chap 3 mgm.pdf

Chapter 3 Understanding the Canadian Business System 3.1 Define the nature of Canadian business and identify its main goals The Idea of Business and Profit A Business: An organization that seeks to make profit by providing goods and services. - the workforce in canada. Taxes paid by businesses...

Chapter 3 Understanding the Canadian Business System 3.1 Define the nature of Canadian business and identify its main goals The Idea of Business and Profit A Business: An organization that seeks to make profit by providing goods and services. - the workforce in canada. Taxes paid by businesses help support the government at all levels. They also support charitable causes and provide community leadership. Profit: What remains after subtracting a business’s expenses from its revenue. - Profits reward the owners of businesses for taking the risks involved in investing their time and money. Profits can be very large if a company produces something that consumers really like. Not-for-profit: An organization that provides goods and services but does not seek to make profit. - These not-for-profit organizations use the funds they generate from government grants or from the sale of goods or services to provide services to the public. Charities, educational institutions, hospitals,labor unions, and government agencies are examples of not-for-profit organizations. Business principles are helpful to these organizations as they try to achieve their service goals. Economic Systems Around the World 3.2 Describe different types of global economic systems according to how they control the factors of production through inputs and outputs markets An economic system allocates a nation's resources among its citizens. Economic systems differ in terms of who owns and controls these resources, known as “factors of production” Factors of Production: The basic resources that a country’s business use to produce goods and services. The factors of production are labor,capital,entrepreneurs,natural resources and information Labor: The people who for a company represent the first factor of production. Capital: Refers to the funds required to start a business and to keep it operating and growing. Entrepreneurs: People who accept the opportunities and risks involved in creating and operating business Natural Resources: Includes all physical resources, such as land, water, mineral deposits, and trees. Information: Includes the specialized knowledge and expertise of people who work in businesses, as well as information contained in market forecasts and various other forms of economic data. Types of Economics Systems Economic systems also differ in the ways decisions are made about production and allocation. There are 2 types of Economic Systems 1. Command economy: government to control all or most factors of production and to make all or most production and allocation decisions. 2. Market economy: An economic system in which individuals control all or most factors of production and make all or most production decisions. The 2 basic forms of command economies are 1. Communism is a system in which the government owns and operates all sources of production. 2. Socialism Market: An exchange process between buyers and sellers of a particular good or service. Input and Output Markets A useful model for understanding how the factors of production work in a pure market economy Input market: Firms buy the resources they need in the production of goods and services. 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, which in practice is typical of most nations' economies. Privatization: The transfer of activities from the government to the private sector. Deregulation: means a reduction in the number of laws affecting business activity and in the powers of governmental enforcement agencies Interaction between Business and Government 3.3 Describe the interaction between business and government in Canada. How Government Influences Business Government plays several key roles in the Canadian economy, and each of these roles influences business activity in some way. GOVERNMENT AS A CUSTOMER The government buys thousands of different products and services from business firms, including office supplies, office buildings, computers, battleships, helicopters, highways, water treatment plants, and management and engineering consulting services. GOVERNMENT AS A COMPETITOR The government also competes with business through Crown corporations, which are accountable to a minister of parliament for their conduct. GOVERNMENT AS REGULATOR Federal and provincial governments in Canada Regulate many aspects of business activity through administrative boards, tribunals,and commissions, but there is a continuing debate about how much influence government regulators have and how much they should have. - The reasons for regulating business activity include protecting competition, protecting consumers, achieving social goals, and protecting the environment GOVERNMENT AS A TAXATION AGENT Taxes are imposed and collected by the federal, provincial, and local governments. Revenue taxes (e.g., income taxes) are levied by governments primarily to provide revenue to fund various services and programs. GOVERNMENT AS A PROVIDER OF INCENTIVES AND FINANCIAL ASSISTANCE Federal, provincial, and municipal governments offer incentive programs that attempt to stimulate economic development. GOVERNMENT AS A PROVIDER OF ESSENTIAL SERVICES: The various levels of government facilitate business activity through the services they supply. The federal government provides highways, the postal service, the minting of money, the armed forces, and statistical data on which to base business decisions. How Business InfluencesGovernment: Businesses also try to influence the government by using lobbyists, trade associations,and advertising. Lobbyists: A person hired by a company or an industry to represent its interests with government officials. Trade associations: An organization dedicated to promoting the interests and assisting the members of a particular industry. The Canadian Market Economy 3.4 Show how demand and supply affect resource distribution in Canada Demand and Supply in a Market Economy: In economic terms, a market is not a specific place, like a supermarket, but an exchange process between buyers and sellers. Market: An exchange process between buyers and sellers of a particular good or service. Demand: The willingness and ability of buyers to purchase a productor service. Supply: The willingness and ability of producers to offer a good or service for sale. Law of demand: The principle that buyers will purchase (demand) more of a product as the price drops. Law of supply: The principle that producers will offer (supply) more of a product as the price rises. Demand and supply schedule: Assessment of the relationships between different levels of demand and supply at different price levels Market price (equilibrium price): Profit-maximizing price at which the quantity of goods demanded and the quantity of goods supplied are equal. Surplus: A situation in which quantity supplied exceeds quantity demanded Private Enterprise and Competition 3.5 Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system Market economies rely on a private enterprise system— An economic system characterized by private property rights, freedom of choice, profits, and competition Private enterprise requires the presence of 4 elements: private property rights, freedom of choice, profits, and competition. Private property: Ownership of the resources used to create wealth is in the hands of individuals. Freedom of choice: You can sell your labor to any employer you choose. You can also choose which products to buy, and producers can usually choose whom to hire and what to produce Profits: The lure of profits (and freedom) leads some people to abandon the security of working for someone else and to assume the risks of entrepreneurship. Anticipated profits also influence individuals’ choices of which goods or services to produce Competition: Competition is evident when two or more businesses compete for the same resources or customers. While profits motivate individuals to start businesses, competition motivates them to operate their businesses efficiently. Competition forces businesses to make products better or cheaper Degrees of Competition Economists have identified 4 basic degrees of competition within a private enterprise system: perfect competition, monopolistic competition, oligopoly, and Monopoly. Perfect competition: A market or industry characterized by a very large number of small firms producing an identical product so that none of the firms has any ability to influence price. Two key conditions characterize perfect competition: (1) All firms in an industry must be small, and (2) the number of firms in the industry must be large. In addition, these two conditions also reflect four principles: 1. The products of each firm are so similar that buyers view them as identical to those of other firms. 2. Both buyers and sellers know the prices that others are paying and receiving in the marketplace. 3. Because each firm is small, it is easy for firms to enter or leave the market. 4. Going prices are set exclusively by supply and demand and accepted by both sellers and buyers Monopolistic competition: A market or industry characterized by a large number of firms supplying products that are similar but distinctive enough from one another to give firms some ability to influence price Oligopoly: A market or industry characterized by a small number of very large firms that have the power to influence the price of their product or resources Monopoly: A market or industry with only one producer that can therefore set the prices of its products and resources. Efficiency and effectiveness Efficiency refers to getting the most output from the least amount of inputs Effectiveness refers completing activities so that organizational goals are achieved Bloom's Taxonomy CEO EXECUTIVE MIDDLE MANAGEMENT EMPLOYEE - Bureaucratic organization - Max Weber A form of organization characterized by Division of Labour, a clearly defined Hierarchy, detailed rules and regulations, and impersonal relationships.