The Canadian Business System CHAPTER 1 The Canadian Business System 1

Which of the following organizations represents a not-for profit organization? A) A small convenience store B) A labour union C) A multinational retailer D) A newly formed start-up clothing boutique Answer: B Learning Objective: 1.1 - Define the nature of Canadian business and identify its main goals Rationale: Not-for-profit organizations use funds they generate from government grants or the sale of goods or services to provide services to the public. Charities, educational institutions, hospitals, labour unions, and government agencies are examples of not-for-profit organizations. 2

Which of the following organizations represents a not-for profit organization? A) A small convenience store B) A labour union C) A multinational retailer D) A newly formed start-up clothing boutique Answer: B Learning Objective: 1.1 - Define the nature of Canadian business and identify its main goals Rationale: Not-for-profit organizations use funds they generate from government grants or the sale of goods or services to provide services to the public. Charities, educational institutions, hospitals, labour unions, and government agencies are examples of not-for-profit organizations. 3

Neha’s Coffee House sold 10 000 cups of coffee at $1. 75 each Neha’s Coffee House sold 10 000 cups of coffee at $1.75 each. Her operating expenses were $1500 for rent, $500 for insurance, $8000 for wages, and $5000 for materials. Neha’s profit is: A) $1500 B) $2000 C) $2500 D) $3000 Answer: C Learning Objective: 1.1 - Define the nature of Canadian business and identify its main goals Rationale: Profit is what remains after a business’s expenses are subtracted from its sales revenue 4

Neha’s Coffee House sold 10 000 cups of coffee at $1. 75 each Neha’s Coffee House sold 10 000 cups of coffee at $1.75 each. Her operating expenses were $1500 for rent, $500 for insurance, $8000 for wages, and $5000 for materials. Neha’s profit is: A) $1500 B) $2000 C) $2500 D) $3000 Answer: C Learning Objective: 1.1 - Define the nature of Canadian business and identify its main goals Rationale: Profit is what remains after a business’s expenses are subtracted from its sales revenue 5

The most important difference between command economies and market economies is______. A) access to human rights B) who controls the factors of production C) the government in power D) freedom of the press Answer: B Learning Objective: 1.2 - Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: The term economic system describes the way in which a country is organized and allocates the nation’s resources among its citizens. They differ in terms of who owns and controls the factors of production. 6

The most important difference between command economies and market economies is______. A) access to human rights B) who controls the factors of production C) the government in power D) freedom of the press Answer: B Learning Objective: 1.2 - Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: The term economic system describes the way in which a country is organized and allocates the nation’s resources among its citizens. They differ in terms of who owns and controls the factors of production. 7

Karl Marx envisioned a system reflected by the statement, “from each according to their ability, to each according to their need.” This statement implies that: A) Rewards should be allocated based on the value of contributions to society. B) All citizens are equal, and should be rewarded equally. C) Everyone should do their best to contribute, and in exchange society will address their needs. D) To be truly equal, those with greater need must receive more. Answer: C Learning Objective: 1.2-Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: This statement reflects the primary tenet of communism. Further Discussion: This slide can lead to a good discussion about the lack of motivation when there is no incentive to create profit 8

Karl Marx envisioned a system reflected by the statement, “from each according to their ability, to each according to their need.” This statement implies that: A) Rewards should be allocated based on the value of contributions to society. B) All citizens are equal, and should be rewarded equally. C) Everyone should do their best to contribute, and in exchange society will address their needs. D) To be truly equal, those with greater need must receive more. Answer: C Learning Objective: 1.2-Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: This statement reflects the primary tenet of communism. Further Discussion: This slide can lead to a good discussion about the lack of motivation when there is no incentive to create profit 9

When Henry Ford adopted the assembly line to mass produce the Model-T in 1913, he decided to pay his workers a relatively high wage because he believed that workers should be able to afford to buy what they make. This is consistent with the idea of _______________. A) communism B) input and output markets C) socialism D) privatization Answer: B Learning Objective: 1.2 - Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: The input and output markets are critical elements of the circular flow diagram. Ford buys labour resources from households as they are the owners of the factors of production. Ford then uses these inputs (labour) to create output (cars) which they then sell through output markets and, conveniently, directly back to households. 10

When Henry Ford adopted the assembly line to mass produce the Model-T in 1913, he decided to pay his workers a relatively high wage because he believed that workers should be able to afford to buy what they make. This is consistent with the idea of _______________. A) communism B) input and output markets C) socialism D) privatization Answer: B Learning Objective: 1.2 - Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: The input and output markets are critical elements of the circular flow diagram. Ford buys labour resources from households as they are the owners of the factors of production. Ford then uses these inputs (labour) to create output (cars) which they then sell through output markets and, conveniently, directly back to households. 11

The political basis for the free market economy is called ____________ which allows private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive. A) Marxism B) Capitalism C) Consumerism D) Socialism Answer: B Learning Objective: 1.2 - Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: The political basis for the free market economy is called capitalism, which allows private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive. 12

The political basis for the free market economy is called ____________ which allows private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive. A) Marxism B) Capitalism C) Consumerism D) Socialism Answer: B Learning Objective: 1.2 - Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: The political basis for the free market economy is called capitalism, which allows private ownership of the factors of production and encourages entrepreneurship by offering profits as an incentive. 13

Socialism is an example of a type of __________ economy. A) Capitalist B) Command C) Free-Market D) Communist Answer: B Learning Objective: 1.2 - Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: The two most basic forms of command economies are communism and socialism. In a less extensive command economic system called socialism, the government owns and operates only selected major industries. Smaller businesses such as clothing stores and restaurants may be privately owned. 14

Socialism is an example of a type of __________ economy. A) Capitalist B) Command C) Free-Market D) Communist Answer: B Learning Objective: 1.2 - Describe different types of global economic systems according to the means by which they control the factors of production through input and output markets. Rationale: The two most basic forms of command economies are communism and socialism. In a less extensive command economic system called socialism, the government owns and operates only selected major industries. Smaller businesses such as clothing stores and restaurants may be privately owned. 15

A ____________ is a person hired by a company or industry to represent that company’s interests with government officials. A) lobbyist B) advocate C) socialist D) venture capitalist Answer: A Learning Objective: 1.3 - Describe the interactions between business and government in Canada. Rationale: A lobbyist is a person hired by a company or industry to represent that company’s interests with government officials. 16

A ____________ is a person hired by a company or industry to represent that company’s interests with government officials. A) lobbyist B) advocate C) socialist D) venture capitalist Answer: A Learning Objective: 1.3 - Describe the interactions between business and government in Canada. Rationale: A lobbyist is a person hired by a company or industry to represent that company’s interests with government officials. 17

____________ revenue taxes (e. g ____________ revenue taxes (e.g., sales tax) are levied at the same rate regardless of a person’s income. They cause poorer people to pay a higher percentage of their income for these taxes than rich people pay. A) Regressive B) Progressive C) Restricted D) Protective Answer: A Learning Objective: 1.3 - Describe the interactions between business and government in Canada. Rationale: Regressive revenue taxes (e.g., sales tax) are levied at the same rate regardless of a person’s income. They cause poorer people to pay a higher percentage of their income for these taxes than rich people pay. 18

____________ revenue taxes (e. g ____________ revenue taxes (e.g., sales tax) are levied at the same rate regardless of a person’s income. They cause poorer people to pay a higher percentage of their income for these taxes than rich people pay. A) Regressive B) Progressive C) Restricted D) Protective Answer: A Learning Objective: 1.3 - Describe the interactions between business and government in Canada. Rationale: Regressive revenue taxes (e.g., sales tax) are levied at the same rate regardless of a person’s income. They cause poorer people to pay a higher percentage of their income for these taxes than rich people pay. 19

A typical demand curve illustrates that: A) As people earn more income, they buy more of a good. B) As supply increases, the amount that a consumer wants will tend to decrease. C) People will always buy more than they really want as a result of a low price. D) People tend to buy more of a good when its price decreases. Answer: D Learning Objective: 1.4 - Show how demand and supply affect resource distribution in Canada Rationale: This concept illustrates the law of demand and emphasizes how movements along the downward sloping demand curve are a result of price. The downward sloping demand curve illustrates the inverse relationship between price and quantity demanded. 20

A typical demand curve illustrates that: A) As people earn more income, they buy more of a good. B) As supply increases, the amount that a consumer wants will tend to decrease. C) People will always buy more than they really want as a result of a low price. D) People tend to buy more of a good when its price decreases. Answer: D Learning Objective: 1.4 - Show how demand and supply affect resource distribution in Canada Rationale: This concept illustrates the law of demand and emphasizes how movements along the downward sloping demand curve are a result of price. The downward sloping demand curve illustrates the inverse relationship between price and quantity demanded. 21

A scenario in which supply exceeds demand will lead to _______________. A) surplus B) equilibrium C) deficit D) deflation Answer: A Learning Objective: 1.4 - Show how demand and supply affect resource distribution in Canada Rationale: A surplus occurs when the quantity supplied exceeds the quantity demanded. 22

A scenario in which supply exceeds demand will lead to _______________. A) surplus B) equilibrium C) deficit D) deflation Answer: A Learning Objective: 1.4 - Show how demand and supply affect resource distribution in Canada Rationale: A surplus occurs when the quantity supplied exceeds the quantity demanded. 23

If U2 is playing to a sold out concert this Friday night but tickets are still in high demand, concert-goers are likely to buy tickets from ‘scalpers’ at prices considerably higher than the original price. This situation can be described as a: A) shortage; in which quantity demanded exceeds quantity supplied. B) surplus; in which quantity demanded exceeds quantity supplied. C) shortage; in which quantity supplied exceeds quantity demanded. D) surplus; in which quantity supplied exceeds quantity demanded. Answer: A Learning Objective: 1.4 - Show how demand and supply affect resource distribution in Canada Rationale: At prices below the market equilibrium, quantity demand exceeds quantity supplied and this creates a situation called a shortage. In this case, consumers are likely to bid-up the price since there are consumers who are willing and able to pay a higher price. Scalpers will make high profits by selling to these consumers. Additional Discussion: Q: What would happen if scalpers bought up many general admission tickets but the show was not sold out? A: The scalpers could lose money because a surplus would exist and price would fall. 24

If U2 is playing to a sold out concert this Friday night but tickets are still in high demand, concert-goers are likely to buy tickets from ‘scalpers’ at prices considerably higher than the original price. This situation can be described as a: A) shortage; in which quantity demanded exceeds quantity supplied. B) surplus; in which quantity demanded exceeds quantity supplied. C) shortage; in which quantity supplied exceeds quantity demanded. D) surplus; in which quantity supplied exceeds quantity demanded. Answer: A Learning Objective: 1.4 - Show how demand and supply affect resource distribution in Canada Rationale: At prices below the market equilibrium, quantity demand exceeds quantity supplied and this creates a situation called a shortage. In this case, consumers are likely to bid-up the price since there are consumers who are willing and able to pay a higher price. Scalpers will make high profits by selling to these consumers. Additional Discussion: Q: What would happen if scalpers bought up many general admission tickets but the show was not sold out? A: The scalpers could lose money because a surplus would exist and price would fall. 25

In a private enterprise system, firms decide where to acquire materials, what products to produce, and what price to charge customers. Which two elements of private enterprise have the greatest impact on these decisions? A) private property and freedom of choice B) freedom of choice and competition C) freedom of choice and profits D) private property and competition Answer: C Learning Objective: 1.5 - Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system. Rationale: The four elements of private enterprise are: Private property rights, Freedom of choice, Profits and Competition. The decisions about the factors of production and what to produce are most influenced by their ability to choose and to make a profit. Further Discussion Topic: Freedom of choice allows business to select the most appropriate suppliers and to design and sell products that best address customer needs. If this is accomplished, the hope is that customers exercise their freedom of choice and make a purchase. The ability to manage costs and quality through choice of supplier to satisfy customer needs contributes to the profitability of the firm. 26

In a private enterprise system, firms decide where to acquire materials, what products to produce, and what price to charge customers. Which two elements of private enterprise have the greatest impact on these decisions? A) private property and freedom of choice B) freedom of choice and competition C) freedom of choice and profits D) private property and competition Answer: C Learning Objective: 1.5 - Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system. Rationale: The four elements of private enterprise are: Private property rights, Freedom of choice, Profits and Competition. The decisions about the factors of production and what to produce are most influenced by their ability to choose and to make a profit. Further Discussion Topic: Freedom of choice allows business to select the most appropriate suppliers and to design and sell products that best address customer needs. If this is accomplished, the hope is that customers exercise their freedom of choice and make a purchase. The ability to manage costs and quality through choice of supplier to satisfy customer needs contributes to the profitability of the firm. 27

A) perfect competition B) oligopoly C) monopoly The markets for laundry detergents, soft drinks and cars are all dominated by just a few producers. In terms of competition these markets are described by the term: A) perfect competition B) oligopoly C) monopoly D) monopolistic competition Answer: B Learning Objective: 1.5 - Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system. Rationale: An oligopoly is a form of competition characterized by just a few sellers who dominate a market. 28

A) perfect competition B) oligopoly C) monopoly The markets for laundry detergents, soft drinks and cars are all dominated by just a few producers. In terms of competition these markets are described by the term: A) perfect competition B) oligopoly C) monopoly D) monopolistic competition Answer: B Learning Objective: 1.5 - Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system. Rationale: An oligopoly is a form of competition characterized by just a few sellers who dominate a market. 29

The presence of competition in free markets: A) is undesirable because it results in unnecessary redundant expenses. B) often results in better quality and lower prices for consumers. C) is rarely experienced since competition is forced out by monopolies. D) is undesirable, because large firms are always more cost efficient than smaller ones. Answer: B Learning Objective: 1.5 - Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system. Rationale: In competitive markets, consumers have a choice between the product offerings of many producers. Competition puts pressure on each producer to provide a high quality product, at a fair price. Failing to do so with result in lost sales. 30

The presence of competition in free markets: A) is undesirable because it results in unnecessary redundant expenses. B) often results in better quality and lower prices for consumers. C) is rarely experienced since competition is forced out by monopolies. D) is undesirable, because large firms are always more cost efficient than smaller ones. Answer: B Learning Objective: 1.5 - Identify the elements of private enterprise and explain the various degrees of competition in the Canadian economic system. Rationale: In competitive markets, consumers have a choice between the product offerings of many producers. Competition puts pressure on each producer to provide a high quality product, at a fair price. Failing to do so with result in lost sales. 31