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Chapter 2

ChapterChapter Two ADMS 1000 Two The Economic Context.docx

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York University
Administrative Studies
ADMS 1000

ADMS1000 {Chapter 2} The Economic Context Jan 15th, 2013 Business: an organization that produces or sells goods or services in an effort to make a profit Profit: the remains after a business’s expenses have been subtracted from its revenues  Reward owners of businesses for taking the risks involved in investing their time and money o Encana Corp (6.3 Billion) o Canadian Wheat Board (5.7 Billion) o Canadian Natural Resources Ltd. (4.9 Billion) Non-for-profit organization: use the funds (profits) they generate to provide services to the public  Charities  Hospitals  Government  Schools  Labour unions agencies Economic System: the method used to allocate a nation’s resources among its citizens  How businesses function is largely built around the economic system in the country they operate in  Economic systems differ around the world in terms of who owns and controls these resources Types of Economic Systems Command Economies: reliance on a centralized government that owns all or the majority of the factors of production to make all or most of production and allocation decisions  Communism: government owns and operates  Socialism: government owns and operates a all sources of production select number of major industries o Marx envisioned people to contribute o People have more of a say of their professions according to their abilities and receive but most work for government compensation based on their needs o Extensive public welfare = high taxes o Once society matured governments would be unnecessary and workers would eventually gain direct ownership Market Economies Market: mechanism for exchange between the buyers and sellers of a particular good or service  B2B and B2C transactions take place with minimal government intervention  Buyers and sellers enjoy freedom of choice o How to price products o Where to work o Who to buy from  Input market: firms buy resources from  Output market: firms supply goods and households, households supply those services in response to demand on the resources part of the households o Households have people, people have/own the factors of production o Input and output markets create a circular flow that relies on each other.  Capitalism: the political basis for free market economy is in capitalism, allowing private ownership of the factors of production and encourages entrepreneurship by offering profits as incentive Mixed Market Economies: features the characteristics of both command and market economies  Privatization: converting government o i.e. as a result of recessions, enterprises into privately owned government intervention in the companies economic system in an attempt to stabilize ithigher deficits  Nationalization: converting private firms into government-owned firms and more government control of business activity Canadian Market Economy Demand: willingness and ability of buyers to purchase a product or service Supply: willingness and ability of producers to offer a good or service for sale The law of demand states buyers will purchase (demand) more of a product as its price drops. The law of supply states that producers will offer (supply) more for sale as the price rises.  The equilibrium point is the “right combination” of price charged and quantity supplied to optimize profits. Private enterprise: allows individuals to pursue their own interests with minimal government restriction by: 1) Private property: ownership of 3) Profits: appeal of profits leads some resources used to create wealth is in people to paths of entrepreneurship, hands of individuals anticipated profits gives individuals 2) Freedom of choice: you can sell your choices in what to purchase labour to any employer you choose, 4) Competition: profits motivate what products you buy, etc. individuals, competition motivates them to operate efficiently Competition: occurs when two or more businesses view for same resources or customers  Advantage over competition through selling product cheaper while still earning profit, forcing businesses to make products better or cheaper Degrees of Competition Perfect competition  Industry that only has a handful of very  Small firms but man of them large sellers  Identical products  Fierce competition, actions of one  Buyers and sellers know price others oligarchy affects the others pay in the market  As opposed to competing on price,  Easy to enter or leave market similar firms compete through  Prices set by supply and demand, no advertising ONE firm powerful enough to dictate  Entry into market difficult because large o Canadian wheat farming = good capital is needed to compete example of perfect competition o Firms able to stay oligopolistic Monopolistic Competition o Automobile, rubber, and steel  Fewer firms but still many buyers industry examples o Globalization trend predicts  Sellers try to make their product seem at least slightly different from those of their more global oligopolies Monopoly competitors(through different brand names like Tide and Cheer)  Only one producer  Complete control over price of product  Businesses may be large or small, relatively easy to enter and leave market  The only thing controlling prices are the  Small businesses are able to compete demands for product with larger businesses  Competition Act forbids most  Slight product differentiation allows monopolies sellers some control of pricing  Natural monopoly: cases where it’s more cost efficient for production to be concentrated (i.e. provincial electrical utilities) Oligopoly Factors of production: basic resources that a country’s businesses use to produce goods and services 1) Labour: mental and physical 4) Natural Resources: physical capabilities represented by the resources of a nation human resources that work for a a. Land company b. Water 2) Capital: funds needed to start a c. Mineral deposits business
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