CHAPTER 1 Understanding the Canadian Business System Business

2 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 demand 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

3 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

4 Factors of Production Information Resources Natural Resources Factors of Production -resources used by firms to create goods & services Capital Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Labour (Human Resources) Entrepreneurs Copyright © 2008 Pearson Education Canada

5 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

6 The Communist Model Government owns the factors of production and makes all decisions regarding distribution of resources Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Government owns all industries, including essential services Copyright © 2008 Pearson Education Canada

7 The Socialist Model The government owns and operates all critical industries such as utilities & major institutions Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Individuals own noncritical businesses Copyright © 2008 Pearson Education Canada

8 Market Economy Economic basis is supply & demand Political basis is capitalism Ownership of the factors of production is open to all Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Buyers and sellers have freedom of choice The market is the mechanism for the exchange of goods and services Copyright © 2008 Pearson Education Canada

9 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

10 Circular Flow in a Market Economy FIRMS • Supply products in output markets OUTPUT MARKETS • Goods and Services • Demand resources in input markets INPUT MARKETS: • Labour • Capital HOUSEHOLDS: • Demand products in output markets • Supply products in input markets • Entrepreneurs • Physical resources • Information resources Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

11 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

12 The Many Roles of Government Competitor Provider of Incentives Regulator Customer Taxation Agent Provider of Essential Services Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

13 Economic Administration and Regulation The government manages and Competition Act regulates business … Canadian Textile Labelling Act Canada Water Act Radio –television and Environmental Contaminants Act Tobacco Act Food and Drug Act Hazardous Products Act Weights and Measures Act Telecommunications Commission (CRTC) Fisheries Act Provincial Boards Canadian Wheat Board Canadian Transport Commission Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

14 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

15 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

16 Government Provider of Essential Services All three levels of government provide various services < Information < Highways < Sewer & sanitation < Postal service < Emergency services < Money < Health services < Military < Education Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

17 How Business Influences Government Lobbyists must register to be in accordance with the Lobbyists Registration Act Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright © 2008 Pearson Education Canada

18 Supply and Demand Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke Copyright

19 Dealing with a Shortage A shortage drives prices up. Business, Sixth Canadian Edition,

20 Dealing with a Surplus A surplus drives prices down Business, Sixth Canadian Edition,

21 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

22 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

23 Degrees of Competition Perfect Competition Monopolistic Competition Oligopoly Monopoly Business, Sixth Canadian Edition,

24 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

25 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

26 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

27 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

28 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

29 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

30 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