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CHAPTER 1
Understanding the
Canadian Business
System
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-2
Learning Objectives
Define the nature of Canadian business and identify its
main goals
Describe different types of global economic systems,
according to the means by which they control the factors
of production through input & output markets
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
Trace the history of business in Canada
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-3
The Concept of Business and Profit
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
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-4
Factors of Production
Information
Resources
Natural
Resource
s
Factors of Production
-resources used by firms
to create goods & services
Capital
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Labour
(Human
Resources)
Entrepreneurs
Copyright © 2008 Pearson Education Canada
1-5
Types of Economic Systems
Command economies
Communist
Socialist
Market economies
Mixed economies
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-6
The Communist Model
Government owns the
factors of production
and makes all
decisions regarding
distribution of
resources
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Government owns
all industries,
including essential
services
Copyright © 2008 Pearson Education Canada
1-7
The Socialist Model
The government owns
and operates all critical
industries such as
utilities & major
institutions
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Individuals own noncritical businesses
Copyright © 2008 Pearson Education Canada
1-8
Market Economy
Economic basis is
supply & demand
Political basis is
capitalism
Ownership of the
factors of production
is open to all
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Buyers and sellers
have freedom of
choice
The market is the
mechanism for the
exchange of goods
and services
Copyright © 2008 Pearson Education Canada
1-9
Input and Output Markets
Input market
 firms buy resources from households
Output market
households buy goods and services
from firms
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-10
Circular Flow in a Market Economy
FIRMS
•Supply products in output markets
OUTPUT MARKETS
•Goods and Services
•Demand resources in input markets
INPUT MARKETS:
•Labour
•Capital
HOUSEHOLDS:
•Demand products in output markets
•Supply products in input markets
•Entrepreneurs
•Physical resources
•Information resources
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-11
The Mixed Economy
Mixed economy
 a combination of both freedom & government intervention
No country has a pure communist, socialist, or
capitalist system
Eastern Europe moving to a mixed economy by
privatization - converting many of their state run
enterprises into private companies
Deregulation – reducing laws and government
intervention affecting business activity
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-12
The Many Roles of Government
Competitor
Provider of Incentives
Regulator
Customer
Taxation Agent
Provider of Essential Services
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-13
Economic Administration and Regulation
The government manages and
regulates business …
Textile Labelling Act
Canada Water Act
Environmental Contaminants Act
Tobacco Act
Food and Drug Act
Hazardous Products Act
Weights and
Measures Act
Competition Act
Canadian
Radio –television and
Telecommunications
Commission (CRTC)
Fisheries Act
Provincial Boards
Canadian Wheat Board
Canadian Transport Commission
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-14
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 & tobacco
They also raise revenue through import duties
and gasoline taxes
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-15
Government Incentives
Government provides aid and assistance to small
businesses and non-profit organizations
Incentives stimulate growth in revenues and
employment
Help
Loans
Training
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-16
Government Provider of Essential Services
All three levels of
government provide
various services
 Information
 Highways
 Sewer & sanitation
 Postal service
 Emergency services
 Money
 Health services
 Military
 Education
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-17
How Business Influences Government
Business
Lobbyists
Trade
Associations
Advertising
Government
Lobbyists must register to be in accordance
with the Lobbyists Registration Act
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-18
Supply and Demand
Supply and Demand Analysis for Pizzas
$20
18
16
14
Price 12
10
8
6
4
2
Demand Curve
Equilibrium
Price
Supply Curve
and
Quantity
100
500
1000
1500
2000
Quantity
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-19
Dealing with a Shortage
A shortage
drives
prices
up.
Effects of a Shortage on Price
$20
18
16
14 Equilibrium
Price 12 Price B
10
8
6
4
2
100
500
Supply Curve B
Supply Curve A
Equilibrium Price A
Demand Curve
1000
1500
2000
Quantity
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-20
Dealing with a Surplus
A surplus
drives
prices
down
Effects of a Surplus on Price
$20
18
Demand Curve
16
14 Equilibrium
Supply Curve A
Price 12 Price A
10
Supply Curve B
8
6
Equilibrium
4
Price B
2
100
500 1000 1500 2000
Quantity
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-21
Private Enterprise
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
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-22
Competition
When businesses vie for the same resources or
customers in a particular market or industry.
 Motivates business to operate efficiently
 Forces business to make products better or cheaper
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-23
Degrees of Competition
Perfect Competition
Monopolistic Competition
Oligopoly
Monopoly
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-24
Perfect Competition
Has many sellers
The product is basically identical
Relatively easy to enter the industry
Individual firms have no control
over price
 The buyer will purchase from the lowest price source
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-25
Monopolistic Competition
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 control over pricing
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-26
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, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-27
Monopoly
one producer and source of supply
unique product complete control
over price
no competitors
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-28
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, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-29
Brief History of Business in Canada
The Early Years
The Factory System and the Industrial
Revolution
The Entrepreneurial Era
The Production Era
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
1-30
Brief History of Business in Canada
The Sales and Marketing Eras
The Finance Era
The Global Era
The Internet Era
Business, Sixth Canadian Edition, by Griffin, Ebert, and Starke
Copyright © 2008 Pearson Education Canada
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