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Copyright © 2008 McGraw-Hill Ryerson Ltd.
1
Chapter 2
How the Business System Works
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
2
Chapter Outline
The Right of Private Property Individualism and Economic Freedom Equality of Opportunity Competition and Profits The Work Ethic Consumer Sovereignty The Role of Government The Fundamentals and Canadian Capitalism Various Forms of Capitalism
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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The Right of Private Property
The legal right to own and use economic goods—for example, land and buildings
Ethical implications:– Government has last say– Uneven distribution of wealth– Infringement of copyright rights
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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Calgary
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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The Right of Private Property
The legal right to own and use economic goods—for example, land and buildings
Ethical implications:– Government has last say– Uneven distribution of wealth– Infringement of copyright rights
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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Individualism and Economic Freedom
Individualism: The view that the individual, and not society or a collective, is the paramount decision maker in society; assumes that the individual is inherently decent and rational.
Economic freedoms: Exist when the business system operates with few restrictions on its activities.
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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Equality of Opportunity
The assumption that all individuals or groups have an even chance at responding to some condition in society.
Ethical implications:– Difficult to achieve in capitalistic system– Wealth created not distributed equally– Inequities such as layoffs, drops in living
standards, excessively high executive salaries
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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Competition
The condition in a market system in which many rival sellers seek to provide goods and services to many buyers.
Ethical implications:– Oligopolies (few sellers in industry) or even
monopolies (one seller) can be created– More difficult for some firms to enter certain industries– Firms might engage in anti-competitive activity
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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Profits
The excess of revenues over expenses; closely associated with competition.
Ethical implications:– Profits sometimes viewed with disdain or as
immoral– Taxation of excessive profits
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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The Work Ethic
A code of values, or a body of moral principles, claiming that work is desirable, a natural activity, and good in and of itself.
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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The Work Ethic
Ethical implications:– Government programs and society’s
expectations have influenced individuals’ attitudes toward work
– Individuals now expect more from government and business enterprises in terms of working conditions, benefits, and salaries
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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Consumer Sovereignty
The assumption existing in an economy that consumers have and exercise power over producers through the decisions they make in purchasing the goods and services provided by corporations.
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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Consumer Sovereignty
Ethical implications:– Consumers not always aware of alternative
products available– Consumers’ preferences are shaped by
advertising– Producers have power to ignore consumer
wishes
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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The Role of Government
Laissez-faire approach (i.e., “leave us alone”) suggests minimal involvement of government other than national security, internal law and order, and a system of currency and measures.
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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The Role of Government
Ethical implications:– Government now an influential stakeholder
(e.g., subsidies, taxation, tariffs, regulations, legislation, loans, grants, ownership)
– Government can restrict capital movement, impose product standards, prevent businesses from shutting down plants
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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The Fundamentals and Canadian Capitalism
An economic system that allows for private ownership of the means of production (land, labour, and capital) and assumes that economic decision making is in the hands of individuals or enterprises that make decisions expecting to earn a profit.
Several pros and cons exist regarding capitalism.
Chapter 2 Copyright © 2008 McGraw-Hill Ryerson Ltd.
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Various Forms of Capitalism
Consumer capitalism– United States, Britain, Canada, Australia
Producer capitalism– France, Japan, Mexico
Family capitalism– Taiwan, Malaysia, Thailand, Indonesia
Frontier capitalism– Russia, China