy programs, infrastructure
development
- Role of competitor – offers services in direct competition for private-sector businesses
- Open system –adheres to the principles of economic freedom: the law of supply and
demand, full and open access to the principles of private ownership, entrepreneurship, and
wealth creating; and an absence of regulation on part of the government
- Goods and serviced are sold in a free market to those who can pay for them
- Individuals seeking profits produce goods and services from privately owned
resources
- Controlled System (= command or centrally planned economies) – economies that operate
without or experience minimal external trade, the government fully controls the economic
direction and activity
- Mixed Economic System – contains components of both open and controlled systems.
Includes the core principles of economic freedom, with some degree of centralized economic
planning and government regulation and involvement (fig. 2.9)
- Canada - a mixed economic system:
- Private ownership entrepreneurship, and wealth
creation
- Law of supply and demand
- Government involvement
Chartered Banks – financial institutions under the Canada
Bank Act.
- Their primary responsibility is to bring together borrowers
and lenders by accepting deposits and lending out money – in a
matter that safeguards the interests of their customers
Document Summary
Canada and its economic system current member of g7/8 (us, canada, japan, gb, germany, france, italy + russia) trading relationship with the us 79% of external trade volume, 50% of import volume. Strong, fair, equitable legal system; low corruption. Comparative advantage can produce a good relatively cheaper than other countries. Fully developed, diversified system (abundance of natural resources) Contributing factors to economic development a core requirement to the stability and growth of any economic system lies in its ability to service and promote both the current and future economic activity taking place. Manageable levels of national debt, national monetary policy and banking system. Sufficient levels of investment, absence of corruption, competitive advantage. Comparative advantage the ability of a country to produce or supply goods or services at a lower cost than other countries or to possess resources or unique services that are unavailable elsewhere. In canada especially in energy market sectors.
