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

Opportunities and Challenges in the Mobile Phone Market

What is the economic environment of business?

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

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

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

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

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

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

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.

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

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

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.

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.

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

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

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)

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

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

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)

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

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

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”….

1. The Business Cycle Expansionary Peak Contraction Trough Recovery

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

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

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

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

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

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.