Ch.2 * What is an economic system?
Business organizations exist in an economic system or environment that provides employment for workers, pays taxes to as many as three levels of government (in Canada), and supports many charities.
The system in which sellers and buyers can exchange goods and services is called a market. The local farmers market is a market. Farmers bring their fruits and vegetables to a single location to attract customers to that location. A stock exchange, like the Toronto Stock Exchange, is another example of a market. This is a market in which people can buy or sell shares.
This chapter will review how the different countries of the world are divided between those that follow the concepts of command economies - socialism and communism - and those that have adopted a market economic system - capitalism and a mixed economy. The pursuit of social, economic, and political goals; the treatment, use, and motivations of the workforce; and market dynamics are different under each of the two approaches.
Many countries have changed their economic systems. The strength of an economic system, or the economy overall, has a major impact on business. Canada enjoys a mixed economy. As such, economic concepts such Gross Domestic Product (GDP), productivity, unemployment rates, inflation, Consumer Price Index (CPI), and the overall business cycle, need to be carefully and continuously monitored, understood, and analyzed.

Learning Goals Key Concept/Learning Goal | Summary | Explain what capitalism is and how free markets work. | Capitalism is an economic system in which all or most of the factors of production and distribution (e.g., land, factories, railroads, and stores) are privately owned (not owned by the government) and are operated for profit.

In capitalist countries, business people decide what to produce, how much to pay workers, how much to charge for goods and services, where to sell these goods and services, and so on. | Define supply and demand and explain the relevance of the equilibrium point. | In a free market, prices are not determined by sellers; they are determined by buyers and sellers negotiating in the marketplace.

Supply refers to the quantity of products that manufacturers or owners are willing to sell at different prices at a specific time. Generally speaking, the amount supplied will increase as the price increases. Demand refers to the quantity of products that people are willing to buy at different prices at a specific time. Generally speaking, the quantity demanded will increase as the price decreases.

The place where quantity demanded and supplied meet is called the equilibrium point. | Define socialism and its benefits and negative consequences. | Socialism is an economic system based on the premise that some, if not most, basic businesses—such as steel mills, coal mines, and utilities—should be owned by the government so that profits can be evenly distributed among the people. Historically, socialism has become popular in countries were the government or monarchy became corrupt and average people were not able to buy goods and services at a reasonable price. Free education, health care, child care, and unemployment insurance are some of the benefits evident in socialist countries. However socialist countries are also places were entrepreneurs feel discouraged and many leave to go “make their fortune” in more capitalist countries. | Understand communism and the challenges of such a system. | Communism is an economic and political system in which the state (the government) makes almost all economic decisions and owns almost all of the major factors of production.

In reality, pure communism does not exist in the world today – China is supposed to be communist, but many private and state owned businesses make great profits by selling products to Europe and North America which has created a class of wealthy people in Beijing. Cuba is supposed to be communist, but its tourist resorts make great profits by hosting Canadian and European travellers. North Korea says it is communist by it is in effect a dictatorship. | Describe the mixed economy of Canada. | Mixed economies exist where some allocation of resources is made by the market and some is made by the government. “Mixed economies” are a little bit socialist and a little bit capitalist. We have “almost” free health care in Canada, but not free college and university education. | Discuss the significance of key economic indicators and the business cycle. | Three major indicators of economic conditions are
(1) the gross domestic product (GDP),
(2) the unemployment rate, and
(3) the price indexes.

Knowing how these indicators rise and fall helps businesses plan for the future. |

CH.3 * The Role of Government
The government provides a number of services and resources for helping businesses expand their operations into other countries. In addition to assisting companies enter foreign countries; the Canadian government has other responsibilities, including the power to improve Canada's international competitiveness.
Canadian politics is dominated by political parties, each of which has particular views on how to address issues such as: * Influencing monetary policy - controlling interest rates and the supply of money. * Reducing the national debt * Maintaining political stability.

Learning Goals Key Concept/Learning Goal | Summary | Understand the six categories of government activities that can affect business. | Government activities that affect business can be divided into six categories. * Crown Corporations * Laws and Regulations * Taxation and Financial Policies * Government Expenditures * Purchasing Policies * Services | Trace the historical role of government in the Canadian economy and understand why Crown corporations were created. | When Canada was formed as a country in 1867, the federal government was given the power to "regulate trade and commerce." The United States developed much faster and with a much larger population and a bigger economy—which provided products not available in the provinces, either because they were not made in Canada or because there was no transportation to distribute them. This led the Canadian governments, starting with our first prime minister, Sir John Macdonald, to develop what was called a National Policy. The Policy placed high tariffs on imports from the United States to protect Canadian manufacturing, which had higher costs.Crown corporations were set up for several reasons. They provided services that were not being provided by businesses, which is how Air Canada came into being in the 1930s. Crown corporations were created to bail out a major industry in trouble, which is how the Canadian National Railway was put together in 1919. Lastly, they provided some special services that could not otherwise be made available, as in the case of the Bank of Canada. | Discuss why understanding laws and regulations at all levels of government is critical to business success. | Laws and regulations are created by the politicians who, for the most part, have been elected by Canadians. Consequently, the political parties in power can greatly affect the business environment. This is also why it is important to be aware of the beliefs of the different parties.For example, you might think it is acceptable for the provincial government to spend money on "faith-based schools", if you are a person of a particular faith new to Canada and want government support for a school near your religious building. If you are an older Canadian, or a person of a different faith, you might object to your tax dollars going to support on particular religion. | Explain how taxation and financial policies affect the Canadian economy. | Fiscal policy refers to the federal government's effort to keep the economy stable by increasing or decreasing taxes or government spending.The first half of fiscal policy involves taxation. Theoretically, high tax rates tend to slow the economy because they draw money away from the private sector and are remitted to the government.The second half of fiscal policy involves government spending. The government spends money in many areas including social programs, highways, the environment, and so on. If the government spends over and above the amount it gathers in taxes for a specific period of time (namely, a fiscal year), then it has a deficit.Taxes are how the government pays for public services (e.g., fire, police, and libraries), pay down debt, and fund government operations and programs. Taxes have also been used as a method of encouraging or discouraging taxpayers – for example high taxes on alcohol and cigarettes.Nobody likes paying taxes, but most people who find it frightening if they called 911 and nobody came. | Describe how government expenditures benefit consumers and businesses alike. | The government spends money in many areas including social programs, highways, the environment, and so on. If the government, for example, does not spend money on paving roads in the summer and snow removal in the winter, this makes it difficult for business because it will make transportation of supplies and products difficult. | Illustrate how purchasing policies and services assist Canadian businesses. | Most governments are very large purchasers and consumers of goods and services; indeed, in Canada they are the largest buyers.Example: If you were a small company selling computer monitors you could sell one at a time to individual customers coming into the store, or, you make thousands of dollars selling to a local school, which is funded by the Ministry of Education – which is "the government". |

CH.5 * Introduction
Forms of Business Ownership
There are 3 main forms of business of business ownership in Canada. You may choose to operate a business as any of a: * Sole Proprietorship * Partnership * Corporation *
Learning Goals Key Concept/Learning Goal | Summary | List the advantages and disadvantages of sole proprietorship in Canada. | Advantages of Sole proprietorships * Ease of starting and ending the business. * Being your own boss. * Pride of ownership. * Retention of company profit. * No special taxes. * Less regulation.Disadvantages of Sole proprietorships * Unlimited liability—the risk of personal losses. * Limited financial resources. * Management difficulties. * Overwhelming time commitment. * Few fringe benefits. * Limited growth. * Limited lifespan. * Possibly pay higher taxes. | Describe the advantages and disadvantages of partnerships. Include the differences between general and limited partners. | Advantages of partnerships * More financial resources. * Shared management and pooled/complementary skills and knowledge. * Longer survival. * Shared risk. * No special taxes. * Less regulation .Disadvantages of partnerships * Unlimited liability. * Division of profits. * Disagreements among partners. * Difficult to terminate. * Possibly pay higher taxes.The differences between general and limited partners. * A general partnership is a partnership in which all owners share in operating the business and in assuming liability for the business's debts. * A limited partnership is a partnership with one or more general partners and one or more limited partners. | Discuss the advantages and disadvantages of corporations. | Advantages of corporations * Limited liability. * More money for investment. * Size * Perpetual life. * Ease of ownership change. * Ease of drawing talented employees. * Separation of ownership from management.Disadvantages of corporations * Extensive paperwork. * Double taxation * Two tax returns. * Size * Difficulty of termination. * Possible conflict with stockholders and board of directors * Initial cost. | Define and give examples of three types of corporate mergers, and explain the role of leveraged buyouts and taking a firm private. | There are three major types of corporate mergers: vertical, horizontal, and conglomerate. * A vertical merger is the joining of two firms involved in different stages of related businesses. * A horizontal merger joins two firms in the same industry and allows them to diversify or expand their products. * A conglomerate merger unites firms in completely unrelated industries. The merger of a soft drink company and a snack food company would be an example of a conglomerate merger.A leveraged buyout (LBO) is an attempt by employees, management, or a group of investors to purchase an organization primarily through borrowing. The funds borrowed are used to buy out the stockholders in the company. The employees, managers, or investors now become the owners of the firm. | Outline the advantages and disadvantages of franchises, and discuss the challenges of global franchising. | Advantages of franchises * Management and marketing assistance. * Personal ownership. * Nationally recognized name. * Financial advice and assistance. * Lower failure rate.Disadvantages of franchises * Large start-up costs. * Shared profit. * Management regulation. * Coattail effects. * Restrictions on selling. * Fraudulent franchisors.What makes franchising successful in international markets is what makes it successful domestically: convenience and a predictable level of service. | Describe the role of co-operatives | A co-operative is an organization owned by members and customers who pay an annual membership fee and share in any profits. Collectively, there are over 10,000 co-operatives and credit unions. |

CH.6 * Introduction
Every year thousands of people launch new business ventures. These individuals are called entrepreneurs. They develop or recognize new products or business opportunities, secure the necessary capital, and organize and operate businesses. Small businesses are thriving and are making a significant contribution to the economic well-being of Canadians.
There are many factors that contribute to small business success, and similarly, there are many reasons why small businesses fail. Managing a small business poses many challenges in both the start-up and in the ongoing long-term success of the operation. Small business entrepreneurs must carefully plan and finance the business; develop and prepare a detailed business plan; conduct a carefully crafted market analysis; manage the human resources component competently; and establish effective accounting procedures.
An entrepreneur may provide time and money in the effort to make a profit, and - hopefully - not a loss. This potential for profit, with a chance for a loss, is called risk.
At some point, all businesses were started by entrepreneurs. What is it that makes one person a successful entrepreneur and another not?
Is there a way to identify the characteristics that will make someone a successful entrepreneur?
According to many studies, successful Canadian entrepreneurs possess the following characteristics: * Experience * Strategic Vision * Impatience * Willingness to share * People Oriented * Enthusiasm * Ability to deal with stress * Persistence * Lifelong learning * Ability to communicate

*
Learning Goals Key Concept/Learning Goal | Summary | Explain why people are willing to become entrepreneurs. | Reasons why people are willing to take the challenge of starting a business: * Some entrepreneurs are driven by a firm belief, perhaps even an obsession, that they can produce a better product, or a current product at a lower cost, than anybody else. * Many entrepreneurs simply do not enjoy working for someone else. They like doing things their own way without someone standing over them. * Many people thrive on overcoming challenges. * Some people grow up in an atmosphere in which family members have started their own businesses. | Describe the attributes of successful entrepreneurs. | Some important entrepreneurial attributes. * You should be a self-starter, with a lot of confidence in yourself. * You do not hesitate to step into any situation. * You need to see you through all of the obstacles and difficulties you will encounter. * You have to believe in your idea even when no one else does, and be able to replenish your own enthusiasm. * The most important thing is a burning desire to realize, actualize, and build your dream. | Discuss the importance of small business to the Canadian economy. | Nearly all small businesses are Canadian-owned and -managed. This is in contrast to large businesses, of which many are foreign-owned and -managed. Small business thus plays a major role in helping to maintain the Canadian identity and Canadian economic independence. | Summarize the major causes of small-business failure. | Some of the causes of small-business failure: * Plunging in without first testing the waters on a small scale. * Under pricing or overpricing goods or services. * Underestimating how much time it will take to build a market. * Starting with too little capital. * Going into business with little or no experience and without first learning something about the industry or market. * Borrowing money without planning just how and when to pay it back. * Failing to keep complete, accurate records, so that the owners drift into trouble. | List ways to learn about how small businesses operate. | There are several ways to get into your first business venture:
1. Start your own company.
2. Buy an existing business.
3. Buy a franchise unit
4. Inherit / takeover a family business. | Analyze what it takes to start and run a small business. | The number-one reason for small-business failure is poor management.Critical to success is to have a well written business plan which serves as a guide for what to do, as well as explaining to potential lenders what your potential is. | Outline the advantages and disadvantages that small businesses have in entering global markets. | Small businesses have several advantages over large businesses in international trade:
• overseas buyers enjoy dealing with individuals rather than with large corporate bureaucracies
• small companies usually can begin shipping much faster
• small companies provide a wide variety of suppliers
• small companies can provide more personal service and more undivided attention,Most small businesses still do not think internationally, and only a small percentage of small businesses export.
(1) financing is often difficult to find,
(2) many would-be exporters don't know how to get started,
(3) potential global business people do not understand the cultural differences of prospective markets, and
(4) the bureaucratic paperwork can threaten to bury a small business. |