MGTA01
Recession
Two consecutive quarters (two periods of 3 months each = 6 months) when GDP SHRINKS 2008-2009 recession in US - to many people were borrowing money to buy things they couldn't afford
Loss
When the revenues that a business generates are not sufficient to cover all of the costs and expenses involved in running the business.
Oligopoly - Few Sellers and Limited Choices
limited number of supplier which are very large due to barriers of entry large number of buyers small number of sellers barriers to entry the few sellers are large sellers very aware of each other, match prices competitors differentiate through branding ex: airlines, Banking, Cell phone services
There is no official definition of a small business
most statisticians categorize businesses according to the number of employees small - less than 100 employees medium - 100-499 employees large - more than 500 employees
gross domestic product (GDP) - tells us size of a nation's economy
the total value of all of the goods and services that are produced with a country during any given period US has largest GDP in the world therefore GDP is most often expressed in US dollars limitations: - does not tell us if the country's output is growing or declining or if citizens are rich or poor or if all the resources of a country are equally busy & productive - disguises fact that a small number of workers, industries or regions within a country are producing a disproportionate amount of the output, while unemployed workers and depressed regions are producing less
Government as regulators
- Canadian human rights act - Canadian labour code - Employment insurance act - Competition Act - Consumer packaging and labeling act
Mixed market economies and the roles of the government
- governments impose and collect taxes - governments passes laws which regulate the conduct of businesses - governments provide some products and services, occasionally in competition with private enterprise
Taxes
- personal income tax - corporate income tax - sales (or Consumption) tax - employment insurance (aid for those who lost their jobs)
No businesses can exist without some combination of natural resources, labour and capital
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Satisfying customers and pursuing profits are mutually dependent activities
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Entrepreneurs: Psychological Characteristics (4)
1. A desire to achieve goals 2. A belief in one's own ability to influence others 3. A willingness to tolerate uncertainty 4. Self-confidence
Arguments for planned economies
1. Only the state, with its ability to create and enforce the law, has the power and the authority necessary to feed, clothe, shelter, educate, and employ the nation's entire population 2. Businesses are primarily concerned with making a profit. Therefore, businesses have no concern for those who aren't customers, or do not have the money to buy products. Only the state has the benevolent interest in the welfare of all members of society.
Arguments for market economies
1. While the state sounds good in theory, it tends to work poorly in practice. People need an almost infinite variety of things: toothpaste, coffee, running shoes, haircuts etc. The full range of people's need, people of different genders, ages, tastes and personalities is simply too vast for any one entity - even the government - to plan, produce and distribute effectively 2. Government bureaucrats, working in offices far removed from the reality of the busy streets, lack the information and the "feel" for the average person's changing needs and changing tastes. 3. Provides competition. If you don't like the price, quality or selection of goods on offer from one business, you can generally walk down the street to find another. Without competition, state-run enterprises can become unresponsive, wasteful and ineffective 4. Planned economic systems concentrate power into the hands of the political elite while market economies are generally able to avoid that
businesses have better chance of surviving if the GDP is growing robustly rather than going through a period of recession
1st yr: 77% of businesses successful 2nd yr: 60% successful 3rd yr: only half still left in business
90% of all Canadian business employ FEWER THAN 10 PEOPLE 53% of businesses are self-employeed
80% of population works in the private sector of which 15% are self employed and 65% are not
Capital intensive
A business or a process that requires a large amount of money, machines or technology to produce its goods and services
Legislated Monopolies
A business that enjoys the exclusive right to sell a product or service in a given market because they government has given it that right, through the passing of a relevant legislation Government legislation permits or even dictates that only one supplier should have the exclusive right to produce and sell a product or service in a given territory ex: Cable TV providers have monopolies over terrestrial cable sources, LCBO can only sell spirits, utilities suppliers
Natural Monopoly
A business that for reasons of size, greater efficiency or exclusive access to resources or technologies, will always be cheaper than any of its rivals Ex: major league professional sports organizations Governments don't like these and break them up with legislation
Labour intensive
A business that requires a large amount of labour to produce its goods and services
Market Economies: MIXED MARKETS
A country where ownership and control of most of the factors of production are in the hand of private individuals. However, the government provides a stable and conducive environment by providing public services (ex: schools), enforces law (ex: police), and provides regulation and oversight. Ex: Canada
Market Economies
A country with an economic system in which individuals make the decisions about what gets produced
Lorenz Curve
A diagram used to graphically represent the distribution of income or wealth within a population Lorenz proposed the population be divided into 5 groups of "quintiles" each representing 20% of the population. On a bar chart, Lorenz plotted the income earned by the poorest 20% then beside it the cumulative income of the 40% and 20% quintiles and so on. Society where every household earns the same income is a straight line Society where the distribution of income in unequal is a curve shape
Perfect Competition - Many Sellers and Lots of Choices
A market characterized by a large number of small sellers. All sellers offer more-or-less the same product, for more-or-less the same price, and buyers have a lot of choice - large number of buyers - large number of sellers - no "barriers to entry" - all sellers have small market share - all sellers more or less the same - products are not differentiated - all sellers charge more or less the same ex: cartons of milk, fruits & vegetables
GDP Per Capita
A measure of a country's relative wealth, calculated by DIVIDING A COUNTRY'S GDP BY ITS POPULAITION helps see if the people in the country are rich or poor but GDP does not indicate this (since in GDP a large pop = large GDP) gives idea of how much the common person produces Countries With Highest GDP Per Captia: Luxemburg, Norway, Quatar, Mexico & Switzerland limitation: does not take into account whether a nation's output is produced by citizens, temporary workers or migrants
Target market
A particular group of people who share a number of similarities - for example age, gender, income, location - and who have similar needs and wants and are identified by the seller as being most likely to buy a business' products
Enterprise
A project or undertaking that requires energy and effort and whose outcome is uncertain
Industrial revolution
A series of technological developments and inventions (many of them labour saving) that transformed the manufacturing, agriculture, mining, and transportation industries in the 18th century
Command Economies
A synonym for planned economies, although one which implies a greater deal of authoritarianism
Progressive taxation
A tax that takes a larger percentage from the income of high-income earners than it does from low-income individuals
Unemployment
Actively seeking work, but unable to find work
SME small businesses create jobs
An acronym for small and medium sized enterprises, meaning any business with FEWER THAN 500 EMPLOYEES
Resource intensive
An activity that is predominantly dependent on the production or use of natural resources Ex: The apple growing industry is a resource intensive industry
Liberalism (Adam Smith)
An economic and political theory that espouses that people should be left to pursue their own self interest, without government interference. Liberalism assumes that people will make the choice to cooperate with others, because it is in their own interest to do so
Market Economies: PURE CAPTIALISM
An economic system in which all of the factors of production are owned by private individuals. All economic activity is privately run, citizens pay no taxes, and the government imposes no regulations on business. There are NO PURELY capitalist economies today No taxation & wealth will accumulate in the hands on the entrepreneurs and business owners
Planned Economies: COMMUNISM
An economic system where all of the factors of production are controlled by the state, and where there is no private property NO COUNTRIES EXIST that are purely communist economic systems (the closest in North Korea)
Planned Economies: SOCIALISM
An economic system where the government owns or control the majority of the factors of production and directs the majority of productive activity. Ex: China, Cuba & Vietnam. Government owns banks, railways, airlines, provision utilities, build houses, and distribution of food. Virtually all socialist countries allow room for some private property and some private enterprise.
Planned economy
An economic system where the government takes the lead role in owning and controlling the factors of production. In a planned economy, the decisions about what gets produced and how it gets produced are determined by a government plan
Underemployment
An employment situation where a person is not working at their full potential
crown corporations
An enterprise owned and operated by a government in Canada ex: CBC, Canada Post, LCBO, Hydro One, OLGC
Free enterprise
An expression used to indicate that individuals have the freedom to start and run businesses without bureaucracy and undue regulation Ex: Canada you don't need to inform the government you are starting a business but you do need to pay taxes (if income is more than $11, 500) which is how we know how many businesses there are
Theory
An idea, which is an attempt to explain something complicated, hard to understand, or hard to prove
Market
An interaction of buyers and sellers, exchanging information about goods and services for sale ex: housing market, street markets, the internet
Public sector organization
An organization that is owned by the government. Ex: Canada's Post, CBC and Canadian Heritage All funded my taxpayer money
Not For Profit Organization
An organization that may provide products or services, and may collect revenue, but is not intended to make a profit
Business
An organized effort to provide the things that people need and want, and are willing to pay for. A business exists in order to satisfy those customers needs, and also make a profit
Depression
An unusually long recession
Differentiation
Business activities designed to convince potential customers that your product is different or better than your competitor's products
Five characteristics common to all businesses
Businesses... 1. are ORGANIZED efforts 2. Provide things that people NEED and WANT 3. Must try to SATISFY customers needs 4. Generates REVENUE from sales 5. Try to make a PROFIT
How prices are set in a market
By the buyers and sellers negotiating ex: a used textbook has no intrinsic value. It is worth what a first year student will pay for it and what an upper year student is willing to sell it for. If the majority of textbooks are sold for $30 this represents the "MARKET PRICE"
Europe: Mobilization for War
Conscription: compulsory enlistment into state services typically into the armed forces therefore increasing labour (a factor of production) Rationing: limiting quantities of a good of commodity that each person is allowed (ex: food)
Market economies
Countries in which most of the factors of production are controlled by individuals and where entrepreneurship and business ownership are encouraged
Planned economies
Countries in which most of the factors of production are controlled by the state
The BRIC ( Brazil, Russia, India & China)
Countries with rapid economic growth with huge pop and large GDP which are the globe's greatest future source of economic growth and increased prosperity
The Bolshevik Revolution in Russia & Lenin
During reign of the Tsar, all of the capital was held in the hands of privileged few After revolution lead by Lenin, the Soviet Government assumed ownership of all banks and therefore the supply and distribution of capital. Soon government took over shipping companies, housing, factories and production & distribution of food
Children of Entrepreneurs gain 3 types of inheritance
Entrepreneurial Inheritance: The characters and values that are acquired from exposure to an entrepreneurial parent ex: value of hard work, self-reliance Vocational inheritance: An individual's tendency to observe and learn work or job-related skills and aptitudes from their parents Economic Inheritance: The tendency for children of entrepreneurs to receive financial capital to support their desire to start a business
Businesses provide both goods and services
Ex: banks, restaurants etc.
Empolyment
Having paid work
Locus of Control
Internal Locus of Control - Entrepreneurs: the belief that outcomes in life are influenced by a person's own behaviour and that an individual's actions and efforts help shape their fate high need for achievement - high internal locus of control External Locus of Control: The belief that outcomes are the result of fate, luck or powerful outside forces, which the individual cannot control
Monopolistic Competition
Large number of buyers Large number of sellers No barriers to entry most of the sellers are small A FEW SELLERS A LARGE and better known large seller can differentiate differences highlighted through branding most sellers charge the same LARGER "BRANDED" SELLERS CAN CHARGE MORE ex: starbucks vs. other local coffee shops
Capital
Money or the MACHINES and TECHNOLOGIES that money can buy Ex: a farmer's plough, tractor etc.
The Need if Achievement (3 motivational needs)
Need for Achievement (nAch) - Entrepreneurs: motivated by a sense of personal achievement. Set and attain challenging goals for themselves Need for Power (nPow): motivated to have authority & be influential Need for Affiliation (nAff): have friendly relationships & are motivated by interactions with others
Monopoly - Only one possible supplier
Only one seller Barriers to entry (natural or legislated) consumers have NO choice ex: many utilities, LCBO
The 1970s and 1980s: The Pendulum Swings Back
PERESTROIKA: The name given to a series of law instituted in the Soviet Union in the 1980s. These policies reversed the economic policies of collectivization and nationalization put in place after the Russian revolution MARGARET THATCHER: In the UK she argued for less intrusive and less intensive government. She pushed for privatisation
Labour Force
People aged 15 and over, who have a job or a business and those who are without work, but actively seeking work
The Working Poor
People who have employment but whose incomes are too low for them to save money or afford all of the necessities in life
Discouraged Workers
People who have withdrawn themselves from the workforce because they judged their chances of finding employment too remote to bother trying
Services - Intangible
Products which are intangible, we cannot see or touch a service, but we benefit from the experience of receiving the service Ex: safe streets, medical care
Goods - Tangible
Products which are tangible, that is they can be held and touched
Planned Economy Pros & Cons
Pros: - the nations best and brightest will be working in their respective fields for the state & will make rational decisions for the rest of the nation - brings fairness, social cohesion and prosperity Cons: - central planners base their decisions on models but not everyone fits the model (ex: not everyone has 2 children) - government bureaucracies are slow moving
Risk Tolerance - Entrepeneurs
Risk Aversion: A tendency to regard a new or previously unknown situations as threatening Risk Tolerance: A tendency to regard new or previously unknown situations as exciting and possibly desirable Entrepreneurs exhibit moderate risk taking properties - take calculated risks Calculated Risks: An enterprise undertaken after the advantages and disadvantages have been considered and the possibility of various outcomes have been calculated
The USA: Franklin Roosevelt and the New Deal
Roosevelt proposed the New Deal during the great depression Created a number of government agencies and gave them responsibility of creating jobs and producing products
Why do businesses make losses and fail?
Running a business is a human endeavour. You need to discover what people want and need. And also predict the future of the business and the industry which are all uncertain
China: Mao's Communists Win the Civil War
State-Owned enterprise: A government owned organisation that provides goods and services but does not seek to make a profit Mao made all mines, factories, transportation companies and banks into state-owned enterprises Mao's Great Leap Forward abolished private ownership of land and instead people forced into state-owned communes where they were ordered to make grain, or iron and steel
Factor substitution
Substituting one factor of production (for example capital) for another (for example labour) so that products can be made more quickly or cheaply
GDP Growth
The PERCENTAGE CHANGE, from one period to the next, in the total value of all the goods & services produced within a country growing GDP = businesses hiring more people to produce the goods that people need and want. Therefore, ore is available to be bought and sold limitations: does not show recessions
Factors of Production
The basic building blocks that, in combination, are required to make a business, and produce things 1. Natural labour 2. Labour 3. Capital 4. Entrepreneurship
Economies of Scale
The capacity o reduce costs when producing a good or service in very large quantities
Barriers to Entry
The characteristic which makes a business or industry DIFFICULT, time-consuming or expensive TO ENTER, or a PRODUCT DIFFICULT, time consuming or expensive TO MAKE ex: special equipment, scale
Marxism (Karl Marx)
The economic and political theories developed by Karl Marx. Marx argued that the owners (capitalists) of the means of production are a class of people who grow wealthy by exploiting the labour (labourers) of others
Branding
The efforts by a supplier to get potential customers to recognize its name, logo, colours, or slogan and therefore differentiate its products from those of all of its competitors Ex: Starbucks
Business Cycle
The expansion (peak/boom) and contraction (busts) of a nation's economic activity that happen over a period of 2 years, periodically and with great regularity
The Profit Motive - Distinguishes a business from other organizations
The idea that people will give up their time, energy and money only if there is some incentive for them to do so. If there is no pay-back for their self sacrifice and risk, rational people will save their time and energy
Economic system
The means by which a society produces and distributes the goods and services that its people need
Expenses
The money that a business spends, to provide customers with products
Revenue
The money that flows into a business every time it sells a product or a service to a customer
Private Sector (80% of population)
The part of the economy that is run by the private individuals, usually with the aim of making a profit
Entrpreneurs
The people who are motivated to take the time, to incur the costs and risks, and make the effort to make something happen. Without entrepreneurs, the other factors of production may exist, but would lack the organizing and coordinating influence.
Labour
The people who contribute their efforts to a business
Customers
The people who need or want, and are willing to pay for, the things that a business provides. Clients are those who use the service of a professional like a lawyer for example
Market Share
The percentage of an individual firm's sales relative to the total sales within a given market
Participation Rate
The percentage of the population aged 15 and over who are in the labour force Poor countries have high participation force because they need work
Unemployment rate
The percentage of those in the workforce who are actively seeking work but cannot find work Helps measure how well an country's economic system is working
Profit
The positive benefit from running a business. PROFIT = REVENUES - EXPENSES
Nationalism
The process by which a GOVERNMENT ASSUMES OWNERSHIP and control of resources, businesses, or industries, running them with the intention of befitting the entire nation
Privatisation
The process of transferring ownership of a business or an industry out from the government control and into the hands of private owners
Economics
The study of how people produce the things they need and want
Degrees of Competition
The various combinations of numbers of buys and sellers, in a market - perfect competition -oligopoly - monopoly - monopolistic competition
Enterprenurship
The willingness or the motivation to take initiative, and to accept the risk of failure in return for suitable gratification or reward
Natural resources
Things found in nature. Resources that grow out of the earth or can be extracted from it
Products
Things that result from human or mechanical effort or as the result of a natural process
