DYNAMICS

1
DYNAMICS INTERRELATIONSHIPS AMONG BUSINESS,
ECONOMICS GOVERNMENT
2
THE DYNAMICS OF BUSINESS ECONOMICS
3
Different Economic Systems

• Capitalism - individuals seeking profits produce
  goods and services
• Goods and services are sold in a free market to
  those who can pay for them
• Communism or State Socialism- the government
  decides what will be produced and who will
  consume that production
• Socialism - some free market and some government
  allocation
• Most countries have a Mixed Economy

4
Economic Theory of Wealth Creation Adam Smith

• Adam Smith wrote The Wealth of Nations in 1776
• He defined Capitalism
• Capitalism is a system of rights and freedoms
• Right to Make a Profit
• Right to Private Property
• Right to Buy or Sell
• Freedom to Compete
• Freedom from Government Interference

5
The Foundations of Capitalism

• How a free market works - many buyers and sellers
  trading freely determine prices at which they
  will exchange goods and services
• Theoretically how prices are determined - the
  constant interplay between supply and demand
  determines an equilibrium price at which a
  transaction will occur

6
SUPPLY DEMAND
7
Supply Curve
High
Price(P)
S
High
Quantity(S)
Low
8
Demand Curve
High
Price(P)
D
High
Low
Quantity(D)
9
Equilibrium Point
Surplus
High
Market Equilibrium
Price
S
D
Shortage
Quantity
High
Low
10
THE FORCES OF SUPPLY DEMAND GROUP WORK
11
Free-Market Competition
Monopolistic Competition
Oligopoly
One
Many
Monopoly
Perfect Competition
Sellers
12
Limits of Free-Markets

• Inequality of Wealth- Causes National World
  Tension
• Especially difficult for the minority groups, the
  sick the aged
• Greed Compromises Ethics
• Potential Environmental Damage
• Limitations Push Country towards Socialism
  Government Regulation

13
KARL MARX ALTERNATIVES TO CAPITALISM

• What to do about the inequalities of capitalism?
• Workers should own the means of production
• USSR - State ownership of the means of production

14
Three Economic Systems
Mixed
Socialism
(Highly Controlled)
(Little Control)
Communism
Capitalism
15
Economic Systems and Where They Occur

• Communism
• Or State Socialism North Korea Cuba
• China (approaching mixed economy)
• Mixed Economies
• Attention to Social Policy (in order)
• Nordic countries (Sweden most prominent)
• France Israel
• India (more socialist in economy than the
  others above)
• More Capitalist Less attention (in order)
  United States, Canada, Australia, Japan

16
RANKING OF GROWTH COMPETITIVENESS
17
THE MIXED ECONOMY OF CANADA

• Reasons why government has played a large role in
  the economy
• Reduction of government involvement in
  regulation of the economy
• Trend of deregulation is widespread in most
  countries Eastern European countries, republics
  of former Soviet Union, and China

18
ECONOMIC CONCEPTS IMPORTANT IN BUSINESS

• Gross Domestic Product
• Total value of a countrys output of goods
  services in a given year
• Growth in GDP is good but it should not be
  either too fast or too slowly. Why?
• Productivity labor cost total output of goods
  services of a given period by the total hours
  of labor required to produce them
• Unemployment
• National Debt
• Inflation

19
Inflation and the CPI

• Consumer Price Index (CPI) is the index
  economists use to measure the effects of
  inflation
• Inflation was high prior to the 1990s, but it has
  been about 2 per year in recent years
• The Rule of 72 means that dividing 72 by the rate
  of inflation equals the number of years that
  prices will double due to inflation
• Currently, it would take 36 years for prices to
  double due to inflation

20
What Makes Up TheConsumer Price Index?
SOURCE U.S. Bureau of Labor Statistics
21
The Outlook for our Economy

• Unemployment has remained stubbornly high in the
  1990s
• By 1999 2000 Canadian economy improved but
  collapse of technology stocks had a very negative
  effect on the economy
• Mid 2001 air of uncertainty about the prospects
  for the Canadian American economies
• Sharp decline in profits stock market values of
  high tech-companies, and especially the dot-coms,
  was a major contributing factor to the economic
  weakness uncertainty about the future
• September 11, 2002 World Trade Center disaster
  led to heightening of uncertainty about the
  future caused a further decline in an already
  weak economy
• 2004 - Canada is in the early stages of long-term
  economic growth with excellent job prospects for
  those entering the workforce
• Those with education and the ability to learn new
  skills will be successful

22
REPORT OF WORLD ECONOMIC OUTLOOK APRIL 2005

• Recovery continuing - growth in world output
  predicted to be 4.3 in 2006 4.4
• Projection for U.S. 3.6 in 2005 2006
• Projection for Canada 4.3 in 2005 4.4 in
  2006
• Still problems with the debt national debt
  stated as percentage of GDP was 47.6 in 2004
  projected to decrease to 43.9 in 2005
• US 45.2 in 2004 47 projected for 2005
• Both countries too high - but better than Japan
  (78)!

23
THE ROLE OF GOVERNMENT IN BUSINESS
Claude Monet
24
GOVERNMENT EFFICIENCY
25
Historical Role of Government in the Economy

• Canada has a mixed economy our various levels
  of governments play a large very role in our
  economy
• From the start in 1867 the National Policy was to
  force trade to flow East-West
• Tariffs were used to deter the natural
  North-South flow of goods

26
HOW GOVERNMENT AFFECTS BUSINESS TODAY

• CROWN CORPORATIONS
• SERVICES
• FINANCIAL AID
• PURCHASING POLICIES
• LAWS REGULATIONS

27
Crown Corporations

• Governments own companies - these are called
  Crown Corporations
• Examples AECL, CBC, Canada Post, Bank of
  Canada, etc.
• Some provinces use crown corporations to invest
  in the province - Caisse de Dépôt in Quebec is an
  example
• The recent trend is towards privatization, i.e.,
  Telsat

28
Government Spending of Tax Dollars

• Fiscal Policy - how governments collect and spend
  tax dollars
• The federal government is the largest buyer of
  goods and services
• Federal procurement policies can be used to
  influence regional economies and companies
• NAFTA places limits on the federal governments
  ability to use this spending power

29
Other Government Policies

• Strangely enough, provincial governments put up
  interprovincial trade barriers
• Provincial governments spend billions on health,
  education and services - these funds are directed
  to local companies
• Various governments may cooperate to provide
  loans, grants or support for projects like
  Hibernia
• The federal government has programs to assist
  business in depressed regions

30
Canadas Innovation Strategy
31
Canadas Innovation Strategy Achieve Excellence

• Innovation - process through which new economic
  and social benefits are extracted from knowledge
• Innovation performance lags in Canada
• Rank 14th in OECD spending on RD
• University participation lags

32
(No Transcript)
33
VIDEO STARBUCKS
34
QUESTIONS

• How did Starbucks take a declining product turn
  it in to a highly successful business concept
  with few competitors?
• How has Starbucks been able to sel its brand name
  through joint ventures with other companies?
• What is the potential contribution of Starbucks
  involvement in activities to support those that
  produce coffee beans, its own employees, the
  communities where it has stores?

35
CLASS FOR 16/1/2006

• Writing Your Paper
• Guest SpeakerGinny Ryan
• From the Writing Centre