Transcript The Structure of the Canadian Economy: The

The Structure of the Canadian
Economy: The Private, Public
and International Sectors
Chapter 3
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The Private and Public Sectors
The private sector includes all independently
owned profit-making firms, nonprofit
organizations, and households; all the decision
making units in the economy that are not part
of the government
The public sector includes all agencies at all
levels of government - federal, provincial and
local.
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The Legal Organization of Firms
Proprietorship
A form of business organization in which a person
simply sets up to provide goods or services at a
profit. In a proprietorship, the proprietor(owner) is
the firm. The assets and liabilities of the firm are the
owner’s assets and liabilities.
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The Legal Organization of Firms
The Partnership
A form of business organization in which there is
more than one proprietor. The owners are responsible
jointly and separately for the firms obligations.
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The Legal Organization of Firms
The Corporation
A form of business organization resting on a legal
charter that establishes the corporation as an entity
separate from the owners. Owners hold shares and
are liable for the firm’s debts only up to the limit of
their investment, or share, in the firm.
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Shares of Stock, Dividends and
Retained Earnings
A share of stock is a certificate of partial
ownership of a corporation that entitles the
holder to a portion of the corporation’s profits.
Dividends are the portion of a corporation’s
profits that the firm pays out each period to
shareholders. Also called distributed profits.
Retained earnings are the profits that a
corporation keeps, usually for the purchase of
capital assets. Also called undistributed profits.
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Industry
An industry is all the firms that produce a similar
product. The boundaries of a product can be
drawn very widely (agricultural), less widely
(dairy), or narrowly (cheese). The term industry
is interchangeable with “market”.
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Market Organization
Market organization is the way an industry is
structured. This can be defined several ways:
How many firms are in an industry
Whether products are differentiated or are virtually
the same
Whether or not the firms in the industry can control
prices or wages
Whether or not the competing firms can enter and
leave the industry freely
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The Public Sector
The public sector operates on many levels in
Canada.
Federal government in Ottawa
Ten provincial and three territorial governments
Thousands of municipal governments (cities, towns
and villages)
Thousands more local school and hospital boards
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The Size of the Public Sector
Gross Domestic Product (GDP) is the total value
of all final goods and services produced by a
national economy within a given time period.
Public sector spending, as a percentage of GDP,
has been generally rising over time.
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Government Expenditure as a
Percentage of GDP 1950-1999
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(Figure 3.1)
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Government Spending
Purchases of goods and services
Transfer payments
Interest payments
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Government Purchases of Goods and
Services
A category of government spending that
includes the portion of national output that the
government uses or “consumes” directly such as
ships for the navy or salaries for government
employees.
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Government Transfer Payments
Government transfer payments are cash
payments made by the government directly to
households for which no current goods or
services are received. They include old age
security benefits, employment insurance, and
social assistance programs.
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Government Interest Payments
Cash payments made by the government to
those who own government bonds.
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The Size of the Canadian Public
Sector 1950-1999 (Table 3.7)
Government Expenditure as % of GDP
1950
Purchases of goods and9.0
services
1960
1970
1980
1990
1995
1999
12.2
17.1
17.7
25.3
24.1
21.9
Transfer payments
to persons
5.3
7.8
7.8
9.0
10.8
12.3
11.1
Interest payments
on debt
2.8
2.8
3.6
5.4
9.5
9.6
7.8
Other
4.2
6.0
6.4
7.6
1.9
1.4
1.6
Total
21.3
28.8
34.9
40.3
47.5
47.9
42.4
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Sources of Government Revenue
Personal income taxes
Corporate income taxes
General sales taxes (e.g. GST)
Excise taxes (taxes on specific commodities)
Payroll taxes
Customs duties (federal only)
Property taxes (local and provincial)
Transfers from other levels of government
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Sources of Public Sector Revenue in
1976/77 and 1995/96 (Table 3.9)
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The International Sector: Imports
and Exports in Canada
Canada’s economy is very trade dependent
Exports are about 43% of GDP
Imports are about 40% of GDP
This makes Canada sensitive to developments in
the international economy.
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Review Terms and Concepts
 corporate income taxes
 corporation
 dividends
 excise taxes
 government interest
payments
 government purchases of
goods and services
 government transfer
payments
 gross domestic product
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 industry
 international sector
 market organization
 net income
 partnership
 payroll taxes
 private sector
 proprietorship
 public sector
 retained earnings
 share of stock
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