Transcript unit 2 management thought

SESSION 2
ECONOMIC
CONTEXT
Reading: Karakowsky text, Ch.2
Learning Objectives:
By the end of the chapter, you should be able to:
 1. Identify the factors of production.
 2. Describe different types of global economic systems




according to the means by which they control the factors of
production through input and output markets.
3. Show how demand and supply affect resource distribution
in Canada.
4. Identify the elements of private enterprise and explain the
various degrees of competition in the Canadian
economic system.
5. Define key indicators of economic stability and economic
growth.
Opportunities and Challenges
in the Mobile Phone Market
What is the economic
environment of business?
The Idea of Business &
Profit
What is:
Business
Profit
Non-profit
Factors of Production
Businesses make economic choices based on
their needs for the five factors of production
1. Natural resources
2. Labour
3. Capital
- land and raw materials
- workers
- buildings, machinery, tools
and equipment
4. Information resources - knowledge workers with
specialized education, skills
and experience
5. Entrepreneurs
- individuals who start up
businesses
How does Tim Horton’s utilize the five factors of
production?
Factors of
Production:
Examples at Tim Horton’s
How used?
Natural resources
Land
Coffee beans
Sugar
Milk
to operate business
to make coffee
to make donuts
to make other products
Labour
Workers in franchise
Workers at corporate head
office
store manager, cashier, coffee maker,
Buildings
Machines
Tools
to run the fast food restaurant franchises
cooking equipment: to cook donuts, make
Specialized skills
individuals who understand the
Capital
Knowledge
donut maker, cleaner
executives, marketing managers, finance
managers, other administrative staff
coffee, etc
computers and calculators: to keep track
of revenues and expenses
complexities of the coffee-bean trade,
growing coffee etc
Entrepreneur
Franchise Owner
Tim Horton is the original founder, but
you can own and operate a franchise
Economic Systems
What is an economic
system?
Types of Economic
Systems:
1) Command/communism
2) Socialism
3) Market economy
•
Input and output markets
4) Mixed economy
1) Communism
Communism exists when the
government owns all the country’s
resources and makes economic
decisions centrally.
2) Socialism
Socialism is an economic system
whereby the government has large
ownership or control of its major
industries essential to the
country’s economy.
3) Market Economy
Private enterprise typically has
four elements:
•
Private property
• Freedom of choice
• Profits
• Competition
4) Mixed Economy
An economy that uses more than
one economic system.
Eg. Canada
The Laws of Supply and
Demand
Demand
 is the result of the decisions from
buyers on whether or not to
purchase a good or service.
Supply
 is the result of the decisions of
sellers whether to produce and
offer a good or service for sale.
The Laws of Supply and
Demand
The law of supply and demand
 states
that more of a good will be
demanded (by society) as the
price drops, and more of a good
will be supplied (by producers)
as the price rises.
Competition and the economy
Types of Competition:
1) Perfect (or Pure) competition
2) Monopolistic competition
3) Oligopoly
4) Monopoly
Competition and the economy
Types of Competition:
1)
Perfect (or Pure) competition




large number of buyers and sellers
acting independently
product or service is
undifferentiated
the market determines the price (a
price taker)
low barriers to entry
Competition and the economy
Types of Competition:
2) Monopolistic competition



Fewer companies compared to pure
competition compete with each
other but still as many buyers
products and services are
differentiated at least in a small way
market sets the price (a price taker)
Competition and the economy
Types of Competition:
3) Oligopoly
 when
only a few competitors
dominate an industry
 high barriers of entry
 a price setter
Competition and the economy
Types of Competition:
4) Monopoly
- a monopoly occurs when there is only one
producer in a given market
- no substitute products exist
- the company is able to determine the selling price
(a price setter)
- significant barriers to entry
Competition and the economy
Types of Competition:
Types of
Competition
Barriers
of
Entry
Number of Sellers
Is the Firm
a Price
Setter?
Product
Differentiation
Perfect
(or Pure)
None
Many
(Very competitive)
No
None
Monopolistic
Low
Many
(Very competitive)
No
Small
differentiation
Small
Oligopoly
High
Few
(Somewhat
competitive)
Yes
Some
differentiation
Large
Monopoly
No entry
is
achie
vabl
e.
One
(No competition)
Yes
None
Size
of
Fir
ms
Small
Large
Economic Stability and
Economic Growth:
1) The Business Cycle
2) Aggregate output, GDP, GNP
3) Productivity
4) The Balance of Trade & the National Debt
5) Inflation/deflation
6) Unemployment
ECONOMIC INDICATORS
1) The Business Cycle
2) Aggregate output, GDP, GNP
3) Productivity
4) The Balance of Trade & the National
Debt
5) Inflation/deflation
6) Unemployment
THE ECONOMIC ENVIRONMENT
In broad terms, the economic
environment refers to the
conditions of the economic
system in which an organization
operations.
Let’s now look at the indicators of
those “conditions”….
1. The Business Cycle
1.
2.
3.
4.
5.
Expansionary
Peak
Contraction
Trough
Recovery
2. GDP, GNP & Purchasing
Power Parity
Aggregate output & standard of
living
Gross domestic product (GDP)
Gross national product (GNP)
3. Productivity
“A measure of economic growth
that compares how much a
system produces with the
resources needed to produce
it.”
4. Balance of Trade &
National Debt
The balance of trade
The national debt
A budget deficit
5) Inflation/deflation
What is inflation?
How to measure inflation?
Consumer
Price Index (CPI)
What is deflation?
6) Unemployment
What is unemployment?
Types of unemployment:
Frictional
Unemployment
Structural Unemployment
Cyclical Unemployment
Seasonal Unemployment
SUMMARY CHAPTER 2 ECONOMIC CONTEXT
1. Identify the factors of production.
2. Describe different types of global economic
systems according to the means by which they
control the factors of production through input
and output markets.
3. Show how demand and supply affect
resource distribution in Canada.
4. Identify the elements of private enterprise
and explain the various degrees of competition
in the Canadian economic system.
5. Define key indicators of economic stability
and economic growth.