Chapter 1 Understanding the Canadian Business System Copyright

Learning Objectives Define the nature of Canadian business and identify its main goals Describe different types of global economic systems 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 Copyright © 2006 Pearson Education Canada Inc. 2

The Nature of Canadian Business: an organization that produces or sells goods or services

The Nature of Canadian Business Profit n n The money left over from revenues after a firm pays its expenses Motivates individuals to engage in business activities Copyright © 2006 Pearson Education Canada Inc. 4

Factors of Production Capital Factors of Production -resources used by firms to create goods

Types of Economic Systems Command economies Communist n Socialist n Market economies Mixed economies

The Communist Model The government owns the factors of production and makes all decisions regarding distribution of resources Government owns all industries, including essential services Copyright © 2006 Pearson Education Canada Inc. 7

The Socialist Model The government owns and operates all critical industries such as utilities & major institutions Individuals own non-critical businesses Copyright © 2006 Pearson Education Canada Inc. 8

Market Economy Distribution of resources is based on supply & demand Ownership of the factors of production is open to all who have the ability and the interest Buyers and sellers have freedom of choice The market is the mechanism for the exchange of goods and services Copyright © 2006 Pearson Education Canada Inc. 9

Input and Output Markets Input market n Firms buy resources from households Output market

Circular Flow in a Market Economy FIRMS • Supply products in output markets • Demand resources in input markets OUTPUT MARKETS • Goods and Services INPUT MARKETS: • Labour HOUSEHOLDS: • Capital • Demand products in output markets • Supply products in input markets • Entrepreneurs • Physical resources • Information resources Copyright © 2006 Pearson Education Canada Inc. 11

The Mixed Economy Mixed economy n a system featuring characteristics of both command market economies No country has a pure communist, socialist, or capitalist system Eastern European countries are adopting a mixed economy by privatizing many of their state run enterprises Copyright © 2006 Pearson Education Canada Inc. 12

The Many Roles of Government Competitor Customer Provider of Incentives Regulator Taxation Agent Provider

Economic Administration and Regulation The government manages and regulates business … Canadian Tobacco Act Canada Water Act Environmental Contaminants Act Competition Policy Provincial Boards Food and Drug Act Hazardous Products Act National Energy Board Copyright © 2006 Pearson Education Canada Inc. Radio -television and Telecommunications Commission (CRTC) Weights and Measures Act Fisheries Act 14

Government As Tax Agent Revenue taxes n n n designed to generate cash to fund various services and programs e. g. income taxes Progressive revenue taxes are levied at a higher rate on higher-income taxpayers than on lowerincome taxpayers (income taxes) Regressive revenue taxes are levies at the same rate regardless of a person’s income (sales taxes) Restrictive taxes n Levied to control certain activities: to lessen the consumption of liquor & tobacco Copyright © 2006 Pearson Education Canada Inc. 15

Government Incentives Government provides aid and assistance to small businesses and non-profit organizations Incentives stimulate growth in revenues and employment Help Loans jobs Training Copyright © 2006 Pearson Education Canada Inc. 16

Government Provider of Essential Services All three levels of government provide various services n n n n n Highways Postal service Money Armed forces Information Sewer & sanitation Emergency services Health services Education Copyright © 2006 Pearson Education Canada Inc. 17

How Business Influences Government Lobbyists must register to be in accordance with the Lobbyists

Supply and Demand Copyright © 2006 Pearson Education Canada Inc. 19

Dealing with a Shortage A shortage drives prices up. Copyright © 2006 Pearson Education

Dealing With a Surplus A surplus drives prices down Copyright © 2006 Pearson Education

Private Enterprise Private enterprise occurs in a market economy Under this system individuals n n Can own property Have freedom of choice Have the freedom to earn profits Have freedom to compete Government interference is minimal Copyright © 2006 Pearson Education Canada Inc. 22

Degrees of Competition Perfect competition Monopolistic competition Oligopoly Monopoly Copyright © 2006 Pearson Education

Perfect Competition Has many sellers The product is basically identical Individual firms have no control over price The buyer will purchase from the lowest price source Copyright © 2006 Pearson Education Canada Inc. 24

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 limited control over pricing Copyright © 2006 Pearson Education Canada Inc. 25

Oligopoly A few large sellers dominate the market High barriers to entry Product differentiation is used to attract customers Each supplier knows what the others are charging Competition can be fierce Copyright © 2006 Pearson Education Canada Inc. 26

Monopoly One producer n Electric utility Unique product The producer has complete control over

Natural Monopoly A market or industry in which having only one producer can efficiently meet demand It is the most efficient approach – duplicate facilities would be wasteful n Electric power utility Copyright © 2006 Pearson Education Canada Inc. 28

Brief History of Business in Canada The early years The factory system and the

Brief History of Business in Canada The sales and marketing eras The finance era

The Early Years Business activity and profit from commercial fishing were the motivation for the first European settlers Mercantilism: colonists were expected to export raw materials like beaver pelts and lumber at low prices to the mother country (notably England France) Copyright © 2006 Pearson Education Canada Inc. 31

The Industrial Revolution: A major change in goods production characterized by a shift to the factory system, mass production, and specialization of labour Factory system: a process in which all the machinery, materials, and workers required to produce a good in large quantities are brought together in one place Copyright © 2006 Pearson Education Canada Inc. 32

The Entrepreneurial Era Adam Smith argued in his book “The Wealth of Nations” that the “invisible hand” would guide the economy to produce high quality products for the lowest possible prices Government involvement should be discouraged and businesses should function without regulation or restriction Copyright © 2006 Pearson Education Canada Inc. 33

The Production Era Concepts of specialization and mass production were more fully refined Business focused on improving productivity and manufacturing methods Introduction of the moving assembly line Copyright © 2006 Pearson Education Canada Inc. 34

The Sales and Marketing Eras Sales era: business focused on sales forces, advertising, and keeping products readily available Marketing era: business began to identify and meet consumers wants in order to make a profit Copyright © 2006 Pearson Education Canada Inc. 35

The Finance Era Period when emphasis shifted to mergers and the buying and selling

The Global Era Technological advances in production, computer technology, information systems, and communication capabilities Emergence of global economy Rapid increase in internet usage facilitates global business activity Copyright © 2006 Pearson Education Canada Inc. 37