Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. CHAPTER 1 Understanding the Canadian Business System

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 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 Explain the criteria for evaluating the success of an economic system Show how the federal government attempts to manage the Canadian economy Discuss the current economic picture in Canada Learning Objectives

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 1-3 Businesses produce or sell products in order to make a profit 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 1-4 Factors of Production -resources used by firms to create goods & services NaturalResources HumanResources Capital Entrepreneurs Factors of Production

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 1-5 Command economies Communist Socialist Market economies Mixed economies Types of Economic Systems

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 1-6 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 1-7 The government owns and operates all critical industries such as utilities & major institutions Individuals own non-critical businesses The Socialist Model

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 1-8 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc. 1-9 Input and Output Markets Input market firms buy resources from households Output market households buy goods and services from firms

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Mixed economy a combination of both freedom & government intervention 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Competitor Regulator Taxation Agent Provider of Incentives Customer Provider of Essential Services The Many Roles of Government

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc The government manages and regulates business … Canadian Radio -television and Telecommunications Commission Canadian Transport Commission National Energy Board Provincial Boards Hazardous Products Act Competition Policy Food and Drug Act Tobacco Act Weights and MeasuresAct Textile Labelling Act Canada Water Act Fisheries Act Environmental Contaminants Act Economic Administration and Regulation

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Government as Tax Agent Revenue taxes designed to generate cash, including income taxes Income tax is paid by individuals and businesses and represents monies received during a single year Restrictive taxes designed to lessen the consumption of “unhealthy” products, including liquor &d tobacco They also raise revenue through import duties and gasoline taxes

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Government Provider of Essential Services All three levels of government provide various services Highways Postal service Money Military Information Sewer & sanitation Emergency services Health services Education

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Lobbyists must register to be in accordance with the Lobbyists Registration Act How Business Influences Government

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Supply and Demand

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc A shortage drivespricesup. Dealing with a Shortage

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc A surplus drivespricesdown Dealing with a Surplus

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Argued that the “invisible hand” would guide the economy to produce high quality products for the lowest possible prices Resources would be distributed to the benefit of all citizens Government involvement should be discouraged Adam Smith

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Freedom to buy products of your own choice Freedom to “sell” your ability as labour to the employer of your own choice Freedom of sellers to choose what to produce Freedom of employers to hire someone of their own choosing Freedom of Choice

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Pure Competition Monopolistic Competition Oligopoly Monopoly Degrees of Competition

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 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 Pure Competition

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Oligopoly A few large suppliers dominate the market High barriers to entry The products are seen as similar; no supplier has an edge Each supplier knows what the others are charging Prices gravitate towards a common “market price”

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Monopoly One producer and source of supply (electric utility) Unique Product The producer has complete control over price because there are no competitors

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Natural Monopoly A market or industry in which having only one producer can sufficiently meet demand It is the most efficient approach Electric power utility

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 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

Business Fifth Canadian edition, Griffin, Ebert & Starke © 2005 Pearson Education Canada Inc Brief History of Business in Canada The Sales and Marketing Eras The Finance Era The Global Era The Internet Era