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Chapter 1
Understanding the
Canadian Business
System
Copyright © 2006 Pearson Education Canada Inc.
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Learning Objectives
Define the nature of Canadian business and
identify its main goals
Describe different types of global economic
systems
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
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The Nature of Canadian
Business
Business: an organization
that produces or sells goods
or services in order to make
a profit
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The Nature of Canadian
Business
Profit


The money left over from revenues
after a firm pays its expenses
Motivates individuals to engage in
business activities
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Factors of Production
Capital
Factors of Production
-resources used by firms
to create goods & services
Natural
Resources
Human
Resources
Entrepreneurs
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Types of Economic Systems
Command economies
Communist
 Socialist

Market economies
Mixed economies
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The Communist Model
The government
owns the factors of
production and
makes all decisions
regarding
distribution of
resources
Government owns
all industries,
including essential
services
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The Socialist Model
The government
owns and
operates all
critical industries
such as utilities &
major institutions
Individuals own
non-critical
businesses
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Market Economy
Distribution of
resources is based on
supply & demand
Ownership of the
factors of production
is open to all who
have the ability and
the interest
Buyers and sellers
have freedom of
choice
The market is the
mechanism for the
exchange of goods
and services
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Input and Output
Markets
Input market

Firms buy resources from households
Output market

Households buy goods and services
from firms
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Circular Flow in a Market
Economy
FIRMS
•Supply products in
output markets
•Demand resources
in input markets
OUTPUT MARKETS
•Goods and Services
INPUT MARKETS:
•Labour
HOUSEHOLDS:
•Capital
•Demand products in output markets
•Supply products in input markets
•Entrepreneurs
•Physical resources
•Information resources
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The Mixed Economy
Mixed economy

a system featuring characteristics of both command
and market economies
No country has a pure communist, socialist, or
capitalist system
Eastern European countries are adopting a
mixed economy by privatizing many of their
state run enterprises
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The Many Roles of
Government
Competitor
Customer
Provider of
Incentives
Regulator
Taxation Agent
Provider of Essential Services
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Economic Administration
and Regulation
The government manages and
regulates business …
Canadian
Tobacco Act
Canada Water Act
Environmental Contaminants Act
Competition Policy
Provincial Boards
Food and Drug Act
Hazardous Products Act
National Energy Board
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Radio -television
and
Telecommunications
Commission (CRTC)
Weights and
Measures Act
Fisheries Act
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Government As Tax Agent
Revenue taxes



designed to generate cash to fund various services
and programs e.g. income taxes
Progressive revenue taxes are levied at a higher
rate on higher-income taxpayers than on lowerincome taxpayers (income taxes)
Regressive revenue taxes are levies at the same
rate regardless of a person’s income (sales taxes)
Restrictive taxes

Levied to control certain activities: to lessen the
consumption of liquor & tobacco
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Government Incentives
Government provides aid and assistance to
small businesses and non-profit organizations
Incentives stimulate growth in revenues and
employment
Help
Loans
jobs
Training
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Government Provider of Essential
Services
All three levels of government provide various services

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



Highways
Postal service
Money
Armed forces
Information
Sewer & sanitation
Emergency services
Health services
Education
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How Business Influences
Government
Business
Lobbyists
Trade
Associations
Advertising
Government
Lobbyists must register to be in accordance
with the Lobbyists Registration Act
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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
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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
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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
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Private Enterprise
Private enterprise occurs in a market economy
Under this system individuals

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Can own property
Have freedom of choice
Have the freedom to earn profits
Have freedom to compete
Government interference is minimal
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Degrees of Competition
Perfect competition
Monopolistic competition
Oligopoly
Monopoly
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Perfect Competition
Has many sellers
The product is basically identical
Individual firms have no control over price
The buyer will purchase from the lowest price
source
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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 limited control over
pricing
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Oligopoly
A few large sellers dominate the market
High barriers to entry
Product differentiation is used to attract
customers
Each supplier knows what the others are
charging
Competition can be fierce
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Monopoly
One producer

Electric utility
Unique product
The producer has complete control over
price because there are no competitors
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Natural Monopoly
A market or industry in which
having only one producer can
efficiently meet demand
It is the most efficient
approach – duplicate facilities
would be wasteful

Electric power utility
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Brief History of Business in
Canada
The early years
The factory system and the industrial
revolution
The entrepreneurial era
The production era
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Brief History of Business in
Canada
The sales and marketing eras
The finance era
The global era
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The Early Years
Business activity and profit
from commercial fishing were
the motivation for the first
European settlers
Mercantilism: colonists were
expected to export raw
materials like beaver pelts and
lumber at low prices to the
mother country (notably
England and France)
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The Industrial Revolution
Industrial Revolution: A major
change in goods production
characterized by a shift to the
factory system, mass production,
and specialization of labour
Factory system: a process in which
all the machinery, materials, and
workers required to produce a good
in large quantities are brought
together in one place
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The Entrepreneurial Era
Adam Smith argued in his book
“The Wealth of Nations” that the
“invisible hand” would guide the
economy to produce high quality
products for the lowest possible
prices
Government involvement should be
discouraged and businesses should
function without regulation or
restriction
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The Production Era
Concepts of specialization and mass
production were more fully refined
Business focused on improving productivity
and manufacturing methods
Introduction of the moving assembly line
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The Sales and Marketing Eras
Sales era: business focused on sales forces,
advertising, and keeping products readily
available
Marketing era: business began to identify
and meet consumers wants in order to make
a profit
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The Finance Era
Period when emphasis shifted to mergers
and the buying and selling of business
enterprises
Also known as the “decade of greed”
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The Global Era
Technological advances in production,
computer technology, information systems,
and communication capabilities
Emergence of global economy
Rapid increase in internet usage facilitates
global business activity
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