1. THE AFFECTS OF ECONOMIC ISSUES AND GOVERNMENT ON BUSINESS Bus101

2. 1. Capitalism and free markets 2. Socialism: negatives and positives 3. Understand communism 4. Canada’s mixed economic system 5. Economic indicators, productivity, and the business cycle 6. Six roles played by government in business 7. Responsibilities of the orders of government 8. Monetary and Fiscal Policy Bus101

3. If you want to understand the underlying situation and conditions in which Canadian businesses operate, it is essential that you: 1. have some grasp of economics, 2. be aware of the impact of the global environment, and 3. understand the role of the federal and provincial governments in Canada.

4.  Capitalism: individuals seeking profits produce goods and services.  Goods and services are sold in a free market to those who can pay for them.  Communism: the government decides what will be produced and who will consume the results of that production.  Socialism: some free market and some government allocation.  Most countries have a mixed economy, including Canada.

5.  The free market is one in which decisions about what to produce and in what quantities are made by the market. —that is, by buyers and sellers negotiating prices for goods and services.  No country is purely capitalist; no market is truly free.

6.  Prices are not determined by sellers, they are determined by buyers and sellers negotiated.  A price that is acceptable to both buyers and sellers is determined in the microeconomic concepts of supply and demand.  Supply: The quantity of products that manufacturers or owners are willing to sell at different prices at a specific time.  Demand: The quantity of products that people are willing to buy at different prices at a specific time.

8.  At the crossing point of the supply and demand curves, the quantity demanded and the quantity supplied are equal, known as the equilibrium point or equilibrium price.  Market price: The price determined by supply and demand.

9.  Perfect competition: The market situation in which there are many sellers in a market and no seller is large enough to dictate the price of a product.  Monopolistic competition: The market situation in which a large number of sellers produce products that are very similar but that are perceived by buyers as different.  Oligopoly: A form of competition in which just a few sellers dominate the market.  Monopoly: A market in which there is only one seller for a product or service.

10.  Socialism: An economic system based on the premise that some, if not most, basic businesses should be owned by the government so that profits can be evenly distributed among the people.  Most socialist countries have not kept up with the more capitalist countries in new inventions, job creation or wealth creation in the past decade.

11.  Communism: An economic and political system in which the state (the government) makes all economic decisions and owns almost all of the major factors of production.  Shortages of many items may develop  Affects personal choices  Doesn’t inspire business people to work hard (no incentives)

12. There are two major economic systems in the world today: 1. Free-market economy: An economy in which the market largely determines what goods and services are produced, who gets them, and how the economy grows. 2. Command economy: An economy in which the government largely decides what goods and services are produced, who gets them, and how the economy will grow.

14.  Mixed economy: Economic systems in which some allocation of resources is made by the market and some by the government.  Key economic indicators:  GDP  Productivity  Unemployment rate  Price indexes

15.  GDP: The total value of goods and services produced in a country in a given year.  Standard of living: The amount of goods and services people can buy with the money they have.  Quality of life: The general well-being of a society in terms of political freedom, a clean natural environment, education, health care, safety, free time, and everything else that leads to satisfaction and joy.

16.  Productivity is the total output of goods and services in a given period divided by the total hours of labor required to provide them.  Anything that increases productivity or reduces labor costs makes a business, and a country, more competitive because prices can be lower.

17.  Unemployment rate: The percentage of the labour force that actively seeks work but is unable to find work at a given time.

18.  Inflation: A general rise in the prices of goods and services over time.  Disinflation: A situation in which price increases are slowing (the inflation rate is declining).  Deflation: A situation in which prices are declining.  Stagflation: A situation in which the economy is slowing but prices are going up regardless.  Consumer Price Index (CPI): Monthly statistic that measures the pace of inflation or deflation.

19.  Business cycles (economic cycles): The periodic rises and falls that occur in economics over time. There are four phases: 1. Boom 2. Recession 3. Depression 4. Recovery

20.  Incentives  Customer  Essential Services  Regulator  Competitor  Taxation Agent

21.  Trade Regulations and Promotion  Incorporation of Federal Companies  Banking and Monetary Systems  National Defence  Unemployment Programs  Immigration  Criminal Law  Fisheries

22.  Education  Labour Law  Property Law  Municipal Affairs  Health and Social Services  Administration of Justice  Direct Taxation

23.  Essential Services  Planning  Incentives  Industry Support  Taxes

24.  Monetary Policy  Fiscal Policy

25.  It is important to have an understanding of both business and government  Capitalism, Communism and Socialism are general forms of government  Canada has a mixed economy  In a free market prices are determined by negotiation related to supply and demand  There are 4 different types of competition in a free market

26.  Key economic indicators include the GDP, Productivity, Unemployment and Price Indices  There are 4 phases in the business cycle  There are 6 roles which government plays in relation to business  Sample roles are provided for each order of government  Monetary and fiscal policies are vitally important to the economy and therefore to business.