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Chapter 2

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Administrative Studies
ADMS 1000
Eytan Lasry

Chapter 2- The Economic Context Business: an organization that produces or sells goods to make profit Profit: what remains after an organization’s expenses have been subtracted from its revenues Not-for-profit organizations: do not try to make profit. The funds go towards public services Economic systems Economic system: allocates resources among citizens in a nation Economic systems differ based on how their factors of production are allocated Factors of Production Factors of production: a country’s basic resources that businesses use to produce goods and services Labour- the mental physical and capabilities of people Capital- the funds that are needed in order to start a business and to keep it operating and growing Entrepreneurs- people who accept opportunities and risks in order to create & run a business Natural resources- includes all physical resources such as land, mineral, water, and trees. Information resources- the specialized knowledge and expertise of people who work in business as well as information that is found in economic forecasts and various other forms of data Types of Economic Systems 1. Command Economies There are two forms of command economies: socialism and communism Socialism-the government owns and operates only selected major industries  Implications:  Many people work for the government. Government businesses are inefficient b/c management positions are filled based on political considerations instead of expertise.  Large welfare system, which has resulted in high taxes Communism- government operates and owns all sources of production 2. Market Economies  Market- a mechanism b/w the buyers & sellers of a particular good or service  Businesses are free to create own prices Input & Output Markets Input market- firms buy resources from households, which then supply those resources Output market- firms supply goods & services in response to demand on the part of households The political basis for the free market economy is capitalism- allows privatization of the factors of production and encourages entrepreneurship through incentives 3. Mixed Market Economies  Contains features of both a command economy and market economy  Mixed market economies have privatization- converting government enterprises in privately owned companies  Some countries have done nationalization—converting privately owned companies into gov. enterprises The Canadian Market Economy Demand- the willingness of consumers to buy a product or service Supply- the ability of producers to offer a good or service for sale The law of demand- buyers will purchase more of a product as its price drops Th
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