Copyright © 2006 Pearson Education Canada Inc. 1-1 Chapter 1 Understanding the Canadian Business System

Copyright © 2006 Pearson Education Canada Inc. 1-2 Define the nature of Canadian business and identify its main goals Describe different types of global economic systems 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

Copyright © 2006 Pearson Education Canada Inc. 1-3 Business: an organization that produces or sells goods or services in order to make a profit The Nature of Canadian Business

Copyright © 2006 Pearson Education Canada Inc. 1-4 Profit The money left over from revenues after a firm pays its expenses Motivates individuals to engage in business activities The Nature of Canadian Business

Copyright © 2006 Pearson Education Canada Inc. 1-5 Factors of Production -resources used by firms to create goods & services NaturalResources HumanResources Capital Entrepreneurs Factors of Production

Copyright © 2006 Pearson Education Canada Inc. 1-6 Command economies Communist Socialist Market economies Mixed economies Types of Economic Systems

Copyright © 2006 Pearson Education Canada Inc. 1-7 The government owns the factors of production and makes all decisions regarding distribution of resources Government owns all industries, including essential services The Communist Model

Copyright © 2006 Pearson Education Canada Inc. 1-8 The government owns and operates all critical industries such as utilities & major institutions Individuals own non-critical businesses The Socialist Model

Copyright © 2006 Pearson Education Canada Inc. 1-9 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 Input and Output Markets Input market Firms buy resources from households Output market Households buy goods and services from firms

Copyright © 2006 Pearson Education Canada Inc 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

Copyright © 2006 Pearson Education Canada Inc Mixed economy a system featuring characteristics of both command and 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 The Mixed Economy

Copyright © 2006 Pearson Education Canada Inc Competitor Regulator Taxation Agent Provider of Incentives Customer Provider of Essential Services The Many Roles of Government

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

Copyright © 2006 Pearson Education Canada Inc Government As Tax Agent Revenue taxes 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 lower- income taxpayers (income taxes) Regressive revenue taxes are levies at the same rate regardless of a person’s income (sales taxes) Restrictive taxes Levied to control certain activities: to lessen the consumption of liquor & tobacco

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

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

Copyright © 2006 Pearson Education Canada Inc Lobbyists must register to be in accordance with the Lobbyists Registration Act How Business Influences Government

Copyright © 2006 Pearson Education Canada Inc Supply and Demand

Copyright © 2006 Pearson Education Canada Inc A shortage drivespricesup. Dealing with a Shortage

Copyright © 2006 Pearson Education Canada Inc A surplus drivespricesdown Dealing With a Surplus

Copyright © 2006 Pearson Education Canada Inc 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

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

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

Copyright © 2006 Pearson Education Canada Inc 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 Monopolistic Competition

Copyright © 2006 Pearson Education Canada Inc 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 Monopoly One producer Electric utility Unique product The producer has complete control over price because there are no competitors

Copyright © 2006 Pearson Education Canada Inc 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 Electric power utility

Copyright © 2006 Pearson Education Canada Inc Brief History of Business in Canada The early years The factory system and the industrial revolution The entrepreneurial era The production era

Copyright © 2006 Pearson Education Canada Inc Brief History of Business in Canada The sales and marketing eras The finance era The global era

Copyright © 2006 Pearson Education Canada Inc 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 and France) The Early Years

Copyright © 2006 Pearson Education Canada Inc 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 The Industrial Revolution

Copyright © 2006 Pearson Education Canada Inc 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 The Entrepreneurial Era

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

Copyright © 2006 Pearson Education Canada Inc 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 The Sales and Marketing Eras

Copyright © 2006 Pearson Education Canada Inc Period when emphasis shifted to mergers and the buying and selling of business enterprises Also known as the “decade of greed” The Finance Era

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