Business, Second Canadian Edition (Chapter 1-5) PDF

Chapter 1: Exploring the World of Business Chapter Contents Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. Chapter 1 Exploring the World of Business 1-1 Why Study Business? 1-2 Understanding Business Basics 1-2a The Beneﬁts of Business to Society 1-2b Concerns about the Impact of Business on Society 1-3 Responding to the Business Environment 1-4 Economic Systems 1-4a Why Do Economic Systems Matter? 1-5 Degrees of Competition and Supply and Demand 1-5a Why Do Degrees of Competition Matter? 1-5b Perfect Competition 1-5c Monopolistic Competition 1-5d Oligopoly 1-5e Monopoly 1-6 Measuring Economic Performance 1-6a The Business Cycle 1-6b Gross Domestic Product (GDP) 1-6c Unemployment and Inﬂation 1-7 Exploring Careers in Business 1-7a Career Overviews 1-8 Chapter Review 1-8a Chapter Summary 1-8b Exercises 1-8c Review Questions 1-8d Key Terms 1-8e Case Study Chapter 1: Exploring the World of Business Chapter Contents Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-1 Why Study Business? Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-1 Why Study Business? The potential beneﬁts of studying business are enormous, but let’s look at 1-1 - Summarize some of the beneﬁts of four main ideas. First, it can help you studying business. choose a career. When you study business, you can evaluate different industries, different sizes and types of employers, and possibilities for starting your own business. Second, it can improve your career. Often employees become managers. Or you may choose to open your own business. To succeed at either of these requires many of the same characteristics. This course will help you improve your management skills, such as interpersonal, analytical, technical, and conceptual skills, and learn about business best practices that can make you more valuable to any organization. Third, studying business can help you become a better- informed consumer and investor. By understanding how businesses create and market products, you are better able to evaluate purchase decisions. By understanding the basics of ﬁnancial management and investments, you are able to make better personal ﬁnancial decisions. Fourth, it can help you become a more inﬂuential community member. When you understand the potential impacts of businesses, you can direct your purchasing power and your social inﬂuence toward businesses that align with your values. Taken together, these beneﬁts of studying business can lead to more fulﬁlling jobs, higher incomes, and stronger communities. Key Takeaway The beneﬁts of studying business include helping you choose a career, improving your career, making you a better-informed consumer and investor, and making you a more inﬂuential community member. These beneﬁts can lead to more fulﬁlling jobs, higher incomes, and stronger communities. Chapter 1: Exploring the World of Business: 1-1 Why Study Business? Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-2 Understanding Business Basics Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-2 Understanding Business Basics A business (an organization that seeks proﬁt by offering products (goods and 1-2 - Explain how business beneﬁts society. services) to satisfy society’s needs) is an organization that seeks proﬁt by offering products to satisfy society’s needs. Those products can be goods or 1-3 - Identify potential societal concerns services. A good (a physical, tangible about business. product that we can see and touch) is a tangible product and a service (an intangible product that we experience or use) is an intangible product. A business realizes a proﬁt when its sales revenue is greater than its expenses. In this course we use different names for a business, such as organization, business, or company, but they all refer to the same thing. Businesses play an important role in our economy. For instance, businesses create jobs, employ people, and produce goods and services to sell to customers, other businesses, and government entities. The remainder of our economy is made up of the public sector (i.e., government) and the non-proﬁt sector. It is important to remember that the fundamentals of business apply to these sectors as well. When we discuss subjects such as ethics, leadership, product development, and accounting, the takeaways often are transferrable to any sector of the economy. So if you plan to become a teacher, city planner, or ﬁreﬁghter, this course is relevant to you as well. For a business to be successful, it must be organized and combine four types of resources: material, human, ﬁnancial, and informational. Material resources include the raw materials used in manufacturing as well as buildings and machinery. Human resources are the people who provide their labour to a business in return for wages. The ﬁnancial resource is the money required to pay employees, purchase materials, and generally keep the business operating. Information is the resource that tells the manager of the business how effectively the other three resources are being combined and used. Chapter 1: Exploring the World of Business: 1-2 Understanding Business Basics Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-2a The Beneﬁts of Business to Society Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-2a The Beneﬁts of Business to Society Businesses bring several beneﬁts to society. These include offering valuable goods and services, providing employment, contributing to our standard of living, improving the quality of life, and driving innovation and creativity. Offering Valuable Goods and Services The ultimate objective of every organization must be to satisfy the needs of its stakeholders. As discussed in Chapter 2, a stakeholder is anyone who is impacted by the activities of the business. In business, one of these stakeholders is most certainly the customers. People generally do not buy goods and services simply to own them; they buy goods and services to satisfy particular needs. Most of the products you use every day exist because someone concluded that a proﬁt could be made by fulﬁlling a particular need in the market and thereby providing value to the customer. These needs, and what is deﬁned as valuable, differ among consumers. For example, some of us may feel that the need for transportation is best satisﬁed by an air-conditioned BMW with navigation system, stereo system, heated and cooled seats, automatic transmission, power windows, and remote-control side mirrors. Others may believe that a less expensive car without all the luxuries will do just ﬁne. Both products are available to those who want them, along with a wide variety of other products that satisfy the need for transportation. Companies offer value in a variety of ways. For example, the auto industry has continually improved over the decades (see Table 1.1). Table 1-1 Ways Companies Offer Variety: How the Auto Industry Has Improved Over the Decades Then Now Increased Ford Pinto—recognized as one of Honda Accord—routinely lasts Quality the worst cars of all time over 320,000 km Increased Henry Ford saying that you could “Build and price” a Ford Explorer Choice have any colour Model T that you online, choosing among a vast want, “as long as it’s black” array of colours, options, and accessories Then Now Increased Very limited number of car dealers Online marketplaces such as Auto Convenience and private sales very difﬁcult Trader make it easier than ever to buy new or used cars Increased Health No safety features—not even seat Autonomous or self-driving cars, & Safety belts seat belts, airbags, crumple zones, rear-view cameras Increased Value In today’s dollars, the original For that same price you can get a for Money Model T has an estimated cost of car with more power, more safety about $17,000 features, and more comfort Providing Employment Offering products that satisfy customer needs requires the coordination of many people to manage manufacturing, transportation logistics, sales, management, and a variety of other functions. This beneﬁts society by providing employment and opportunities for individuals to grow and advance in their careers through the business. Contributing to Our Standard of Living A standard of living (the amount of products available, the wealth of the nation, and lifestyle opportunities) refers to the amount of products available, the wealth of the nation, and lifestyle opportunities. In Canada, we enjoy a high standard of living. Generally, Canada experiences economic growth, often as a result of increased creative thinking and diversity. Improving Quality of Life Quality of life (the general well-being and happiness of people and societies; includes measuring such things as access to healthcare, education, and food) is the general well- being and happiness of people and societies. It includes measuring such things as access to healthcare, education, and food. In addition to providing employment and opportunities for career advancement, businesses contribute to the quality of life in their communities in other ways. One is by paying taxes each year. Another is through charitable giving and community development. Canadian businesses provide donations in the form of cash, products, and employee time. Businesses also contribute to economic growth, for example by creating employment as mentioned above. Driving Innovation and Creativity Businesses drive innovation and creativity in the form of new technologies, new goods and services, and new ways of operating. Improvements in production processes can result in greater productivity, efﬁciency in operations, and greater proﬁts, to name just a few. Some of the outcomes can be fewer natural resources used and the development of cleaner technologies that sustain our environment. Chapter 1: Exploring the World of Business: 1-2a The Beneﬁts of Business to Society Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-2b Concerns about the Impact of Business on Society Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-2b Concerns about the Impact of Business on Society Unfortunately, business can have negative impacts as well. Most managers today look for ways to balance their drive to generate proﬁts with the need to harmonize their operations with social concerns. The costs to businesses and society can be considerable if any potential negative impacts are not addressed. These social concerns include the following: Health and Safety Risks: This includes the inherent risks of working in a production environment, the use of potentially unsafe materials in manufacturing, and unsafe product design. It can be very expensive if workers are hurt on the job or experience other health and safety issues, for example stress-related illnesses. Companies and industries can be proactive by implementing training programs to minimize the risks. Governments have laws, such as WHMIS, that protect workers. All of these measures can decrease the costs associated with harm to employees. Environmental Damage: Production of any kind involves the consumption of natural resources. However, when companies do not focus on making these resources sustainable, it can cause irreversible damage to the land, air, and water. This in turn can negatively impact the health of citizens in the community. Many Canadian businesses and industries have been activity seeking better production techniques that are more environmentally friendly. Community Impacts: When a company is successful, the increase in employment or customer activity can increase trafﬁc, crowd schools, damage existing businesses, and even change the culture of a community in unwanted ways. Some employees may feel they do not beneﬁt from the success of the company due to low pay and limited beneﬁts. In addition, when a once-successful business hits hard times or fails it can throw thousands of people out of work and bring hardship to entire communities. Experts agree that several key issues will challenge our economic system (and our country) over the next decade. Some of the questions to be resolved include the following: How can we create a more stable economy and create new, quality jobs for the unemployed? How can we reduce the national debt and still stimulate business growth? How do we restore conﬁdence in our political systems? How can we use research and technology to improve Canadian business operations and Canadian society? How can we make Canadian businesses more competitive in the global marketplace? How can we encourage the growth of small businesses? How can we conserve natural resources and sustain the environment? How can we meet the needs of low-income families, single parents, and the less fortunate? How can we combat terrorism and foster peace throughout the world? The answers to these questions are anything but simple. We must use ingenuity and creativity not only to solve our current problems but also to compete in the global marketplace and build a country and economy for future generations. Key Takeaway Businesses make a variety of positive contributions to society, including offering valuable products, providing employment, and improving quality of life. However, managers must take care to balance the pursuit of proﬁts with social concerns. Chapter 1: Exploring the World of Business: 1-2b Concerns about the Impact of Business on Society Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-3 Responding to the Business Environment Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-3 Responding to the Business Environment Businesses do not exist in a vacuum. The business environment, also called 1-4 - Discuss how different factors might the external environment, consists of affect businesses and consumers. ﬁve factors that affect the success or failure of a business, and they affect consumers as well. The ﬁve factors of the business environment are: Political Economic and competitive Social Technological International Businesses gather information about each factor and determine how it will potentially impact operations. This process is called an environmental scan (the process of gathering information about the external environment to determine how it may potentially impact the business’s operations). Let us look at each factor to see how changes in the business environment affect our lives. Political Factors: Each of the three levels of government in Canada have different roles and responsibilities that affect businesses. Governments are tax agents, regulators, providers of essential services, purchasers (customers), and competitors. Economic and Competitive Factors: The size and health of the economy must always be considered when making business decisions. This fact is especially important when the country’s economy slows down or an individual business’s sales revenues and proﬁts are declining. There can be other outcomes from an economic slowdown, not just ﬁnancial. For example, the COVID-19 pandemic that began in 2020 resulted in customers changing what and how they purchased (e.g., face masks, online) and even how people worked (e.g., virtually). Businesses operate in an economic environment, because competition is an important component of our economic system. Every day, business owners must ﬁgure out what makes their business successful. A high level of competition forces a company to focus on strategies such as cutting costs, developing new products, or increasing its marketing and branding efforts. Social Factors: Changes in the demographics of our population, including age, gender, ethnicity, cultural diversity, and family composition, will inﬂuence what products companies offer and how they operate their businesses. It will also affect the nature of your career and daily life. Technology Factors: Innovations in technology have completely changed how companies produce and distribute products. Technology has also changed the way companies communicate with customers—and how we communicate with one another. Social media sites provide a communication platform to share information, and e-commerce has become a common alternative to in-store shopping. International Factors: Related to all these factors, and particularly the economic and competitive factors, are international factors. Canadian businesses have to compete not only with other Canadian businesses, but also with businesses from all over the globe. Key Takeaway When businesses monitor and understand the ﬁve factors that affect the business environment, they can respond with human resources, marketing, and ﬁnancial strategies that provide the best chance of success. Chapter 1: Exploring the World of Business: 1-3 Responding to the Business Environment Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-4 Economic Systems Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-4 Economic Systems Economic factors are an important component of the business 1-5 - Classify various economies as one of environment. A growing economy (the the four types of economic systems. way in which people deal with the creation and distribution of wealth) — the way in which people deal with the creation and distribution of wealth—typically is good for businesses and consumers. However, if the economy has stalled or begins to shrink, the result can be fewer jobs, lower incomes, and less consumer choice. Another economic factor that can affect the business environment is a country’s economic system. An economic system (a combination of policies, laws, and choices made by governments) of a country is a combination of policies, laws, and choices made by its governments that determine who owns and controls the factors of production. The factors of production (the resources used to create goods and services, including natural resources, capital, labour, entrepreneurship, and knowledge) are the resources used to create goods and services. By using the factors of production efﬁciently, a business can produce more outputs with the same resources. The factors of production include natural resources, capital, labour, entrepreneurship, and knowledge. Different economic systems exist in the world today. Chapter 1: Exploring the World of Business: 1-4 Economic Systems Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-4a Why Do Economic Systems Matter? Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-4a Why Do Economic Systems Matter? A country’s economic system signiﬁcantly affects all the economic activities of the individuals, businesses, government, and society within a country. By understanding economic systems, you can better examine how each system will affect business opportunities. These systems also affect consumer choices and the prices for products. Economies are generally categorized as market, command, socialism, and mixed (see Figure 1.1). A country’s economy is determined by the way each system answers the following four basic economic questions: 1. What goods and services will be produced, and how much of each? 2. How will these goods and services be produced? 3. For whom will these goods and services be produced? 4. Who owns and who controls the major factors of production? Figure 1.1 Categories of Economic Systems For the last several decades, a growing number of economies around the globe have increasingly embraced market economics. A market economy (an economic system based on competition in the marketplace in which individuals own and operate the majority of businesses that provide goods and services) , also known as capitalism or a private enterprise system, is based on competition in the marketplace in which individuals own and operate the majority of businesses that provide goods and services. Businesses and individuals decide what to produce and buy and the market determines prices and quantities sold. The factors of production are owned and controlled by the market, not the government. At the other end of the economic spectrum is the command economy (an economic system in which the government decides what goods and services will be produced, how they will be produced, for whom available goods and services will be produced, and who owns and controls the major factors of production). In a command economy, also called a planned economy or central planning, the government owns virtually all resources and controls all markets. Economic decision making is centralized (hence the term central planning): the government, rather than the market’s competitive force, decides what and how much to produce, where to locate production facilities, where to acquire raw materials and supplies, who will receive the output, and what the prices will be. Socialism (an economic system in which infrastructure is owned and controlled by the government) is a political and economic system where major infrastructure is owned and controlled by the government, while smaller businesses are controlled by individuals. Examples of major infrastructure include healthcare, education, and road systems. The Canadian economy is a mixed economy (an economic system where most land and business are privately owned but with various levels of government involvement) , one that exhibits elements of both a market economy and socialism. In a mixed economy, the four basic economic questions above are answered through the interaction of households, businesses, and governments. In Canada, our education and healthcare systems are controlled by the governments and the market controls most of the businesses. These principles serve as a starting point for understanding economies around the world. We typically classify economies by their level of private ownership and government involvement. Most countries in the world today can be categorized as either socialist or mixed. The primary difference is that in countries with socialism, key industries and some key natural resources are owned by the government. In a mixed economy, most industries and businesses are privately owned but a considerable amount of government regulation exists in certain industries. Key Takeaway The economic system of a country will affect who owns and controls the factors of production. It will also determine what products will be produced, how much will be produced, and for whom. Chapter 1: Exploring the World of Business: 1-4a Why Do Economic Systems Matter? Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-5 Degrees of Competition and Supply and Demand Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-5 Degrees of Competition and Supply and Demand Business competition (rivalry among businesses for sales to potential 1-6 - Identify the key strategic considerations customers) is essentially a rivalry related to competition for companies in among businesses for sales to potential various industries. customers. Some economic decisions are made by our governments, such as the majority that involve healthcare, education, transportation, and so on. 1-7 - Identify the effects of various price Other decisions are made by individuals changes on supply and demand. and businesses regarding what to produce, how to produce it, and what prices to charge. As a consumer, you get to choose which of these goods and services to buy and how much you will pay. Chapter 1: Exploring the World of Business: 1-5 Degrees of Competition and Supply and Demand Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-5a Why Do Degrees of Competition Matter? Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-5a Why Do Degrees of Competition Matter? As a consumer, the degree of competition will affect the number of choices you have and the prices you pay for goods and services. As a business owner or employee, knowing the degree of competition in your industry can help you choose the most effective business strategies. Economists recognize four different degrees of competition, ranging from complete competition to no competition at all: perfect competition, monopolistic competition, oligopoly, and monopoly. For a quick overview of the different types of competition, including numbers of businesses and examples for each type, see Table 1.2. Table 1-2 Four Different Types of Competition The Number of Businesses Determines the Degree of Competition within an Industry Type of Number of Businesses or Competition Suppliers Real-World Examples 1. Perfect Many Corn, wheat, peanuts, many agricultural products 2. Monopolistic Many Clothing, shoes 3. Oligopoly Few Automobiles, cereals, ﬁnancial institutions, telecom industry 4. Monopoly One Software protected by copyright, Liquor Control Board of Ontario Chapter 1: Exploring the World of Business: 1-5a Why Do Degrees of Competition Matter? Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-5b Perfect Competition Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-5b Perfect Competition Perfect (or pure) competition (the market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product) is not very common in our modern world. However, understanding the concept of perfect competition provides an important foundation for understanding more common types of competition. Perfect (or pure) competition is the market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product. Five very important concepts are necessary for perfect competition to exist: 1. We are discussing the market for a single product, such as bushels of wheat. 2. No restrictions exist on companies entering the industry. 3. All sellers offer essentially the same product for sale. 4. All buyers and sellers know everything there is to know about the market (including, in our example, the prices that all sellers are asking for their wheat). 5. The overall market is not affected by the actions of any one buyer or seller. When perfect competition exists, every seller should ask the same price that every other seller is asking. Why? Because if one seller wanted 50 cents more per bushel of wheat than all the others, that seller would not be able to sell a single bushel. Buyers could—and would —do better by purchasing wheat from the competition. On the other hand, a company willing to sell below the going price would sell all its wheat quickly. However, that seller would lose sales revenue (and proﬁt) because buyers are actually willing to pay more. Concept of Supply and Demand In a perfect competition market, prices are decided by the fundamental economic concept of supply and demand. To understand the concept of supply (the quantity of a product that producers are willing to sell at each of various prices) and demand (the quantity of a product that buyers are willing to purchase at each of various prices) , watch these videos and ask yourself these two questions: “If there is a decrease in price, how will that affect demand?” “If there is a decrease in price, how will that affect supply?” The Equilibrium or Market Price The equilibrium price (the price at which the quantity demanded is exactly equal to the quantity supplied) —also called market price—of any product is the price at which the quantity demanded is exactly equal to the quantity supplied. On the supply and demand chart (Figure 1.2), this is where the downward-sloping demand line intersects with the upward-sloping supply line. Figure 1.2 Supply Curve and Demand Curve Supply Curve and Demand Curve In perfect competition, sellers—and buyers—must accept the going price. The price of each product is determined by the collective actions of all buyers and all sellers through the forces of supply and demand. The closest thing we ﬁnd to perfect competition in today’s world are certain agricultural products, although it is worth noting that pricing for many agricultural products can be distorted by government subsidies and quotas that affect supply and demand. In categories where there is something resembling perfect competition, companies must pay special attention to minimizing production costs in order to make a proﬁt. Chapter 1: Exploring the World of Business: 1-5b Perfect Competition Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-5c Monopolistic Competition Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-5c Monopolistic Competition As mentioned previously, perfect competition is rare in today’s world. Many markets are examples of monopolistic competition (a market situation in which there are many buyers along with a relatively large number of sellers that differentiate their products from the products of competitors). Monopolistic competition is a market situation in which there are many buyers along with a relatively large number of sellers. Real-world examples of products sold in a monopolistically competitive market include clothing, shoes, soaps, furniture, and many consumer items. The various products available in this type of competitive market are very similar in nature, and they are all intended to satisfy the same need. However, each seller attempts to make its product different from the others by providing unique product features, an attention-getting brand name, unique packaging, or services such as free delivery or a lifetime warranty. The key strategic consideration for sellers in these markets is product differentiation (the process of developing and promoting differences between one’s products and all competitive products) , the process of developing and promoting differences between one’s products and all competitive products. Watch the video to learn more about monopolistic competition. Chapter 1: Exploring the World of Business: 1-5c Monopolistic Competition Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-5d Oligopoly Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-5d Oligopoly An oligopoly (a market (or industry) in which there are few sellers) is a market (or industry) situation in which there are few sellers. Generally, these sellers are quite large, and sizable investments are required to enter into their market. Examples of oligopolies are the automobile, airline, telecom, and farm-implement industries. The few sellers in an oligopoly frequently match each other’s pricing, then try to win customers through product differentiation. In this situation, companies in an oligopoly-type industry may use game theory. Game theory (used to model the interaction between two or more businesses to determine what will happen if one or more companies take speciﬁc actions with regard to changing prices or introducing new products or services) can be used to model the interactions among businesses to determine what will happen if companies take speciﬁc actions regarding changing prices or introducing new goods or services. Chapter 1: Exploring the World of Business: 1-5d Oligopoly Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-5e Monopoly Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-5e Monopoly A monopoly (a market (or industry) with only one seller and barriers to keep other companies from entering the industry) is a market (or industry) with only one seller and barriers to keep other companies from entering the industry. In a monopoly, there is no close substitute for the product or service. Pricing in some monopoly industries, such as the gas, water, and electric utilities, is regulated by government. A massive investment is usually required to enter businesses in a monopoly industry, and success usually depends on quickly achieving a meaningful share of the market. In certain industries, government regulation effectively prevents new competitors from entering the market at all. Today many public utilities are still classiﬁed as monopolies, but there may be increased competition. For example, consumers now have a choice when selecting a company that provides electrical service to both homes and businesses in many areas of the country. Another example of a legal monopoly is created when a government entity issues a copyright, patent, or trademark. For example, a copyright exists to protect the owners of written materials from unauthorized use by competitors that have not shared in the time, effort, and expense required for their development. Key Takeaway As a consumer, the degree of competition in an industry will affect the number of choices you have and the prices you pay. As a business owner or employee, knowing the degree of competition in an industry can help you choose the most effective business strategies. Chapter 1: Exploring the World of Business: 1-5e Monopoly Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-6 Measuring Economic Performance Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-6 Measuring Economic Performance Today, it is hard to turn on the radio, watch the news, or use the internet 1-8 - Explain how different economic without hearing or seeing something indicators are positive or negative indications about the economy. These news reports of economic conditions. often include numbers that are supposed to help us interpret the health of the economy. For individuals, the health of the country’s economy can affect: The ﬁnancing you need to continue your education Your ability to get a job The amount of interest you pay for credit card purchases, automobiles, homes, and other credit transactions For businesses, the health of the country’s economy can affect plans for: Hiring employees Investing in new manufacturing plants and equipment Launching new products or services or moving into new markets For government, the health of a country’s economy can affect: Level of taxes collected and whether budgets operate at a surplus or deﬁcit Whether to change the levels of taxation and government spending to inﬂuence the economy (this is called ﬁscal policy) Whether to make changes to the money supply or interest rates to inﬂuence the economy (this is called monetary policy) Chapter 1: Exploring the World of Business: 1-6 Measuring Economic Performance Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-6a The Business Cycle Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-6a The Business Cycle While most countries, as well as businesspeople, economists, investors, and politicians, wish for consistent economic growth, it rarely happens. In fact, if you were to graph the economic growth rate for a country such as Canada it would resemble a roller-coaster ride, with peaks (high points) and troughs (low points). These ﬂuctuations are generally referred to as the business cycle. When the economy is growing, that is called expansion. When the economy is shrinking, that is called contraction. When an economy contracts two quarters in a row, it is described as a recession (two or more consecutive three-month periods of decline in a country’s GDP). Recessions typically involve people losing their jobs and an overall drop in household incomes. A severe recession that lasts longer than a typical recession and has a larger decline in business activity when compared to a recession is deﬁned by economists as a depression. The term trough refers to the business cycle phase when a country’s economy bottoms out and a country’s production and employment reach their lowest points. When the economy begins to improve it is in the recovery phase, which can lead to expansion. Chapter 1: Exploring the World of Business: 1-6a The Business Cycle Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-6b Gross Domestic Product (GDP) Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-6b Gross Domestic Product (GDP) We measure whether an economy has grown or shrunk by using a measure called gross domestic product (GDP) (the total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period) , which is the total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period (see Figure 1.3). For example, the values of automobiles produced by employees in an American-owned General Motors plant in Canada and a Japanese- owned Toyota plant in Canada are both included in the GDP for Canada. A growing GDP usually means good things, such as increasing employment and increasing incomes. But tracking the level of GDP alone tells only part of the story, which is why economists look at a variety of economic indicators to develop a complete picture of an economy’s health. Figure 1.3 GDP in Current Dollars Chapter 1: Exploring the World of Business: 1-6b Gross Domestic Product (GDP) Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-6c Unemployment and Inﬂation Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-6c Unemployment and Inﬂation Two additional indicators that can help us interpret the health of the economy are unemployment rate and inﬂation. The unemployment rate (the percentage of a country’s labour force unemployed at any time; calculated as the number of unemployed divided by the number of people currently in the labour force) is the percentage of a country’s labour force unemployed at any time. An increasing unemployment rate means more people are losing their jobs. When workers are unemployed, they, their families, and the country as a whole lose. Workers and their families lose wages, and the country loses the goods or services that could have been produced. In addition, the purchasing power of these workers is lost, which can lead to unemployment for yet other workers. Inﬂation (an economic statistic that tracks the increase in prices of goods and services over a period of time) is an economic statistic that tracks the increase in prices of goods and services over a period of time. This measure is usually calculated on a monthly or an annual basis. It is called inﬂation because typically the price of goods and services increases over time. A low, stable rate of inﬂation of around 2 percent is typically regarded as a sign of a stable economy. However, if prices increase too fast—as they did a few decades ago, when inﬂation jumped to more than 10 percent a year—your dollars lose purchasing power, and it can be a sign of economic trouble. Inﬂation is usually measured using the consumer price index (CPI) (a monthly index that measures the changes in the prices of a ﬁxed basket of goods and services purchased by a typical consumer in an urban area) , a monthly index that measures changes in the prices of a ﬁxed basket of goods and services purchased by a typical consumer in an urban area. Economists often use the CPI to determine the effect of inﬂation on not only the country’s economy but also individual consumers. Watch this video to learn more about the CPI. Deﬂation (an economics statistic that tracks the decrease in prices of goods and services over a period of time) is a general decrease in the price of goods and services (the opposite of inﬂation). At ﬁrst glance this might seem positive because the purchasing power of your dollar increases, meaning you can buy more goods and services with the same amount of money. However, deﬂation is usually a sign of economic trouble. Declining prices lead to declining proﬁts for companies, which can lead to declining employment and a shrinking economy for the country. Key Takeaway Understanding indicators of economic health can help individuals, businesses, and governments better allocate their resources and plan for the future. Chapter 1: Exploring the World of Business: 1-6c Unemployment and Inﬂation Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-7 Exploring Careers in Business Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-7 Exploring Careers in Business What do you want to do with the rest of your life? Like many people, you may ﬁnd this is a difﬁcult question to answer. Perhaps you are getting ready to begin your career and are new to the world of business. Or maybe you have been working for years and want to prepare yourself for new opportunities. Either way, what you will learn in this course can help. As we tour the world of business, it will be like looking over the shoulder of the people who work in business every day. You will discover what goes on in various corners of a business and learn about the skills used by successful mangers in those areas. You will also learn about a variety of important issues such as business ethics and personal ﬁnance. Use what you learn from this tour to: Choose a career Improve your career Become a more informed customer and investor Become a more inﬂuential member of your community On the topic of choosing a career, let us close out this lesson with an overview of some major occupations to learn where they ﬁt into the world of business. Chapter 1: Exploring the World of Business: 1-7 Exploring Careers in Business Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-7a Career Overviews Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-7a Career Overviews Are you hoping to pursue an occupation that is not on this list? Try sketching out an overview for that occupation using the same format as the infographics. You can start researching your career with an online search for “career opportunities in Canada.” For each career, ﬁnd a job description, an economic outlook, and links to further resources. To dig deeper, complete a Web search for news stories that will help you understand how changes in the business environment may affect your occupation. If you are undecided about your career at this point, there is no need to worry. You will most likely be introduced to many opportunities during your postsecondary education. In addition, this course will familiarize you with a variety of interesting career choices. Key Takeaway Perhaps you are getting ready to begin your career and are new to the world of business. Or maybe you have been working for years and want to prepare yourself for new opportunities. Either way, what you will learn in this course can help you evaluate and enhance your career. Chapter 1: Exploring the World of Business: 1-7a Career Overviews Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-8 Chapter Review Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 1-8 Chapter Review 1-8a Chapter Summary There it is: the Canadian business system in brief. When it works well, it provides jobs for those who are willing to work, a standard of living that few countries can match, and many opportunities for personal advancement. The beneﬁts of studying business include helping you choose a career, improving your career, making you a better-informed consumer and investor, and making you a more inﬂuential community member. These beneﬁts can lead to more fulﬁlling jobs, higher incomes, and stronger communities. Businesses bring many beneﬁts to society, but managers must take care to balance their pursuit of proﬁts with social concerns. Businesses make a variety of positive contributions to society, including offering valuable products, providing employment, contributing to our standard of living, improving quality of life, and driving innovation and creativity. However, managers must take care to balance their pursuit of proﬁts with social concerns, including health and safety risks, environmental damage, and community impacts. Businesses do not exist in a vacuum. The business environment is made up of ﬁve factors —political, economic and competitive, social, technological, and international—that affect the success or failure of a business, and affect consumers as well. Businesses complete an environmental scan to gather information about each factor and determine how it will potentially impact the business’s operations. Economic factors have a strong inﬂuence on the business environment. One such factor is the economic system of a country. An economic system of a country is a combination of policies, laws, and choices made by its governments that determine who owns and controls the factors of production. By understanding economic systems, you can better examine how each system will affect business opportunities. These systems also affect consumer choices and the prices for products. Within Canada’s economic system there are levels of industry competition that also affect businesses and consumers. As a consumer, the degree of competition in an industry affects the number of choices you have and the prices you pay for products from that industry. As a business owner or employee, knowing the degree of competition in your industry can help you choose the most effective business strategies. Today, it is hard to turn on the radio, watch the news, or use the internet without hearing or seeing something about the economy. These reports often include numbers that are supposed to help us interpret the health of the economy. While these numbers are easy to ignore, understanding indicators of economic health can help individuals, businesses, and governments better allocate resources and plan for the future. Chapter 1: Exploring the World of Business: 1-8 Chapter Review Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-8b Exercises Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. Chapter Review 1-8b Exercises Use the internet, magazines, newspapers, books, and personal experiences to complete the following exercises. 1. Why have you chosen to study business? How do you anticipate studying business will beneﬁt you in the future? List three potential careers in business that interest you. 2. The business environment consists of political, economic and competitive, social, technological, and international factors that affect the success or failure of a business. Select any Canadian business you are familiar with and discuss how each factor may affect this business speciﬁcally. 3. Monopolistic competition is a market situation in which there are many buyers along with a relatively large number of sellers, such as restaurants or hotels. Provide an example of a company that has used product differentiation as a strategy in this type of market. 4. Search a reputable source to determine the current trends in GDP growth, unemployment, and inﬂation in Canada. What do these trends tell you about the level of business activity and the business cycle? 5. What are some of the factors that lead to economic growth for Canada? Hint: Think about the external environment (political, economic and competitive, social, technological, and international). Chapter 1: Exploring the World of Business: 1-8b Exercises Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-8c Review Questions Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. Chapter Review 1-8c Review Questions 1. What is a business? What are the beneﬁts of business to society? 2. List some of the social concerns of a business. 3. What are the four types of economies? Provide a brief summary of each. 4. Discuss the various types of competition. 5. What is product differentiation? When would a business use this strategy? 6. How is the equilibrium price determined? 7. Explain the four phases of the business cycle. 8. Deﬁne GDP. What other indicators are used to determine the health of the economy? 9. What is the consumer price index? How is this index related to inﬂation? 10. What is the difference between monetary policy and ﬁscal policy? Chapter 1: Exploring the World of Business: 1-8c Review Questions Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-8d Key Terms Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. Chapter Review 1-8d Key Terms business (an organization that seeks proﬁt by offering products (goods and services) to satisfy society’s needs) command economy (an economic system in which the government decides what goods and services will be produced, how they will be produced, for whom available goods and services will be produced, and who owns and controls the major factors of production) competition (rivalry among businesses for sales to potential customers) consumer price index (CPI) (a monthly index that measures the changes in the prices of a ﬁxed basket of goods and services purchased by a typical consumer in an urban area) deﬂation (an economics statistic that tracks the decrease in prices of goods and services over a period of time) demand (the quantity of a product that buyers are willing to purchase at each of various prices) economic system (a combination of policies, laws, and choices made by governments) economy (the way in which people deal with the creation and distribution of wealth) environmental scan (the process of gathering information about the external environment to determine how it may potentially impact the business’s operations) equilibrium price (the price at which the quantity demanded is exactly equal to the quantity supplied) factors of production (the resources used to create goods and services, including natural resources, capital, labour, entrepreneurship, and knowledge) game theory (used to model the interaction between two or more businesses to determine what will happen if one or more companies take speciﬁc actions with regard to changing prices or introducing new products or services) good (a physical, tangible product that we can see and touch) gross domestic product (GDP) (the total dollar value of all goods and services produced by all people within the boundaries of a country during a one-year period) inﬂation (an economic statistic that tracks the increase in prices of goods and services over a period of time) market economy (an economic system based on competition in the marketplace in which individuals own and operate the majority of businesses that provide goods and services) mixed economy (an economic system where most land and business are privately owned but with various levels of government involvement) monopolistic competition (a market situation in which there are many buyers along with a relatively large number of sellers that differentiate their products from the products of competitors) monopoly (a market (or industry) with only one seller and barriers to keep other companies from entering the industry) oligopoly (a market (or industry) in which there are few sellers) perfect (or pure) competition (the market situation in which there are many buyers and sellers of a product, and no single buyer or seller is powerful enough to affect the price of that product) product differentiation (the process of developing and promoting differences between one’s products and all competitive products) quality of life (the general well-being and happiness of people and societies; includes measuring such things as access to healthcare, education, and food) recession (two or more consecutive three-month periods of decline in a country’s GDP) service (an intangible product that we experience or use) socialism (an economic system in which infrastructure is owned and controlled by the government) standard of living (the amount of products available, the wealth of the nation, and lifestyle opportunities) supply (the quantity of a product that producers are willing to sell at each of various prices) unemployment rate (the percentage of a country’s labour force unemployed at any time; calculated as the number of unemployed divided by the number of people currently in the labour force) Chapter 1: Exploring the World of Business: 1-8d Key Terms Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 1: Exploring the World of Business: 1-8e Case Study Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. Chapter Review 1-8e Case Study Holy Oligopoly, Batman! When we think of things that are undeniably Canadian, certain ideas come to mind: hockey, beavers, Mounties, the maple leaf. A concept that does not immediately spring to mind but is quintessentially Canadian? The oligopoly. An oligopoly is a market situation where only a few large sellers dominate the market. In this market, players compete for customer loyalty by trying to differentiate themselves in a meaningful way. Canada provides some notable textbook examples of an oligopoly, including in the airline industry (WestJet and Air Canada), the banking industry (the Big Six banks), and the telecommunications industry (TELUS, Bell, and Rogers). And, it seems, the structure of the Canadian economy is a big reason why it is a breeding ground for market control by a few organizations. While Canada is large in land mass it is relatively small when it comes to competition, especially in comparison to the United States. With fewer people comes fewer competitors in many markets, and small companies ﬁnd it hard to set up the infrastructure necessary to build their business. All this means Canadians are not exposed to a more competitive economic environment for goods and services. The CBC recently has noted that, “Canadian consumers and workers are protected from certain free-market excesses, but that coddled security comes with a price: oligopolies, in which a few ﬁrms dominate, and all the behaviour that ﬂows from that.” And that behaviour can sometimes be bad behaviour. There have been recent incidents in Canada where manufacturers, wholesalers, and retailers have teamed up illegally to ﬁx prices. Chocolate bar manufacturers Cadbury, Hershey, Nestlé, and Mars had to pay $23 million in a class action suit against them because it was found they had agreed to set prices on chocolate bars sold in Canada. And Canadian food wholesalers and retailers were also caught improperly acting together to set the price of bread. Over a 14-year period the price of bread in stores like Real Canadian Superstore, Sobeys, Metro, and Giant Tiger was maintained and agreed upon. While this case is still ongoing, Sobeys has admitted its role in price collusion and other companies have continued to deny the claims. One industry where claims of price ﬁxing and collusion have been made but not substantiated is the telecommunications industry. The Big Three wireless service providers of Rogers, Bell, and TELUS control nearly 90% percent of the wireless market in Canada. At one time, Investopedia’s deﬁnition of oligopoly included as an example “the wireless service industry in Canada.” There have been attempts to disrupt the Big Three—a long list of competitors have come and gone in the wireless market in Canada. But, you might be asking, what about some of the smaller wireless providers in Canada? Let us have a look. Koodo? Owned by TELUS. Fido? Rogers. Chatr? Rogers again. Okay, what about Virgin Mobile? Run by Bell in Canada. There is the curious case of Wind Mobile, run now as Freedom Mobile. It caused a stir in the mobile market by offering low prices and large data plans. This one had the Big Three scrambling a bit, trying to match these deals. Unfortunately, Shaw Communications—a large telecommunications company that is hoping to make it a “Big Four”—bought out Freedom Mobile. Freedom indeed. The result for Canadian wireless consumers? High prices for cell phone plans. A Canadian government report released in late 2017 revealed that among countries like the United States, Italy, Australia, Japan, and France, Canada had the most expensive mid-range and higher-tier wireless service plans. And while the prices are high, they are also similar among the Big Three organizations. Consumers struggle to ﬁnd alternative options for their wireless provider needs. It seems that if any smaller or upstart business enters the market, it does so with limited success or ends up being swallowed up by one of the major players. Sugar Mobile was one such start-up that began in 2016, offering data plans as inexpensive as $19 per month. Sugar has not (yet) been purchased by one of the larger entities, but it has struggled with establishing itself in the Canadian market. And while gaining attention in the Canadian market with low prices, this approach has not been sustainable. Your challenge is to help Sugar Mobile get established in the Canadian wireless market. But instead of focusing on price, you remember learning that the way to win customers is through product differentiation. Lay out some ideas that will lead to a plan to crack the Canadian wireless market. Use your knowledge of business and competition to help Sugar Mobile get some good reception with Canadian consumers. Case Sources: http://www.cbc.ca/news/business/neil-macdonald-competitition-1.3444243; https://www.theglobeandmail.com/report-on-business/canadian-chocolate-makers-to-pay-232-million-in-price-ﬁxing- lawsuit/article14361922/; https://globalnews.ca/news/3998023/bread-price-ﬁxing-scandal-competition-act-crimes/; https://www.hufﬁngtonpost.ca/2017/09/29/canada-s-telcos-appear-in-dictionary-deﬁnition-of- oligopoly_a_23227806/; http://www.capilanocourier.com/2017/11/07/phone-plans-canadian-oligopoly/; https://www.ic.gc.ca/eic/site/693.nsf/vwapj/Nordicity2017EN.pdf/$ﬁle/Nordicity2017EN.pdf. Chapter 1: Exploring the World of Business: 1-8e Case Study Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 2: Being Ethical and Socially Responsible Chapter Contents Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. Chapter 2 Being Ethical and Socially Responsible Chapter Introduction 2-1 Business Integrity 2-2 The Three Components of Business Ethics 2-2a Competing Fairly and Honestly 2-2b Avoiding Conﬂicts of Interest 2-2c Being Transparent 2-3 Ethics Starts with Us 2-3a Stages of Ethical Development 2-3b Ethical Grey Areas 2-4 Encouraging Ethical Behaviour in Organizations 2-4a The Role of Government in Encouraging Ethics 2-4b The Role of Trade Associations in Encouraging Ethics 2-4c The Role of Organizations in Encouraging Ethics 2-5 Increasing Social Responsibility 2-5a The Economic Model 2-5b The Socioeconomic Model 2-6 Responsibility to Stakeholders 2-7 Responsibility to Investors 2-8 Responsibility to Employees 2-8a Responsible Employment Practices 2-9 Responsibility to Customers 2-9a Consumer Rights 2-10 Responsibility to Suppliers 2-11 Responsibility to Society 2-11a Concern for the Natural Environment Basic Environmental Protection 2-11b Sustainability Strategies 2-12 Chapter Review 2-12a Chapter Summary 2-12b Exercises 2-12c Review Questions 2-12d Key Terms 2-12e Case Study Chapter 2: Being Ethical and Socially Responsible Chapter Contents Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 2: Being Ethical and Socially Responsible Chapter Introduction Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. Chapter Introduction Is it possible for an individual with strong moral values to make ethically questionable decisions? What factors affect a person’s inclination to make unethical or even illegal decisions? These are questions that businesses face every day. Customers, governments, and society in general expect businesses to be both ethical and socially responsible. In this chapter, we explore the components of business integrity: ethics and corporate social responsibility. We will discuss business ethics and look at how ethical behaviour can be encouraged, and how companies—and stakeholders—can go beyond basic ethics by promoting a commitment to social responsibility. Chapter 2: Being Ethical and Socially Responsible Chapter Introduction Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 2: Being Ethical and Socially Responsible: 2-1 Business Integrity Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 2-1 Business Integrity Business integrity (the ability to act honestly, ethically, and in a socially responsible manner) refers to the ability to act honestly, ethically, and in a socially responsible manner. Companies can demonstrate their business integrity in many ways. Some examples include being honest and transparent in reporting earnings and proﬁts to shareholders and other stakeholders; providing honesty, accuracy, and clarity in promoting products; providing truthful information to customers regarding product ingredients and appropriate use; and demonstrating willingness to adapt to new business practices in response to society’s increasing expectations. Corporate governance (the way in which an organization is governed, directed, and administered; requires balancing the interests of all stakeholders) refers to the way that an organization is governed, directed, and administered and requires balancing the interests of all stakeholders. The board of directors (also known simply as the directors) is responsible for the organization being managed to ensure long-term success. As such, the directors of corporations need to be concerned about their responsibility and potential liabilities. Canadian society is cognizant of proper corporate governance and the accountability of the board of directors; Canada has a complex system of regulations and closely analyzes the actions of the board of directors. Traditionally, it was acceptable for most Canadian companies to simply focus on the economic returns for their shareholders. Today, companies strive for a high level of corporate governance that responds to all stakeholder concerns. This includes acting with integrity—being honest, ethical, and socially responsible. Chapter 2: Being Ethical and Socially Responsible: 2-1 Business Integrity Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 2: Being Ethical and Socially Responsible: 2-2 The Three Components of Business Ethics Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 2-2 The Three Components of Business Ethics Every day, managers and business owners make business decisions based 2-1 - Summarize the three primary on what they believe to be right or components of business ethics. wrong. Through their actions, they demonstrate to their employees what is and is not acceptable behaviour and shape the moral standard of the organization. Ethics (the study of right and wrong, and of the morality of the choices individuals make) is the study of right and wrong and of the morality of the choices individuals make. An ethical decision or action is one that is “right” according to some standard of behaviour. Business ethics (the application of moral standards to business situations) is the application of moral standards to business situations. Maintaining high ethical standards can be hard enough in everyday life, but it can get even more complicated in business. Why would that be? This video explains. People in business face ethical issues every day, and some of these issues can be hard to assess. They often fall into three categories: competing fairly and honestly, avoiding conﬂicts of interest, and being transparent. Chapter 2: Being Ethical and Socially Responsible: 2-2 The Three Components of Business Ethics Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 2: Being Ethical and Socially Responsible: 2-2a Competing Fairly and Honestly Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 2-2a Competing Fairly and Honestly Fairness and honesty in business are two important ethical concerns. The ﬁrst priority is to obey all laws and regulations. Pyramid schemes, which are illegal in Canada, rely on the recruitment of individuals to keep the scam aﬂoat. Members are recruited via a promise of payments or services for enrolling others into the scheme, rather than supplying investments or sale of products. As recruiting accelerates, most members do not realize the proﬁts they were promised. A Canadian woman lost thousands of dollars to an online “pay it forward” pyramid scheme that a friend recommended to her on Facebook. She was told that by paying a $5,000 “gift” and recruiting two more people to take part, she would be rewarded with $40,000. The massive cash payout never came, of course, and the woman ended up losing her money. Beyond obeying the law, ethical businesspeople are expected to refrain from knowingly deceiving, misrepresenting, or intimidating others. For example, in its code of conduct, BMO, one of the major ﬁnancial institutions in Canada, lists its values and ﬁve guiding principles. The values include integrity (doing the right thing), empathy (putting others before yourself), diversity (learning from differences), and responsibility (making tomorrow better). BMO’s ﬁve guiding principles are to be honest and respectful, to be alert to behaviours that violate the code of conduct, to abide by all legal regulations, to be conscientious regarding security, and to manage conﬂicts of interest. Chapter 2: Being Ethical and Socially Responsible: 2-2a Competing Fairly and Honestly Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 2: Being Ethical and Socially Responsible: 2-2b Avoiding Conﬂicts of Interest Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 2-2b Avoiding Conﬂicts of Interest In business, a conﬂict of interest (occurs when a businessperson takes advantage of a situation for their own personal interests rather than for the employer’s interests) results when an employee takes advantage of a situation for their own interests rather than the employer’s interests. Such conﬂict may occur when payments and gifts make their way into business deals. A wise rule to remember is that anything given to a person that might unfairly inﬂuence that person’s business decision is a bribe, and all bribes are unethical. Although bribes—gifts, favours, or payments offered with the intent of inﬂuencing an outcome—are sometimes part of business negotiations overseas, it is illegal for Canadian businesspersons to use bribes in North America or abroad. Relationships among coworkers often create ethical problems. Unethical behaviour in these areas includes taking credit for others’ ideas or work, not meeting one’s commitments and mutual agreements, and pressuring others to behave unethically. When misconduct occurs in business, investors also suffer. Investors and owners must be able to trust that companies are acting in their best interests and reporting their activities truthfully. Chapter 2: Being Ethical and Socially Responsible: 2-2b Avoiding Conﬂicts of Interest Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 2: Being Ethical and Socially Responsible: 2-2c Being Transparent Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 2-2c Being Transparent Transparency (the free ﬂow of information inside and outside the company) is the free ﬂow of information inside and outside the company. This includes the ﬂow of information to investors, employees, customers, and other stakeholders. Sometimes transparency alone can help discourage the temptation to compete unfairly or cover up conﬂicts of interest. A common question used to promote ethics is, “How would you feel if your actions were on the front page of the newspaper?” If your actions were balanced and fair, then you would not mind others knowing about them. When companies promote transparency they proactively make information publicly available to encourage ethical decision making throughout the organization. This includes disclosing anything that could even appear to be a conﬂict of interest. One example of transparency is the social responsibility audits conducted at companies such as the Bank of Montreal (BMO), Suncor Energy Inc., and Molson Coors Brewing Company. Social responsibility audits (comprehensive reports of what an organization is doing in regard to social issues that affect it) are comprehensive reports of what an organization is doing in regard to social issues that affect it. Many companies have come under pressure for labour practices (e.g., treatment of foreign workers) and working conditions (e.g., unsafe construction of manufacturing plants) especially at their overseas operations/suppliers. In the past, many companies would try to conceal controversial issues from coming to light, and in many cases the companies did not even know about them. By having third-party inspectors audit suppliers, companies can address urgent concerns, create a plan for improvement, and/or switch suppliers. Business communications, especially advertising, can present ethical problems. False and misleading advertising is illegal and unethical, and can infuriate customers. Increased access to product information from external sources allows for more informed decision making by customers. In Canada, Ad Standards is a not-for-proﬁt, self-regulatory body that promotes conﬁdence in products advertised in Canada. Its code for advertising sets standards that maintain “honesty, truth, accuracy, fairness and propriety in advertising.” Serving the Public’s Interest: The Audit Not only are businesses expected to be honest, to avoid conﬂicts of interest, and to be transparent, but all three levels of government are held accountable to you and me through the audit system. For example, the Auditor General of Canada is responsible for ensuring that public resources have been properly allocated. The Auditor General is independent of the government and performs the following duties: Ensures management’s information is reliable and complete Identiﬁes opportunities for improving control and use of public resources Makes recommendations to improve systems and practices Table 2.1 provides examples of ways to compete fairly and honestly, avoid conﬂicts of interest, and demonstrate transparency. (Table 2.1 is included within the interactive ﬁgure called “Examples of Competing Fairly and Honestly, Avoiding Conﬂicts of Interest, and Being Transparent.”) Key Takeaway Concerns about business ethics often arise out of the relationships the business has with investors, customers, employees, creditors, suppliers, and competitors. Understanding the three primary components of business ethics can help you identify and address potential ethical concerns. Chapter 2: Being Ethical and Socially Responsible: 2-2c Being Transparent Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. © 2024 Cengage Learning Inc. All rights reserved. No part of this work may by reproduced or used in any form or by any means - graphic, electronic, or mechanical, or in any other manner - without the written permission of the copyright holder. Chapter 2: Being Ethical and Socially Responsible: 2-3 Ethics Starts with Us Book Title: Business, Second Canadian Edition Printed By: Adriana Noey ([email protected]) © 2023 Cengage Learning Canada, Inc. ALL RIGHTS RESERVED., Cengage Learning Canada, Inc. ALL RIGHTS RESERVED. 2-3 Ethics Starts with Us What factors affect a person’s inclination to make either ethical or 2-2 - Understand if an action is legal, ethical, unethical decisions in a business or both. organization? Although the answer to this question is not entirely clear, some factors do appear to inﬂuence the standards of behaviour in an organization (se

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