The Dynamics of

Business and
Economics

Chapter 1

©Steve Allen/ Getty Images

© 2020
© 2020 McGraw-Hill
McGraw-Hill Education Limited
Education Limited
 Learning Objectives
1-1 Define basic concepts such as business, product, and profit.
1-2 Identify the main participants and activities of business and
explain why studying business is important.
1-3 Define economics and compare the four types of economic
systems.
1-4 Describe the role of supply, demand, and competition in a free-
enterprise system.
1-5 Specify why and how the health of the economy is measured.
1-6 Trace the evolution of the Canadian economy and discuss the
role of the entrepreneur in the economy.

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 The Nature of Business 1
Businesses try to earn profits by providing
products that satisfy people’s needs
Products include:
• Tangible goods
• Automobile, smartphone, pair of jeans

• Service
• Dry cleaning, doctor’s visit, movie

• Idea
• Accountants and attorneys provide ideas for solving problems

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 The Nature of Business 2
The Goal of a Business: to earn a profit
Nonprofit organizations
• Do not share the purpose of earning profits
• May provide goods or services
• Engage in fund-raising
• Engage in management, marketing, and finance to
reach goals
Stakeholders

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 The Nature of Business 3
The People and Activities of Business
• Management
• Involves the functions of planning, organizing, leading, and
controlling
• Marketing
• Focus of all marketing activities is satisfying customers

• Finance
• Refers to all activities concerned with obtaining money and
using it effectively

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 Figure 1.1 Overview of the Business World

Access the text alternative for these images.

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 The Nature of Business 4
Why Study Business?
• Help you develop skills and acquire knowledge to
prepare for your future career
• Help you understand activities needed to provide
goods and services
• Help you become a well-informed consumer and
member of society

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 The Economic Foundations of Business 1
What is economics?
Resources
• Natural resources
• Human resources (also called labor)
• Financial resources (also called capital)
• Intangible resources

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 The Economic Foundations of Business 2
Economic Systems
• Communism
• Socialism
• Capitalism (or free enterprise)
• Pure capitalism
• Modified capitalism

• Mixed economies

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 Table 1.4 Comparison of Communism,
Socialism, and Capitalism
Topic Communism Socialism Capitalism
Business Most businesses The government owns Individuals own
ownership are owned and and operates some and operate all
operated by the basic industries; businesses.
government. individuals own small
businesses.
Competition Government Restricted in basic Encouraged by
controls competition industries; encouraged market forces and
and the economy. in small business. government
regulations.
Profits Excess income Profits earned by Individuals and
goes to the small businesses may businesses are
government. The be reinvested in the free to keep
government business; profits from profits after
supports social and government-owned paying taxes.
economic industries go to the
institutions. government.

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 Table 1.4 Comparison of Communism,
Socialism, and Capitalism

Topic Communism Socialism Capitalism

Product Consumers have a Consumers have Consumers have a
availability limited choice of some choice of wide choice of goods
and price goods and services; goods and services; and services; prices
prices are usually prices are are determined by
high. determined by supply and demand.
supply and demand.
Employment Little choice in More choice of Unlimited choice of
options choosing a career; careers; many careers.
most people work for people work in
government-owned government jobs.
industries or farms.

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 The Economic Foundations of Business 3
The Free-Enterprise System
• Many large economies are free-enterprise, such as
U.S., Canada, and Japan
• Many communist and socialist countries apply free-
enterprise principles, such as China and Russia
• Allows a company to succeed or fail on the basis of
market demand

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 The Economic Foundations of Business 4
The Free-Enterprise System continued
• Basic individual and business rights must exist in
order for free enterprise to work
• Right to own property
• Right to earn profits and use them as one wishes
• Right to determine business operations
• Right to choose a career, where to live or locate a business,
what goods/services to purchase, and more

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 The Economic Foundations of Business 5
The Forces of Supply and Demand
• Demand
• Supply
• Equilibrium price

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 Figure 1.2 Equilibrium Price of Handmade Rugs

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 The Economic Foundations of Business 6
The Nature of Competition
• Competition
Four types of competitive environments:
• Pure competition
• Monopolistic competition
• Oligopoly
• Monopoly

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 The Economic Foundations of Business 7
Economic Cycles and Productivity
• Economic expansion
• Inflation

• Economic contraction
• Recession
• Unemployment
• Depression

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 Figure 1.3 Unemployment Rate in Canada, 2013-2018

Statistics Canada. 2018. "Unemployment Rate", June 2018 (chart). Statistics Canada Table 14-10-0287-01. Released:
2018-07-06. https://www150.statcan.gc.ca/n1/daily-quotidien/180706/cg-a002-png-eng.htm (accessed October 9,
2018)

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 The Economic Foundations of Business 8
Economic Cycles and Productivity continued
• Measuring the economy
• Gross domestic product (GDP)
• Budget deficit

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 Figure 1.4 Canada’s Gross Domestic Product, 2013-2018

Statistics Canada. 2018. "Gross domestic product and final domestic demand", August 2018 (chart). Statistics Canada Table 36-
10-0104-01. Released: 2018-08-30.https://www150.statcan.gc.ca/n1/daily-quotidien/180830/cg-a001-png-eng.htm (accessed
October 25, 2018).
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 Table 1.7 How Do We Evaluate Our Nation’s
Economy?
Unit of Measure Description

The difference between exports and imports. If the balance is positive, it is

Trade balance called a trade surplus. When the balance is negative it is called a trade deficit
and is generally viewed as unhealthy for the economy.

Consumer price index Measures changes in prices of goods and services purchased for consumption
by typical urban households.

Indicates the income level of “average” Canadians. Useful in determining how

Per capita income much “average” consumers spend and how much money Canadians are
earning.

Unemployment rate Indicates how many working age Canadians are not working who otherwise
want to work.

Monitors price increases in consumer goods and services over specified periods
Inflation of time. Used to determine if costs of goods and services are rising faster than
worker compensation over time.

Worker productivity The amount of goods and services produced for each hour worked.
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 The Canadian Economy 1
Canadian Economy
• Mixed economy
• Foundation based on capitalism
• Standard of living is high

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 The Canadian Economy 2
The Importance of the Canadian Economy
• Open economy
• Important player in international trade
• Access to a wide range of resources and knowledge
• Improved levels of innovation

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 The Canadian Economy 3
A Brief History of the Canadian Economy
• The early economy
• The Industrial Revolution
• The manufacturing and marketing economies
• The service and new digital economy

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 Figure 1.5 Online Retailing and E-Commerce in Canada

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 The Canadian Economy 5
The Role of Government in the Canadian
Economy
• Best described as a mixed economy
• Regulate business to preserve competition and
protect consumers and employees through laws and
regulations
• Intervene occasionally to regulate economy and spur
growth

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 Mobile Payment Systems

Google Pay is a mobile payments system that allows users to store

their credit card or debit card information. When checking out at stores,
users can bring up the app and use the information to pay for their
purchases. 27
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©dennizn/Shutterstock
 The Canadian Economy 4
The Role of the Entrepreneur
• Risk their wealth, time, and effort to develop a product
or service they can sell for profit
• Let the free-enterprise system help them to succeed
• Change business practices through new technology
and innovative management techniques

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 The Canadian Economy 6
The Role of Ethics and Social Responsibility in
Business
• Promote public confidence
• Foster business ethics
• Encourage socially responsible behaviour
• Push for diversity in workforce
• Enhance reputation and drive profits

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 Socially Responsible Behaviour

Many companies engage in socially responsible behaviour to give back to their

communities. Home Depot partners with Habitat for Humanity to build homes
for disadvantaged families.
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 Can You Learn Business in a Classroom?
Absolutely!
To be successful in business you need:
• Knowledge
• Skills
• Experience
• Good judgment

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