1. SESSION 2 ECONOMIC CONTEXT Reading: Karakowsky text, Ch.2

2. Learning Objectives: By the end of the chapter, you should be able to:
1. Identify the factors of production.
2. Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets.
3. Show how demand and supply affect resource distribution in Canada.
4. Identify the elements of private enterprise and explain the various degrees of competition in the Canadian
economic system.
5. Define key indicators of economic stability and economic growth.

3. Opportunities and Challenges in the Mobile Phone Market

4. What is the economic environment of business?

5. The Idea of Business & Profit
What is:
Business
Profit
Non-profit

6. Factors of Production
Businesses make economic choices based on their needs for the five factors of production
1. Natural resources - land and raw materials
2. Labour - workers
3. Capital - buildings, machinery, tools
and equipment
4. Information resources - knowledge workers with specialized education, skills
and experience
5. Entrepreneurs - individuals who start up
businesses

7. How does Tim Horton’s utilize the five factors of production?
Examples at Tim Horton’s
How used?
Natural resources
Land
Coffee beans
Sugar
Milk
to operate business
to make coffee
to make donuts
to make other products
Labour
Workers in franchise
Workers at corporate head office
store manager, cashier, coffee maker, donut maker, cleaner
executives, marketing managers, finance managers, other administrative staff
Capital
Buildings
Machines
Tools
to run the fast food restaurant franchises
cooking equipment: to cook donuts, make coffee, etc
computers and calculators: to keep track of revenues and expenses
Knowledge
Specialized skills
individuals who understand the complexities of the coffee-bean trade, growing coffee etc
Entrepreneur
Franchise Owner
Tim Horton is the original founder, but you can own and operate a franchise

8. What is an economic system?
Economic Systems
What is an economic system?

9. Types of Economic Systems:
1) Command/communism
2) Socialism
3) Market economy
Input and output markets
4) Mixed economy

10. 1) Communism
Communism exists when the government owns all the country’s resources and makes economic decisions centrally.

11. 2) Socialism
Socialism is an economic system whereby the government has large ownership or control of its major industries essential to the country’s economy.

12. 3) Market Economy Private enterprise typically has four elements:
Private property
Freedom of choice
Profits
Competition

13. 4) Mixed Economy An economy that uses more than one economic system.
Eg. Canada

14. The Laws of Supply and Demand
is the result of the decisions from buyers on whether or not to purchase a good or service.
Supply
is the result of the decisions of sellers whether to produce and offer a good or service for sale.

15. The Laws of Supply and Demand
The law of supply and demand
states that more of a good will be demanded (by society) as the price drops, and more of a good will be supplied (by producers) as the price rises.

16. Competition and the economy Types of Competition:
1) Perfect (or Pure) competition
2) Monopolistic competition
3) Oligopoly
4) Monopoly

17. Competition and the economy Types of Competition:
Perfect (or Pure) competition
large number of buyers and sellers acting independently
product or service is undifferentiated
the market determines the price (a price taker)
low barriers to entry

18. Competition and the economy Types of Competition:
2) Monopolistic competition
Fewer companies compared to pure competition compete with each other but still as many buyers
products and services are differentiated at least in a small way
market sets the price (a price taker)

19. Competition and the economy Types of Competition:
3) Oligopoly
when only a few competitors dominate an industry
high barriers of entry
a price setter

20. Competition and the economy Types of Competition:
4) Monopoly
- a monopoly occurs when there is only one producer in a given market
- no substitute products exist
the company is able to determine the selling price (a price setter)
- significant barriers to entry

21. Competition and the economy Types of Competition:
Barriers of
Entry
Number of Sellers
Is the Firm
a Price
Setter?
Product
Differentiation
Size
of Firms
Perfect
(or Pure)
None
Many
(Very competitive) No
Small
Monopolistic
Low
Small differentiation
Oligopoly
High
Few
(Somewhat competitive)
Yes
Some differentiation
Large
Monopoly
No entry is achievable.
One
(No competition)

22. Economic Stability and Economic Growth:
1) The Business Cycle
2) Aggregate output, GDP, GNP
3) Productivity
4) The Balance of Trade & the National Debt
5) Inflation/deflation
6) Unemployment

23. ECONOMIC INDICATORS 1) The Business Cycle
2) Aggregate output, GDP, GNP
3) Productivity
4) The Balance of Trade & the National Debt
5) Inflation/deflation
6) Unemployment

24. THE ECONOMIC ENVIRONMENT
In broad terms, the economic environment refers to the conditions of the economic system in which an organization operations.
Let’s now look at the indicators of those “conditions”….

25. 1. The Business Cycle
Expansionary
Peak
Contraction
Trough
Recovery

26. 2. GDP, GNP & Purchasing Power Parity
Aggregate output & standard of living
Gross domestic product (GDP)
Gross national product (GNP)

27. 3. Productivity
“A measure of economic growth that compares how much a system produces with the resources needed to produce it.”

28. 4. Balance of Trade & National Debt
The balance of trade
The national debt
A budget deficit

29. 5) Inflation/deflation
What is inflation?
How to measure inflation?
Consumer Price Index (CPI)
What is deflation?

30. 6) Unemployment What is unemployment? Types of unemployment:
Frictional Unemployment
Structural Unemployment
Cyclical Unemployment
Seasonal Unemployment

31. SUMMARY CHAPTER 2 ECONOMIC CONTEXT
1. Identify the factors of production.
2. Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets.
3. Show how demand and supply affect resource distribution in Canada.
4. Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system.
5. Define key indicators of economic stability and economic growth.