Copyright © 2008 McGraw-Hill Ryerson Ltd. 1 Chapter 2 How the Business System Works

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 2 Chapter Outline  The Right of Private Property  Individualism and Economic Freedom  Equality of Opportunity  Competition and Profits  The Work Ethic  Consumer Sovereignty  The Role of Government  The Fundamentals and Canadian Capitalism  Various Forms of Capitalism

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 3 The Right of Private Property  The legal right to own and use economic goods—for example, land and buildings  Ethical implications: –Government has last say –Uneven distribution of wealth –Infringement of copyright rights

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 4 Calgary

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 5 The Right of Private Property  The legal right to own and use economic goods—for example, land and buildings  Ethical implications: –Government has last say –Uneven distribution of wealth –Infringement of copyright rights

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 6 Individualism and Economic Freedom  Individualism: The view that the individual, and not society or a collective, is the paramount decision maker in society; assumes that the individual is inherently decent and rational.  Economic freedoms: Exist when the business system operates with few restrictions on its activities.

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 7 Equality of Opportunity  The assumption that all individuals or groups have an even chance at responding to some condition in society.  Ethical implications: –Difficult to achieve in capitalistic system –Wealth created not distributed equally –Inequities such as layoffs, drops in living standards, excessively high executive salaries

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 8 Competition  The condition in a market system in which many rival sellers seek to provide goods and services to many buyers.  Ethical implications: –Oligopolies (few sellers in industry) or even monopolies (one seller) can be created –More difficult for some firms to enter certain industries –Firms might engage in anti-competitive activity

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 9 Profits  The excess of revenues over expenses; closely associated with competition.  Ethical implications: –Profits sometimes viewed with disdain or as immoral –Taxation of excessive profits

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 10 The Work Ethic  A code of values, or a body of moral principles, claiming that work is desirable, a natural activity, and good in and of itself.

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 11 The Work Ethic  Ethical implications: –Government programs and society’s expectations have influenced individuals’ attitudes toward work –Individuals now expect more from government and business enterprises in terms of working conditions, benefits, and salaries

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 12 Consumer Sovereignty  The assumption existing in an economy that consumers have and exercise power over producers through the decisions they make in purchasing the goods and services provided by corporations.

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 13 Consumer Sovereignty  Ethical implications: –Consumers not always aware of alternative products available –Consumers’ preferences are shaped by advertising –Producers have power to ignore consumer wishes

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 14 The Role of Government  Laissez-faire approach (i.e., “leave us alone”) suggests minimal involvement of government other than national security, internal law and order, and a system of currency and measures.

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 15 The Role of Government  Ethical implications: –Government now an influential stakeholder (e.g., subsidies, taxation, tariffs, regulations, legislation, loans, grants, ownership) –Government can restrict capital movement, impose product standards, prevent businesses from shutting down plants

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 16 The Fundamentals and Canadian Capitalism  An economic system that allows for private ownership of the means of production (land, labour, and capital) and assumes that economic decision making is in the hands of individuals or enterprises that make decisions expecting to earn a profit.  Several pros and cons exist regarding capitalism.

Chapter 2Copyright © 2008 McGraw-Hill Ryerson Ltd. 17 Various Forms of Capitalism  Consumer capitalism –United States, Britain, Canada, Australia  Producer capitalism –France, Japan, Mexico  Family capitalism –Taiwan, Malaysia, Thailand, Indonesia  Frontier capitalism –Russia, China