Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada CHAPTER 1 Understanding the Canadian Business System

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-2 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 Learning Objectives

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-3 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 The Concept of Business and Profit

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-4 Factors of Production -resources used by firms to create goods & services InformationResources Labour (Human Resources) CapitalEntrepreneurs Factors of Production Natural Resource s

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-5 Command economies  Communist  Socialist Market economies Mixed economies Types of Economic Systems

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-6 Government owns the factors of production and makes all decisions regarding distribution of resources Government owns all industries, including essential services The Communist Model

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-7 The government owns and operates all critical industries such as utilities & major institutions Individuals own non- critical businesses The Socialist Model

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-8 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 StarkeCopyright © 2008 Pearson Education Canada 1-9 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 StarkeCopyright © 2008 Pearson Education Canada 1-10 Circular Flow in a Market Economy OUTPUT MARKETS Goods and Services HOUSEHOLDS: Demand products in output markets Supply products in input markets INPUT MARKETS: Labour Capital Entrepreneurs Physical resources Information resources FIRMS Supply products in output markets Demand resources in input markets

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-11 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 The Mixed Economy

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-12 Competitor Regulator Taxation Agent Provider of Incentives Customer Provider of Essential Services The Many Roles of Government

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-13 The government manages and regulates business … Canadian Radio –television and Telecommunications Commission (CRTC) Canadian Transport Commission Canadian Wheat Board Provincial Boards Hazardous Products Act Competition Act Food and Drug Act Tobacco Act Weights and Measures Act Textile Labelling Act Canada Water Act Fisheries Act Environmental Contaminants Act Economic Administration and Regulation

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-14 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 StarkeCopyright © 2008 Pearson Education Canada 1-15 Government provides aid and assistance to small businesses and non-profit organizations Incentives stimulate growth in revenues and employment Loans Training Help Government Incentives

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-16 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 StarkeCopyright © 2008 Pearson Education Canada 1-17 Lobbyists must register to be in accordance with the Lobbyists Registration Act How Business Influences Government

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-18 Supply and Demand

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-19 A shortage drivespricesup. Dealing with a Shortage

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-20 A surplus drivespricesdown Dealing with a Surplus

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-21 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 Private Enterprise

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-22 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 Competition

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-23 Perfect Competition Monopolistic Competition Oligopoly Monopoly Degrees of Competition

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-24 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 Perfect Competition

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-25 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 Monopolistic Competition

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-26 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 StarkeCopyright © 2008 Pearson Education Canada 1-27 Monopoly one producer and source of supply unique product complete control over price no competitors

Business, Sixth Canadian Edition, by Griffin, Ebert, and StarkeCopyright © 2008 Pearson Education Canada 1-28 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 StarkeCopyright © 2008 Pearson Education Canada 1-29 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 StarkeCopyright © 2008 Pearson Education Canada 1-30 Brief History of Business in Canada The Sales and Marketing Eras The Finance Era The Global Era The Internet Era