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CHAPTER 1
Understanding the Canadian Business System
Copyright © 2008 Pearson Education Canada Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
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Learning Objectives
Define the nature of Canadian business and identify its main goals Describe different types of global economic systems, according to the means by which they control the factors of production through input & output markets Show how demand and supply affect resource distribution in Canada Identify the elements of private enterprise and explain the various degrees of competition in the Canadian system Trace the history of business in Canada
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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The Concept of Business and Profit
Businesses produce or sell products in order to make a profit Profit
the money left over from revenues after a firm pays its expenses
motivates individuals to engage in business activities Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Factors of Production
Information Resources Natural Resource s
Factors of Production
-resources used by firms to create goods & services
Labour (Human Resources) Capital Entrepreneurs
Copyright © 2008 Pearson Education Canada Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
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Types of Economic Systems Command economies
Communist
Socialist
Market economies Mixed economies
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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The Communist Model
Government owns the factors of production and makes all decisions regarding distribution of resources Government owns all industries, including essential services Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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The Socialist Model
The government owns and operates all critical industries such as utilities & major institutions Individuals own non critical businesses Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Market Economy
Economic basis is supply & demand Political basis is capitalism Ownership of the factors of production is open to all Buyers and sellers have freedom of choice The market is the mechanism for the exchange of goods and services Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Input and Output Markets Input market
firms buy resources from households
Output market
households buy goods and services from firms Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Circular Flow in a Market Economy
FIRMS •Supply products in output markets •Demand resources in input markets INPUT MARKETS: •
Labour
•
Capital
•
Entrepreneurs
•
Physical resources
•
Information resources Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
OUTPUT MARKETS •Goods and Services HOUSEHOLDS: •Demand products in output markets •Supply products in input markets
Copyright © 2008 Pearson Education Canada
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The Mixed Economy
Mixed economy
a combination of both freedom & government intervention No country has a pure communist, socialist, or capitalist system Eastern Europe moving to a mixed economy by privatization - converting many of their state run enterprises into private companies Deregulation – reducing laws and government intervention affecting business activity Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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The Many Roles of Government
Competitor Provider of Incentives Regulator Customer Taxation Agent Provider of Essential Services
Copyright © 2008 Pearson Education Canada Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
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Economic Administration and Regulation
The government manages and regulates business …
Textile Labelling Act Canada Water Act Competition Act Canadian Radio –television and Telecommunications Commission (CRTC) Environmental Contaminants Act Tobacco Act Weights and Measures Act Fisheries Act Provincial Boards Food and Drug Act Canadian Wheat Board Hazardous Products Act Canadian Transport Commission
Copyright © 2008 Pearson Education Canada Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
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Government as Tax Agent
Revenue taxes
designed to generate cash, including income taxes Income tax
is paid by individuals and businesses and represents monies received during a single year Restrictive taxes
designed to lessen the consumption of “unhealthy” products, including liquor & tobacco They also raise revenue through import duties and gasoline taxes Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Government Incentives
Government provides aid and assistance to small businesses and non-profit organizations Incentives stimulate growth in revenues and employment
Help Loans Training
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Government Provider of Essential Services All three levels of government provide various services
Highways
Postal service
Money
Military
Information
Sewer & sanitation
Emergency services
Health services
Education Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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How Business Influences Government
Business Lobbyists Trade Associations Advertising Government Lobbyists must register to be in accordance with the Lobbyists Registration Act Copyright © 2008 Pearson Education Canada Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
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Supply and Demand
Supply and Demand Analysis for Pizzas Price
$20 18 16 14 12 10 8 6 4 2
Price and Quantity
Demand Curve
Equilibrium
100 500 1000
Quantity
Supply Curve 1500 2000
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Dealing with a Shortage
A shortage drives prices up.
Effects of a Shortage on Price Price
$20 18 16 14 12
Equilibrium Price B
10 8 6 4 2 100 500
Supply Curve B Supply Curve A
Equilibrium Price A
Demand Curve 1000
Quantity
1500 2000
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Dealing with a Surplus
A surplus drives prices down
Effects of a Surplus on Price Price
$20 18 16 14 12
Equilibrium Price A
Demand Curve
Supply Curve A
10 8 6 4 2
Supply Curve B
Equilibrium Price B
100 500 1000 1500 2000
Quantity Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Private Enterprise
Private enterprise occurs in a market economy Under this system individuals
Can own property
Have freedom of choice
Have the freedom to earn profits
Have freedom to compete Government interference is minimal Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Competition
When businesses vie for the same resources or customers in a particular market or industry.
Motivates business to operate efficiently
Forces business to make products better or cheaper Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Degrees of Competition Perfect Competition Monopolistic Competition Oligopoly Monopoly
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Perfect Competition
Has many sellers The product is basically identical Relatively easy to enter the industry Individual firms have no control over price
The buyer will purchase from the lowest price source Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Monopolistic Competition
Has few to many sellers The product is seen as unique by some buyers, but not necessarily all A differentiated brand provides the firm with some control over pricing Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Oligopoly
A few large suppliers dominate the market High barriers to entry The products are seen as similar; no supplier has an edge Each supplier knows what the others are charging Prices gravitate towards a common “market price ” Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Monopoly
one producer and source of supply unique product complete control over price no competitors Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Natural Monopoly
A market or industry in which having only one producer can sufficiently meet demand It is the most efficient approach
Electric power utility Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Brief History of Business in Canada
The Early Years The Factory System and the Industrial Revolution The Entrepreneurial Era The Production Era Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada
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Brief History of Business in Canada
The Sales and Marketing Eras The Finance Era The Global Era The Internet Era Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada