Chapter 4: Business and the Community
pages 60 - 77
Economic Systems
Economic System: the way the government and businesses work together to provide
goods and services
- economic systems need to be efficient because the amount of resources used to
produce goods and services are limited. Governments and businesses must ask
three major economic questions:
- what goods and services should be produced
- how they should be produced
- for whom should they be produced
Pure Command Economy (communist system)
- the government owns almost all resources, farms, factories, machinery, offices and
businesses
- the government answers the three major economic questions
Pure Market Economy (free market or capitalist)
- the buyers and sellers of goods and services direct the economic system
- the market place answers the three major questions (consumers decide what will be
produced, competition decides how to produce it most efficiently, consumers decide
what they want)
- free enterprise: consumers free to purchase what they want, businesses are
encouraged to establish an operation
- private property: individuals are free to own, use and dispose of their things of value
- freedom of choice: individuals are free to do as they wish as long as they don’t
break laws
Modern Mixed Economy
- a mix of both economies in varying proportions
- both consumers, buyers and the government make decisions and answer the three
economic questions
- all economies are mixed
Public and Private Sectors
In every mixed economy, businesses are divided into two sectors, the private sector and
the public sector.
- Private Sector: Businesses are individually owned and operated. Their purpose is
primarily to make a profit.
- Public Sector: Different levels of government provide services to Canadians.
Schools, public utilities, and hospitals are three examples of services provided by
public sector businesses. These businesses do not serve the purpose of generating
income for themselves.
- Crown Corporation: A business owned and operated by the provincial or the federal
government. This could happen to protect Canadian culture from Americans or so the
government can have a presence in the industry.
- Public-private partnerships: (a.k.a. P3’s) Businesses from the public and private
sectors that have pooled resources and gone into business together. These
partnerships form because a proposed business venture or project is simply too huge
for one sector to assume. Another advantage of private-public partnerships are that
they share the risk and responsibilities of both private AND public sectors.
- Privatization: This occurs when a publicly owned business or industry is sold to the
private sector. A government may decide to privatize a service because it feels that
the private sector could do a better job, or because the government is losing money
providing that service.
- Outsourcing: When a public operation subcontracts a private business to complete a
job. This could happen for efficiency reasons.
Impact of Businesses on the Community
- Standard of Living: the way a person lives as measured by the kinds of
goods/services they can afford as provided by businesses (income, the
goods/services)
- businesses also affect the quality of life of society: higher pay equals a higher
standard of living, services (health, childcare, dental, recreational) the business
provides
- businesses can also have a negative affect on the community, for example increase
pollution, construction, changing demographics
- businesses also generate wealth, income, and jobs
Generation of Wealth
The Money Trail
- as businesses need services to run, they circulate money through the community
- following the circulation is called following the money trail. we follow the money in
levels
- Level One Money: the money received for work. Example: construction worker
receives pay for building a new building
- Level Two Money: level one money being spent. Example: the construction worker
uses his pay to buy groceries and pay rent
Generation of Jobs
the amount of jobs a business creates is based on the job market, which is influenced
by consumer demand, technology, competition, and the business cycle
Consumer Demand
- consumers want new things and businesses comply
- as businesses create new products for the consumers, new jobs are created as new
skills are needed
- consumers stop wanting these new products as something more desirable comes
along and jobs are lost
Competition and Technology
-
competition may cause a business to fail or go bankrupt in which jobs are lost
in order for this not to happen, businesses must be efficient to make money
efficiency may mean firing some people to save money
technology may make businesses more efficient and this technology may replace
some jobs meaning people may get fired
- technology may need experts in order to operate properly, therefore creating jobs
The Business Cycle
- how the economy fluctuates in cycles
- one cycle is about 8 - 10 years
- four phases:
- trough: lowest level of the cycle, high unemployment, businesses have difficulty
making profit
- recovery: demands for goods and services increase, employment rate begins to
rise
- peak: highest level of the cycle, low unemployment, demand for goods and
services high
- recession: businesses overproduced due to high demands and are overstocked,
businesses start loosing money and jobs are lost
Recovery
Generation of Income
- businesses sell goods, services, or make investments to generate income
income is taxed (as well as property, and sales) and these taxes are used to help the
community
Chapter 4: Business and the Community
Practice Test
1. What is a modern mixed economy? Why are all economies
modern mixed?
2. Draw a diagram of the range of economic systems with “command
economy” on one end and “market economy” on the other. Place
Canada, USA and North Korea on your diagram.
3. Give an example of a public sector and a private sector.
4. If the TTC was sold to a private company, what would it be an
example of? Why might this happen? Would a public-private
partnership be more beneficial?
5. What is the “standard of living” and how do businesses affect it?
6. A new business is opening a store. They hire an architect to
design the store. He is paid $100,000. He uses this money to pay
groceries.
a) What is the level one money?
b) What is the level two money?
7. What are the four phases of the business cycle? Draw a diagram
and give a brief explanation of each.
8. How are businesses affected by:
a) consumer demand
b) technological improvements