{"id":46,"date":"2020-11-02T13:35:04","date_gmt":"2020-11-02T18:35:04","guid":{"rendered":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/chapter\/economics-and-business\/"},"modified":"2024-12-07T00:44:30","modified_gmt":"2024-12-07T05:44:30","slug":"economics-and-business","status":"publish","type":"chapter","link":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/chapter\/economics-and-business\/","title":{"raw":"Chapter 3 - Economics and Business","rendered":"Chapter 3 &#8211; Economics and Business"},"content":{"raw":"<div class=\"textbox textbox--learning-objectives\"><header class=\"textbox__header\">\r\n<h1 class=\"textbox__title\">Learning Objectives<\/h1>\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n\r\nBy the end of the chapter, you should be able to:\r\n<ol>\r\n \t<li class=\"c21\"><span class=\"c1\">describe the foundational philosophies of capitalism and socialism;<\/span><\/li>\r\n \t<li class=\"c21\"><span class=\"c1\">discuss private property rights and why they are key to economic development;<\/span><\/li>\r\n \t<li class=\"c21\"><span class=\"c1\">discuss the concept of GDP (gross domestic product);<\/span><\/li>\r\n \t<li class=\"c21\">explain the di<span class=\"c73\">\ufb00<\/span><span class=\"c1\">erence(s) between \ufb01scal and monetary policy;<\/span><\/li>\r\n \t<li class=\"c21\"><span class=\"c1\">discuss the concept of the unemployment rate measurement;<\/span><\/li>\r\n \t<li class=\"c21\"><span class=\"c1\">discuss the concepts of in\ufb02ation and deflation; and<\/span><\/li>\r\n \t<li class=\"c21\"><span class=\"c1\">explain other [pb_glossary id=\"456\"]key terms[\/pb_glossary] related to this chapter including: supply, demand, equilibrium price, monopoly, recession and depression.<\/span><\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n<img class=\"wp-image-28 size-thumbnail alignleft\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-150x150.png\" alt=\"\" width=\"150\" height=\"150\" \/>\r\n<h2><strong>Show What You Know<\/strong><\/h2>\r\n<p style=\"text-align: center\">[h5p id=\"6\"]<\/p>\r\n\r\n<div class=\"page-break-before\"><\/div>\r\n<h1>What is Economics?<\/h1>\r\n<p class=\"c27\">To appreciate how a business functions, we need to know something about the economic environment in which it operates. We begin with a definition of economics and a discussion of the resources used to produce goods and services.<\/p>\r\n\r\n<h2><span class=\"c19 c13 c6\">Resources: Inputs and Outputs<\/span><\/h2>\r\n<p class=\"c27\"><span class=\"c13\">[pb_glossary id=\"651\"]Economics[\/pb_glossary]<\/span> is the study of how individuals, businesses, governments and nations allocate their limited resources to satisfy their unlimited wants and needs. The allocation of resources is concerned with the production, distribution and consumption of goods and services. <span class=\"c13\">Resources<\/span>\u00a0are the [pb_glossary id=\"711\"]inputs[\/pb_glossary]<span class=\"c6\">\u00a0<\/span>used to produce [pb_glossary id=\"712\"]outputs[\/pb_glossary]. Resources may include any or all of the following and their connections with one another:<\/p>\r\n\r\n<ul>\r\n \t<li class=\"c84\">land and other natural resources;<\/li>\r\n \t<li>labour (physical and mental);<\/li>\r\n \t<li>capital, including buildings and equipment;<\/li>\r\n \t<li>entrepreneurship; and<\/li>\r\n \t<li>knowledge.<\/li>\r\n<\/ul>\r\n<p class=\"c27\"><span class=\"c1\">Resources are combined to produce goods and services. Land and natural resources provide the needed raw materials. Labour transforms raw materials into goods and services. Capital (equipment, buildings, vehicles, cash, and so forth) is needed for the production process. Entrepreneurship provides the skill, drive and creativity needed to bring the other resources together to produce a good or service to be sold in the marketplace.<\/span><\/p>\r\n<p class=\"c27\">Because a business uses resources to produce things, we also call these resources <span class=\"c13\">factors of production<\/span><span class=\"c1\">. The factors of production used to produce a shirt would include the following:<\/span><\/p>\r\n\r\n<ul class=\"c23 lst-kix_list_6-0 start\">\r\n \t<li class=\"c5\"><span class=\"c1\">the land that the shirt factory sits on, the electricity used to run the plant, and the raw cotton from which the shirts are made;<\/span><\/li>\r\n \t<li class=\"c5\"><span class=\"c1\">the labourers who make the shirts;<\/span><\/li>\r\n \t<li class=\"c5 c8\"><span class=\"c1\">the factory and equipment used in the manufacturing process, as well as the money needed to operate the factory; and<\/span><\/li>\r\n \t<li class=\"c74 c85\"><span class=\"c1\">the entrepreneurship skills and production knowledge used to coordinate the other resources to make the shirts and distribute them to the marketplace.<\/span><\/li>\r\n<\/ul>\r\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">Input and Output Markets<\/span><\/h2>\r\n<p class=\"c27\">Many of the factors of production are provided to businesses by households. For example, households provide businesses with labour (as workers), land and buildings (as landlords), and capital (as investors). In turn, businesses pay households for these resources by providing them with income, such as wages, rent, and interest. The resources obtained from households are then used by businesses to produce <span class=\"c13\">goods<\/span>\u00a0and <span class=\"c13\">services<\/span>, which are sold to provide businesses with revenue. The revenue obtained by businesses is then used to buy additional resources, and the cycle continues. This is described in the figure below, \u201cThe Circular Flow of [pb_glossary id=\"711\"]Inputs[\/pb_glossary] and [pb_glossary id=\"712\"]Outputs[\/pb_glossary]\u201d, which illustrates the dual roles of households and businesses:<\/p>\r\n\r\n<ul class=\"c23 lst-kix_list_7-0 start\">\r\n \t<li class=\"c5\"><span class=\"c1\">Households not only provide factors of production (or resources) but also consume goods and services.<\/span><\/li>\r\n \t<li class=\"c72\"><span class=\"c1\">Businesses not only buy resources but also produce and sell both goods and services.<\/span><\/li>\r\n<\/ul>\r\n<strong>Figure 3.1 <\/strong>The Circular Flow of Inputs and Outputs\r\n\r\n[caption id=\"attachment_36\" align=\"aligncenter\" width=\"1280\"]<img class=\"wp-image-36 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro.png\" alt=\"\" width=\"1280\" height=\"720\" \/> Figure 3.1 The Circular Flow of Inputs and Outputs illustrates the dual roles of households and businesses. Households not only provide factors of production (or resources) but also consume goods and services. Businesses not only buy resources but also produce and sell both goods and services. Outputs include goods and services (or products). Inputs include labor, capital, land, and entrepreneurship.*[\/caption]\r\n<h1 class=\"c18\"><span class=\"c19 c13 c6\">Economic Systems<\/span><\/h1>\r\n<p class=\"c27\">Economists study the interactions between households and businesses and look at the ways in which the factors of production are combined to produce the goods and services that people need. Basically, economists try to answer three sets of questions:<\/p>\r\n\r\n<ol class=\"c23 lst-kix_list_12-0 start\" start=\"1\">\r\n \t<li class=\"c5\"><span class=\"c1\">What goods and services should be produced to meet consumers\u2019 needs? In what quantity? When?<\/span><\/li>\r\n \t<li class=\"c5\"><span class=\"c1\">How should goods and services be produced? Who should produce them, and what resources, including technology, should be combined to produce them?<\/span><\/li>\r\n \t<li class=\"c74 c85\"><span class=\"c1\">Who should receive the goods and services produced? How should they be allocated among consumers?\u00a0<\/span>The answers to these questions depend on a country\u2019s <span class=\"c13\">economic system <\/span><span class=\"c1\">\u2014 the means by which a society (households, businesses, and government) makes decisions about allocating resources to produce products and about distributing those products. The degree to which individuals and business owners, as opposed to the government, enjoy freedom in making these decisions varies according to the type of economic system.<\/span><\/li>\r\n<\/ol>\r\n<p class=\"c27\"><span class=\"c1\">Generally speaking, economic systems can be divided into two systems: planned systems and free market systems.<\/span><\/p>\r\n\r\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Planned Systems<\/span><\/h2>\r\n<p class=\"c27 c8\">In a <span class=\"c13\">[pb_glossary id=\"652\"]planned system[\/pb_glossary]<\/span><span class=\"c1\">, the government exerts control over the allocation and distribution of all or some goods and services. The system with the highest level of government control is communism. In theory, a communist economy is one in which the government owns all or most enterprises. Central planning by the government dictates which goods or services are produced, how they are produced, and who will receive them. In practice, pure communism is practically nonexistent today, and only a few countries (notably North Korea and Cuba) operate under rigid, centrally planned economic systems.<\/span><\/p>\r\n<p class=\"c27\">Under <span class=\"c13\">socialism<\/span><span class=\"c1\">, industries that provide essential services, such as utilities, banking, and health care, may be government owned. Some businesses may also be owned privately. Central planning allocates the goods and services produced by government-run industries and tries to ensure that the resulting wealth is distributed equally. In contrast, privately owned companies are operated for the purpose of making a profit for their owners. In general, workers in socialist economies work fewer hours, have longer vacations, and receive more health care, education, and child-care benefits than do workers in capitalist economies. To offset the high cost of public services, taxes are generally steep. Examples of countries that lean towards a socialistic approach include Venezuela, Sweden, and France.<\/span><\/p>\r\n\r\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Free Market System<\/span><\/h2>\r\n<p class=\"c27\">The [pb_glossary id=\"654\"]free market system[\/pb_glossary] is an economic system in which most businesses are owned and operated by individuals, also known as <span class=\"c13\">capitalism<\/span>. In a free market economy, <span class=\"c13\">competition <\/span>dictates how goods and services will be allocated. Business is conducted with more limited government involvement concentrated on regulations that dictate how businesses are permitted to operate. A key aspect of a free market system is the concept of <span class=\"c13\">private property rights<\/span><span class=\"c1\">, which means that business owners can expect to own their land, buildings, machines, etc., and keep the majority of their profits, except for taxes. The profit incentive is a key driver of any free market system. The economies of the United States and other countries, such as Japan, are based on capitalism. However, a purely capitalistic economy is as rare as one that is purely communist. Imagine if a service such as police protection, one provided by government in the United States, were instead allocated based on market forces. The ability to pay would then become a key determinant in who received these services, an outcome that few in American society would consider to be acceptable.<\/span><\/p>\r\n\r\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">How Economic Systems Compare<\/span><\/h2>\r\n<p class=\"c27 c8\"><span class=\"c1\">In comparing economic systems, it can be helpful to think of a continuum with communism at one end and pure capitalism at the other, as in the following Economic Systems Figure. As you move from left to right, the amount of government control over business diminishes. So, too, does the level of social services, such as health care, child-care services, social security, and unemployment benefits. Moving from left to right, taxes are correspondingly lower as well.<\/span><\/p>\r\n<strong>Figure 3.2<\/strong> Economic Systems\r\n\r\n[caption id=\"attachment_37\" align=\"aligncenter\" width=\"684\"]<a href=\"https:\/\/commons.wikimedia.org\/wiki\/File:Fundamentals_of_Business_-_Fig._2.2_-_Economic_Systems.jpghttp:\/\/\"><img class=\"wp-image-37 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image4-2.jpg\" alt=\"Countries placed on a continuum of economic systems from pure planned economy to pure free market ~ from Communism to Socialist Leaning to Capitalist Leaning to Pure Competition. North Korea as an example of Communism; China and Venezuela as Socialist Leaning; France and Sweden as between Socialist and Capitalist, and United States and Japan at Capitalist Leaning moving toward Pure Competition.\" width=\"684\" height=\"265\" \/><\/a> Figure 3.2 Wikimedia Commons | Designed for Virginia Tech by B. Craig licensed CC BY[\/caption]\r\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Mixed Market Economies<\/span><\/h2>\r\n<p class=\"c27\">Though it is possible to have a pure communist system, or a pure capitalist (free market) system, in reality many economic systems are [pb_glossary id=\"655\"]mixed market[\/pb_glossary] economies. A <span class=\"c13\">mixed market economy<\/span>\u00a0relies on both markets and the government to allocate resources. In practice, most economies are mixed, with a leaning towards either free market or socialistic principles, rather than being purely one or the other. Some previously communist economies, such as those of Eastern Europe and China, are becoming more mixed as they adopt more capitalistic characteristics and convert businesses previously owned by the government to private ownership through a process called <span class=\"c13\">privatization<\/span><span class=\"c6\">. <\/span>By contrast, Venezuela is a country that has moved increasingly towards socialism, taking control of industries such as oil and media through a process called <span class=\"c13\">nationalization<\/span><span class=\"c6\">.<\/span><\/p>\r\n\r\n<h1 class=\"c18\"><span class=\"c19 c13 c6\">The Canadian Economic System<\/span><\/h1>\r\n<p class=\"c27 c8\"><span class=\"c1\">Like most countries, Canada features a mixed market system much like its neighbor to the south; though the Canadian and U.S. economic systems are primarily free market systems, the federal government controls some basic services, such as the postal service and air traffic control. The Canadian economy also has some characteristics of a socialist system, such as providing social security retirement benefits to retired workers or free health care to its population.<\/span><\/p>\r\n<p class=\"c27\">The free market system was espoused by Adam Smith in his book <span class=\"c45 c6\">The Wealth of Nations<\/span>, published in 1776. According to Smith, competition alone would ensure that consumers received the best products at the best prices. In the kind of competition he assumed, a seller who tries to charge more for his product than other sellers would not be able to find any buyers. A job-seeker who asks more than the going wage won\u2019t be hired. Because the \u201cinvisible hand\u201d of competition will make the market work effectively, there won\u2019t be a need to regulate prices or wages. Almost immediately, however, a tension developed among free market theorists between the principle of <span class=\"c13 c6\">laissez-faire<\/span><span class=\"c1\">\u2014leaving things alone \u2014 and government intervention. Today, it is common for the Canadian government to intervene in the operation of the economic system. For example, government exerts influence on the food and pharmaceutical industries through Canada\u2019s Food and Drug Act and Regulations, which protect consumers by preventing unsafe or mislabeled products from reaching the market.<\/span><\/p>\r\n<p class=\"c27\">To appreciate how businesses operate, we must first get an idea of how prices are set in competitive markets. The next section, \u201cPerfect Competition and Supply and Demand,\u201d begins by describing how markets establish prices in an environment of perfect competition.<\/p>\r\n\r\n<h2 class=\"c43\"><span class=\"c44 c13\">Perfect Competition <\/span><span class=\"c44 c13\">and Supply and Demand<\/span><\/h2>\r\n<p class=\"c27 c8\"><span class=\"c1\">Under a mixed economy, such as we have in Canada, businesses make decisions about which goods to produce or services to offer and how they are priced. Because there are many businesses making goods or providing services, customers can choose among a wide array of products. The competition for sales among businesses is a vital part of our economic system. Economists have identified four types of competition\u2014[pb_glossary id=\"656\"]perfect competition[\/pb_glossary], [pb_glossary id=\"657\"]monopolistic competition[\/pb_glossary], [pb_glossary id=\"658\"]oligopoly[\/pb_glossary], and [pb_glossary id=\"659\"]monopoly[\/pb_glossary]. We will introduce the first of these\u2014perfect competition\u2014in this section and cover the remaining three in the following section.<\/span><\/p>\r\n\r\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">Perfect Competition<\/span><\/h2>\r\n<p class=\"c27\"><span class=\"c13\">Perfect competition<\/span>\u00a0exists when there are many consumers buying a standardized product from numerous small businesses. Because no seller is big enough or influential enough to affect price, sellers and buyers accept the going price. For example, when a commercial fisher brings his fish to the local market, he has little control over the price he gets and must accept the going market price.<\/p>\r\n\r\n<h1 class=\"c36\"><span class=\"c19 c13 c6\">The Basics of Supply and Demand<\/span><\/h1>\r\n<p class=\"c27\">To appreciate how perfect competition works, we need to understand how buyers and sellers interact in a market to set prices. In a market characterized by perfect competition, price is determined through the mechanisms of supply<span class=\"c6\">\u00a0<\/span><span class=\"c1\">and demand. Prices are influenced both by the [pb_glossary id=\"661\"]supply[\/pb_glossary] of products from sellers and by the [pb_glossary id=\"660\"]demand [\/pb_glossary]for products by buyers. <\/span><\/p>\r\n<p class=\"c62\">To illustrate this concept, let us create a <span class=\"c6\">supply and demand schedule <\/span>for one particular good sold at one point in time. Then we\u2019ll define demand and create a demand curve and define <span class=\"c6\">supply <\/span>and create a <span class=\"c6\">supply curve. <\/span>Finally, we\u2019ll see how supply and demand interact to create an <span class=\"c6\">equilibrium price <\/span><span class=\"c1\">\u2014 the price at which buyers are willing to purchase the amount that sellers are willing to sell.<\/span><\/p>\r\n\r\n<h2 class=\"c17\"><span class=\"c46 c13 c6\">Demand and the Demand Curve<\/span><\/h2>\r\n[caption id=\"attachment_40\" align=\"aligncenter\" width=\"318\"]<img class=\"wp-image-40\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image11-293x300.jpg\" alt=\"A graph with numbers 0-5000 on the X axis for pounds of apples per day and 0-1.0 for Price per pound on the Y axis. The demand curve shows a diagonal line moving lower from left to right. \" width=\"318\" height=\"325\" \/> Chart 3.1 The Demand Curve for apples per day and price.[\/caption]\r\n<p class=\"c27\"><span class=\"c13\">Demand<\/span>\u00a0is the quantity of a product that buyers are willing to purchase at various prices. The quantity of a product that people are willing to buy depends on its price. You\u2019re typically willing to buy <span class=\"c6\">less <\/span>of a product when prices <span class=\"c6\">rise <\/span>and <span class=\"c6\">more <\/span>of a product when prices <span class=\"c6\">fall<\/span><span class=\"c1\">. Generally speaking, we find products more attractive at lower prices, and we buy more at lower prices because our income goes further.\u00a0<\/span><\/p>\r\n<p class=\"c27 c8\"><span class=\"c1\">Using this logic, we can construct a demand curve that shows the quantity of a product that will be demanded at different prices. Let\u2019s assume that the diagram \u201cThe Demand Curve\u201d represents the daily price and quantity of apples sold by farmers at a local market. Note that as the price of apples goes down, buyers\u2019 demand goes up. Thus, if a pound of apples sells for $0.80, buyers will be willing to purchase only fifteen hundred pounds per day. But if apples cost only $0.60 a pound, buyers will be willing to purchase two thousand pounds. At $0.40 a pound, buyers will be willing to purchase twenty-five hundred pounds.<\/span><\/p>\r\n\r\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">Supply and the Supply Curve\r\n<\/span><\/h2>\r\n[caption id=\"attachment_41\" align=\"aligncenter\" width=\"300\"]<img class=\"wp-image-41 size-medium\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1-300x266.jpg\" alt=\"A graph with numbers 0-5000 on the X axis for pounds of apples per day and 0-1.0 for Price per pound on the Y axis. The demand curve shows a diagonal line moving higher from left to right.\" width=\"300\" height=\"266\" \/> Chart 3.2 The Supply Curve for apples per day and price.[\/caption]\r\n<p class=\"c27 c8\"><span class=\"c13\">Supply<\/span>\u00a0is the quantity of a product that sellers are willing to sell at various prices. The quantity of a product that a business is willing to sell depends on its price. Businesses are <span class=\"c6\">more <\/span>willing to sell a product when the price <span class=\"c6\">rises <\/span>and <span class=\"c6\">less <\/span>willing to sell it when prices <span class=\"c6\">fall<\/span><span class=\"c1\">. Again, this fact makes sense: businesses are set up to make profits, and there are larger profits to be made when prices are high.<\/span><\/p>\r\n<p class=\"c27\"><span class=\"c1\">Now we can construct a supply curve that shows the quantity of apples that farmers would be willing to sell at different prices, regardless of demand. As you can see in \u201cThe Supply Curve\u201d, the supply curve goes in the opposite direction from the demand curve: as prices rise, the quantity of apples that farmers are willing to sell also goes up. The supply curve shows that farmers are willing to sell only a thousand pounds of apples when the price is $0.40 a pound, two thousand pounds when the price is $0.60, and three thousand pounds when the price is $0.80.<\/span><\/p>\r\n\r\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">Equilibrium Price<\/span><\/h2>\r\n<p class=\"c27\">We can now see how the market mechanism works under perfect competition. We do this by plotting both the supply curve and the demand curve on one graph, as we have done in the figure below, \u201c[pb_glossary id=\"662\"]The Equilibrium Price[\/pb_glossary]\u201d. The point at which the two curves intersect is the <span class=\"c13\">equilibrium price<\/span><span class=\"c1\">.<\/span><\/p>\r\n\r\n\r\n[caption id=\"attachment_42\" align=\"aligncenter\" width=\"300\"]<img class=\"wp-image-42 size-medium\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-3-300x290.jpg\" alt=\"A graph with numbers 0-5000 on the X axis for pounds of apples per day and 0-1.0 for Price per pound on the Y axis. The supply curve shows a diagonal line moving higher from left to right. The demand curve shows a diagonal line moving lower from left to right. These two are combined and the Equilibrium Price revealed at the intersection.\" width=\"300\" height=\"290\" \/> Chart 3.3 The Equilibrium Price[\/caption]\r\n<p class=\"c27\"><span class=\"c1\">You can see in \u201cThe Equilibrium Price\u201d that the supply and demand curves intersect at the price of $0.60 and quantity of two thousand pounds. Thus, $0.60 is the equilibrium price: at this price, the quantity of apples demanded by buyers equals the quantity of apples that farmers are willing to supply. If a single farmer tries to charge more than $0.60 for a pound of apples, he won\u2019t sell very many because other suppliers are making them available for less. As a result, his profits will go down. If, on the other hand, a farmer tries to charge less than the equilibrium price of $0.60 a pound, he will sell more apples but his profit per pound will be less than at the equilibrium price. With profit being the motive, there is no incentive to drop the price.<\/span><\/p>\r\n<p class=\"c27\">What have you learned in this discussion? Without outside influences, markets in an environment of perfect competition will arrive at an equilibrium point at which both buyers and sellers are satisfied. But you must be aware that this is a very simplistic example. Things are much more complex in the real world. For one thing, markets rarely operate without outside influences. Sometimes, sellers supply more of a product than buyers are willing to purchase; in that case, there\u2019s a <span class=\"c13\">surplus<\/span>. Sometimes, they don\u2019t produce enough of a product to satisfy demand; then we have a <span class=\"c13\">shortage<\/span><span class=\"c1\">.<\/span><\/p>\r\n<p class=\"c27\"><span class=\"c1\">Circumstances also have a habit of changing. What would happen, for example, if incomes rose and buyers were willing to pay more for apples? The demand curve would change, resulting in an increase in equilibrium price. This outcome makes intuitive sense: as demand increases, prices will go up. What would happen if apple crops were larger than expected because of favorable weather conditions? Farmers might be willing to sell apples at lower prices rather than letting part of the crop spoil. If so, the supply curve would shift, resulting in another change in equilibrium price: the increase in supply would bring down prices.<\/span><\/p>\r\n\r\n<h1 class=\"c53\"><span class=\"c44 c13\">Monopolistic Competition, Oligopoly, and Monopoly<\/span><\/h1>\r\n<p class=\"c27\">The Canadian economy is founded on the principles of private enterprise; private property rights, freedom of choice, profits and competition. As mentioned previously, economists have identified four types of competition \u2014 [pb_glossary id=\"656\"]perfect competition[\/pb_glossary], [pb_glossary id=\"657\"]monopolistic competition[\/pb_glossary], [pb_glossary id=\"658\"]oligopoly[\/pb_glossary], and [pb_glossary id=\"659\"]monopoly[\/pb_glossary]. Perfect competition was discussed in the last section; we will cover the remaining three types of competition here.<\/p>\r\n\r\n<table style=\"height: 336px;width: 100%\"><caption><strong>Table 3.1<\/strong>\u00a0<span class=\"c9\">Four Major Market Structures<\/span><\/caption>\r\n<tbody>\r\n<tr class=\"c68\" style=\"height: 56px\">\r\n<th scope=\"col\">Characteristic<\/th>\r\n<th scope=\"col\">Perfect Competition<\/th>\r\n<th scope=\"col\">Monopolistic Competition<\/th>\r\n<th scope=\"col\">Oligopoly<\/th>\r\n<th scope=\"col\">Pure Monopoly<\/th>\r\n<\/tr>\r\n<tr class=\"c26\" style=\"height: 56px\">\r\n<th scope=\"row\">Number of firms<\/th>\r\n<td>Very many<\/td>\r\n<td>Many<\/td>\r\n<td>A few<\/td>\r\n<td>One<\/td>\r\n<\/tr>\r\n<tr class=\"c65\" style=\"height: 56px\">\r\n<th scope=\"row\">Types of product<\/th>\r\n<td>Homogeneous<\/td>\r\n<td>Differentiated<\/td>\r\n<td>Homogeneous or differentiated<\/td>\r\n<td>Homogeneous<\/td>\r\n<\/tr>\r\n<tr class=\"c65\" style=\"height: 56px\">\r\n<th scope=\"row\">Barriers to entry or exit from industry<\/th>\r\n<td>No substantial barriers<\/td>\r\n<td>Minor barriers<\/td>\r\n<td>Considerable barriers<\/td>\r\n<td>Extremely great barriers<\/td>\r\n<\/tr>\r\n<tr class=\"c41\" style=\"height: 56px\">\r\n<th scope=\"row\">Examples<\/th>\r\n<td>Agriculture<\/td>\r\n<td>Retail trade<\/td>\r\n<td>Banking<\/td>\r\n<td>Public utilities<\/td>\r\n<\/tr>\r\n<\/tbody>\r\n<\/table>\r\n<h2 class=\"c36\">Monopolistic Competition<\/h2>\r\n<p class=\"c27\">In <span class=\"c13\">monopolistic competition<\/span>, we still have many sellers (as we had under perfect competition). Now, however, they do not sell identical products. Instead, they sell <span class=\"c13\">differentiated<\/span><span class=\"c1\">\u00a0products\u2014products that differ somewhat, or are perceived to differ, even though they serve a similar purpose. Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. Some people prefer Coke over Pepsi, even though the two products are quite similar. But what if there was a substantial price difference between the two? In that case, buyers could be persuaded to switch from one to the other. Thus, if Coke has a big promotional sale at a supermarket chain, some Pepsi drinkers might switch (at least temporarily).<\/span><\/p>\r\n<p class=\"c27\"><span class=\"c1\">How is product differentiation accomplished? Sometimes, it\u2019s simply geographical; you probably buy gasoline at the station closest to your home regardless of the brand. At other times, perceived differences between products are promoted by advertising designed to convince consumers that one product is different from an- other \u2014 and better than it. Regardless of customer loyalty to a product, however, if its price goes too high, the seller will lose business to a competitor. Under monopolistic competition, therefore, companies have only limited control over price.<\/span><\/p>\r\n\r\n<h2 class=\"c36\">Oligopoly<\/h2>\r\n<p class=\"c27\"><span class=\"c13\">Oligopoly<\/span><span class=\"c1\">\u00a0means few sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic industry is usually high, the number of firms entering it is low. Companies in oligopolistic industries include such large-scale enterprises as automobile companies and airlines. As large firms supplying a sizable portion of a market, these companies have some control over the prices they charge. But there\u2019s a catch: because products are fairly similar, when one company lowers prices, others are often forced to follow suit to remain competitive. You see this practice all the time in the airline industry: When American Airlines announces a fare decrease, Continental, United Airlines, and others do likewise. When one automaker offers a special deal, its competitors usually come up with similar promotions.<\/span><\/p>\r\n\r\n<h2 class=\"c36\">Monopoly<\/h2>\r\n<p class=\"c27\">In terms of the number of sellers and degree of competition, a <span class=\"c13\">monopoly<\/span><span class=\"c1\">\u00a0lies at the opposite end of the spectrum from perfect competition. In perfect competition, there are many small companies, none of which can control prices; they simply accept the market price determined by supply and demand. In a monopoly, however, there\u2019s only one seller in the market. The market could be a geographical area, such as a city or a regional area, and doesn\u2019t necessarily have to be an entire country.<\/span><\/p>\r\n<p class=\"c27\">There are few monopolies in Canada because the government limits them. Most fall into one of two categories: natural and legal. <span class=\"c13\">Natural monopolies<\/span><span class=\"c1\"> include public utilities, such as electricity and gas suppliers. Such enterprises require huge investments, and it would be inefficient to duplicate the products that they provide. They inhibit competition, but they\u2019re legal because they\u2019re important to society. In exchange for the right to conduct business without competition, they\u2019re regulated. For instance, they can\u2019t charge whatever prices they want; they must adhere to government-controlled prices. As a rule, they\u2019re required to serve all customers, even if doing so isn\u2019t cost efficient.<\/span><\/p>\r\n<p class=\"c27\">A <span class=\"c13\">legal monopoly<\/span> arises when a company receives a patent giving it exclusive use of an invented product or process. Patents are issued for a limited time, generally twenty years.<sup class=\"c40\">1<\/sup> During this period, other companies can\u2019t use the invented product or process without permission from the patent holder. Patents allow companies a certain period to recover the heavy costs of researching and developing products and technologies. A classic example of a company that enjoyed a patent-based legal monopoly is Polaroid, which for years held exclusive ownership of instant film technology.<sup class=\"c40\">2<\/sup><span class=\"c1\">\u00a0Polaroid priced the product high enough to <\/span>recoup, over time, the high cost of bringing it to market. Without competition, it enjoyed a monopolistic position in regard to pricing.<\/p>\r\n\r\n<h1 class=\"c53\"><span class=\"c44 c13\">Measuring the Health of the Economy<\/span><\/h1>\r\n<p class=\"c27\">Every day we are bombarded with economic news (at least if you watch the business news stations). We are told about things like unemployment, home prices, and consumer confidence trends. As a student learning about business, and later as a business manager, you need to understand the nature of the Canadian economy and the terminology that we use to describe it.<span class=\"c1\">\u00a0You need to have some idea of where the economy is heading, and you need to know something about the government\u2019s role in influencing its direction.<\/span><\/p>\r\n\r\n<h2 class=\"c36 c8\"><span class=\"c19 c13 c6\">Economic Goals<\/span><\/h2>\r\n<p class=\"c3\"><span class=\"c1\">The world\u2019s economies share three main goals:<\/span><\/p>\r\n\r\n<ul class=\"c23 lst-kix_list_17-0 start\">\r\n \t<li class=\"c5\"><span class=\"c1\">growth;<\/span><\/li>\r\n \t<li class=\"c5\"><span class=\"c1\">high employment; and<\/span><\/li>\r\n \t<li class=\"c5\"><span class=\"c1\">price stability.<\/span><\/li>\r\n<\/ul>\r\n<p class=\"c27\"><span class=\"c1\">Let us take a closer look at each of these goals, both to find out what they mean and to show how we determine whether or not they\u2019re being met.<\/span><\/p>\r\n\r\n<h3 class=\"c17\"><span class=\"c46 c13 c6\">Economic Growth<\/span><\/h3>\r\n<p class=\"c27 c8\">One purpose of an economy is to provide people with goods and services such as cars, computers, video games, houses, rock concerts, fast food, and amusement parks. One way in which economists measure the performance of an economy is by looking at a widely used measure of total output called the [pb_glossary id=\"663\"]<span class=\"c13\">gross domestic product<\/span>\u00a0(GDP)[\/pb_glossary]. The GDP is defined as the market value of all goods and services produced by the economy in a given year. The GDP includes only those goods and services produced domestically; goods produced outside the country are excluded. The GDP also includes only those goods and services that are produced for the final user; intermediate products are excluded. For example, the silicon chip that goes into a computer (an intermediate product) would not count directly because it is included when the finished computer is counted. By itself, the GDP doesn\u2019t necessarily tell us much about the direction of the economy. But change in the GDP does. If the GDP (after adjusting for inflation, which will be discussed later) goes up, the economy is growing. If it goes down, the economy is contracting.\u00a0There is some debate amongst economists that GDP provides the most accurate measure of an economy\u2019s performance. Many economists believe that <span class=\"c13\">GDP per capita<\/span>, which is the measure of total production of goods and services divided by the number of households, is a better indicator of an economy\u2019s performance. For example, according to <span class=\"c45\">The World Bank<\/span>, as of 2017, India\u2019s <span class=\"c13\">GDP<\/span>\u00a0ranked 7th in the world at $2.439 trillion (USD) while Canada\u2019s <span class=\"c13\">GDP <\/span>ranked 10th at $1.640 trillion (USD). However, as of 2017, Canada\u2019s <span class=\"c13\">GDP<\/span>\u00a0<span class=\"c13\">per capita<\/span>\u00a0ranks 18th at $44,773 per household, compared to India\u2019s <span class=\"c13\">GDP per capita<\/span> which ranked 142nd in the world at $1,852 per household.<\/p>\r\n[pb_glossary id=\"1508\"]Gross national product (GNP) [\/pb_glossary] is another metric used for measuring a nation's economic output. Gross national product (GNP) is the value of all products and services produced by the citizens of a country both domestically and internationally minus income earned by foreign residents. For instance, if Canada has production facilities in the USA, its GNP would account for both the production output in Canada and in the USA.\r\n\r\n<strong>Chart 3.4 <\/strong>Business Cycle\r\n\r\n[caption id=\"attachment_43\" align=\"aligncenter\" width=\"900\"]<a href=\"https:\/\/en.wikipedia.org\/wiki\/Business_cyclehttp:\/\/\"><img class=\"wp-image-43\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-1024x707.png\" alt=\"The business cycle, also known as the economic cycle or trade cycle, is the downward and upward movement of gross domestic product (GDP) around its long-term growth trend.[1] The length of a business cycle is the period of time containing a single boom and contraction in sequence. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (expansions or booms), and periods of relative stagnation or decline (contractions or recessions). Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite the often-applied term cycles, these fluctuations in economic activity do not exhibit uniform or predictable periodicity.\" width=\"900\" height=\"621\" \/><\/a> Chart 3.4 Short-term fluctuations in the economy relative to the long term trend in output.[\/caption]The economic ups and downs resulting from expansion and contraction constitute the <span class=\"c13\">[pb_glossary id=\"688\"]business cycle[\/pb_glossary]<\/span><span class=\"c1\">. Similar to a product lifecycle, as a business cycle introduces new products, those products grow, mature and decline; when all business cycles in an economy are combined an economy\u2019s business cycle is created. A typical cycle runs from three to five years but could last much longer. Though typically irregular, a cycle can be divided into four general phases of prosperity, recession, depression (which the cycle generally skips), and recovery:<\/span>\r\n<ul class=\"c23 lst-kix_list_18-0 start\">\r\n \t<li class=\"c8 c48\"><span class=\"c1\">During <\/span><span class=\"c15 c13\">prosperity<\/span><span class=\"c1\">, the economy expands, unemployment is low, incomes rise, and consumers buy more products. Businesses respond by increasing production and offering new and better products.<\/span><\/li>\r\n \t<li class=\"c48 c8\"><span class=\"c1\">Eventually, however, things slow down. GDP decreases, unemployment rises, and because people have less money to spend, business revenues decline. This slowdown in economic activity is called a <\/span><span class=\"c15 c13\">recession<\/span><span class=\"c1\">.<\/span><\/li>\r\n \t<li class=\"c48 c8\"><span class=\"c1\">Economists often say that we are entering a recession when GDP goes down for two consecutive quarters.<\/span><\/li>\r\n \t<li class=\"c48\"><span class=\"c1\">Generally, a recession is followed by a <\/span><span class=\"c15 c13\">recovery <\/span><span class=\"c91\">or<\/span><span class=\"c15 c13\">\u00a0expansion<\/span><span class=\"c1\">\u00a0in which the economy starts growing again.<\/span><\/li>\r\n \t<li class=\"c31\"><span class=\"c1\">If, however, a recession lasts a long time (perhaps a decade or so), while unemployment remains very high and production is severely curtailed, the economy could sink into a <\/span><span class=\"c15 c13\">depression<\/span><span class=\"c1\">. While economists have defined recession, they have not agreed on a uniform standard for what constitutes a depression, though they are generally characterized by their duration. Though not impossible, it is unlikely that Canada will experience another severe depression like that of the 1930s. The federal government has a number of economic tools (some of which we\u2019ll discuss shortly) with which to fight any threat of a depression.<\/span><\/li>\r\n<\/ul>\r\n<div class=\"textbox shaded\">\r\n\r\nIf you want or need a more interactive examples of the business cycle, this 10 minute video provides more details:\r\n\r\n[embed]https:\/\/youtu.be\/TXrOpjG4dUs[\/embed]\r\n\r\n<\/div>\r\n<h3 id=\"h.m8pdhcegea1u\" class=\"c17\">The Unemployment Rate<\/h3>\r\n<p class=\"c27\">Statistics Canada tracks unemployment and reports the <span class=\"c13\">[pb_glossary id=\"689\"]unemployment rate[\/pb_glossary]<\/span><span class=\"c1\">: the percentage of the labour force that is unemployed and actively seeking work. The unemployment rate is an important measure of economic health. It goes up during recessionary periods because companies are reluctant to hire workers when demand for goods and services is low. Conversely, it goes down when the economy is expanding and there is high demand for products and workers to supply them.<\/span><\/p>\r\n<p class=\"c27\">\u201cThe Canadian Unemployment Rate, 1946\u20132015\u201d traces the Canadian unemployment rate between 1946 and 2015. Please be aware that there are multiple measures of unemployment and that this graph is based on what is known as R4, the most commonly used measurement, and is comparable to the U.S. unemployment measure, U3. Another measurement, R8, is considered to provide a broader picture of unemployment in Canada and includes unemployed workers that are discouraged by their job search, involuntary part-time workers, and those unemployed workers that are awaiting confirmation of new work.<span class=\"c1\"> Since, by definition, R8 is always higher than R4, it is likely that R4 is discussed more often because it paints a more favorable, if not completely accurate, picture.<\/span><\/p>\r\n<strong>Chart 3.5<\/strong> Unemployment Rate by Sex\r\n\r\n&nbsp;\r\n\r\n[caption id=\"attachment_42\" align=\"aligncenter\" width=\"945\"]<a href=\"http:\/\/www.statcan.gc.ca\/pub\/75-005-m\/75-005-m2016001-eng.pdf\"><img class=\"wp-image-42 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image5.png\" alt=\"Illustrates the unemployment rate by sex in Canada from 1946-2015 on a three-colour graph. Access the report for the text version of the statistics.\" width=\"945\" height=\"568\" \/><\/a> Chart 3.5 Canada's Unemployment Rates 1946-2015 | Statistics Canada.[\/caption]\r\n\r\n<div class=\"textbox shaded\"><strong>Pick a peak; view a valley.<\/strong>\r\nConsider what was happening in Canada and\/or the world that helps explain one of the peaks or one of the valleys?<\/div>\r\n<h3 class=\"c17\"><span class=\"c46 c13 c6\">Full Employment<\/span><\/h3>\r\n<p class=\"c66\">To keep the economy going strong, people must spend money on goods and services. A reduction in personal expenditures for things like food, clothing, appliances, automobiles, housing, and medical care could severely reduce GDP and weaken the economy. Because most people earn their spending money by working, an important goal of all economies is making jobs available to everyone who wants one. In principle, <span class=\"c13\">[pb_glossary id=\"690\"]full employment[\/pb_glossary]<\/span><span class=\"c1\">\u00a0occurs when everyone who wants to work has a job. In practice, we say that we have full employment when about 95 percent of those wanting to work are employed.<\/span><\/p>\r\n\r\n<h3 class=\"c36\"><span class=\"c13 c6 c19\">Price Stability<\/span><\/h3>\r\n<p class=\"c27\">A third major goal of all economies is maintaining [pb_glossary id=\"691\"]price stability[\/pb_glossary]. Price stability occurs when the average of the prices for goods and services either does not change or changes very little. Rapidly rising prices are troublesome for both individuals and businesses. For individuals, rising prices mean people have to pay more for the things they need. For businesses, rising prices mean higher costs, and, at least in the short run, businesses might have trouble passing on higher costs to consumers. When the overall price level goes up, we have <span class=\"c13\">[pb_glossary id=\"718\"]inflation[\/pb_glossary]<\/span>. The graph shows inflationary trends in the Canadian economy since 1915. The i<span class=\"c1\">nflation rate in Canada averaged 3.15 percent from 1915 until 2018, reaching an all time high of 21.60 percent in June of 1920 and a record low of -17.80 percent in June of 1921.<\/span><\/p>\r\n<strong>Chart 3.6<\/strong>\u00a0Canada's Inflation Rate 1915-2018\r\n\r\n[caption id=\"attachment_43\" align=\"aligncenter\" width=\"713\"]<img class=\"wp-image-43 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image1.png\" alt=\"\" width=\"713\" height=\"330\" \/> Chart 3.6 Canada\u2019s Inflation Rate 1915-2018. Source: Tradingeconomics.com. Statistics Canada.[\/caption]\r\n<p class=\"c27\">When the price level goes down (which rarely happens), we have <span class=\"c13\">[pb_glossary id=\"719\"]deflation[\/pb_glossary]<\/span><span class=\"c1\">. A deflationary situation can also be damaging to an economy. When purchasers believe they can expect lower prices in the future, they may defer making purchases, which has the effect of slowing economic growth. Japan experienced a long period of deflation which contributed to economic stagnation in that country from which it is only now beginning to recover.<\/span><\/p>\r\n\r\n<h3 class=\"c36\"><span class=\"c19 c13 c6\">The Consumer Price Index<\/span><\/h3>\r\n<p class=\"c27\">The most widely publicized measure of inflation is the [pb_glossary id=\"665\"]<span class=\"c13\">consumer price index<\/span><span class=\"c1\">\u00a0(CPI)<\/span>[\/pb_glossary]<span class=\"c1\">, which is reported monthly by Statistics Canada. The CPI measures the rate of inflation by determining price changes of a hypothetical basket of goods, such as food, housing, clothing, medical care, appliances, automobiles, and so forth, bought by a typical household.<\/span><\/p>\r\n<p class=\"c62\">The Bank of Canada currently measures prices against the base year of 2002, and the basket for that year is given the value of 100. In 2012 the CPI averaged\u00a0121.7, which means that what you could buy for $100 in 2002 cost $121.70 in 2012<span class=\"c58\">. <\/span><span class=\"c1\">The difference registers the effect of inflation. In fact, that\u2019s what an inflation rate is\u2014the percentage change in a price index.<\/span><\/p>\r\n<p class=\"c62\">The Bank of Canada created an <a href=\"https:\/\/www.bankofcanada.ca\/rates\/related\/inflation-calculator\/\" target=\"_blank\" rel=\"noopener\">Inflation Calculator<\/a><span class=\"c1\"> to compare the costs of consumer goods then and now. For example, ask a parent or an older neighbour what they paid for their first car, first house, or first formal wear. \u00a0<\/span><\/p>\r\n\r\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Economic Forecasting<\/span><\/h2>\r\n<p class=\"c62\"><span class=\"c1\">In the previous section, we introduced several measures that economists use to assess the performance of the economy at a given time. By looking at changes in the GDP, for instance, we can see whether the economy is growing. The CPI allows us to gauge inflation. These measures help us understand where the economy stands today. But what if we want to get a sense of where it\u2019s headed in the future? To a certain extent, we can forecast future economic trends by analyzing several leading economic indicators.<\/span><\/p>\r\n\r\n<h3 class=\"c18\"><span class=\"c19 c13 c6\">Economic Indicators<\/span><\/h3>\r\n<p class=\"c62\">An <span class=\"c13\">[pb_glossary id=\"692\"]economic indicator[\/pb_glossary]<\/span><span class=\"c1\"> is a statistic that provides valuable information about the economy. There\u2019s no shortage of economic indicators, and trying to follow them all would be an overwhelming task. So in this chapter, we will only discuss the general concept and a few of the key indicators.<\/span><\/p>\r\n\r\n<h3 class=\"c17\"><span class=\"c46 c13 c6\">Leading, Coincident and Lagging Indicators<\/span><\/h3>\r\nCanadian economic indicators can be expressed in three main indicators<span class=\"c3\"> \u2014 <\/span>[pb_glossary id=\"693\"]leading indicators[\/pb_glossary], [pb_glossary id=\"694\"]coincident indicators[\/pb_glossary] and [pb_glossary id=\"695\"]lagging indicators[\/pb_glossary].\r\n<p class=\"c27\">Statistics that report the status of the economy a few months in the past are called <span class=\"c13\">lagging economic indicators<\/span>. One such indicator is average length of unemployment. If unemployed workers have remained out of work for a long time, we may infer that the economy has been slow. Indicators that predict the status of the economy three to twelve months into the future are called <span class=\"c13\">leading economic indicators<\/span><span class=\"c1\">. If such an indicator rises, the economy is more likely to expand in the coming year. If it falls, the economy is more likely to contract.<\/span><\/p>\r\n<p class=\"c27\"><span class=\"c1\">It is also helpful to look at indicators from various sectors of the economy: labour, manufacturing, and housing. One useful indicator of the outlook for future jobs is the number of new claims for unemployment insurance. This measure tells us how many people recently lost their jobs. If it\u2019s rising, it signals trouble ahead because unemployed consumers can\u2019t buy as many goods and services as they could if they had paychecks.<\/span><\/p>\r\n<p class=\"c27\"><span class=\"c1\">To gauge the level of goods to be produced in the future (which will translate into future sales), economists look at a statistic called average weekly manufacturing hours. This measure tells us the average number of hours worked per week by production workers in manufacturing industries. If it is on the rise, the economy will probably improve. For assessing the strength of the housing market, the number of housing starts is often a good indicator. An increase in this statistic<span class=\"c3\"> \u2014 <\/span>which tells us how many new housing units are being built \u2014 indicates that the economy is improving. Why? Because increased building brings money into the economy not only through new home sales but also through sales of furniture and appliances to furnish them.<\/span><\/p>\r\n<p class=\"c27\"><span class=\"c1\">Since employment is such a key goal in any economy, the Canadian Industry Statistics in collaboration with Statistics Canada tracks total non-farm payroll employment from which the number of net new jobs created can be determined.<\/span><\/p>\r\n\r\n<h1 class=\"c53\"><span class=\"c44 c13\">Government\u2019s Role in Managing the Economy<\/span><\/h1>\r\n<p class=\"c7 c63\">\u00a0The Canadian government, including federal, provincial and municipal governments, plays many roles within the Canadian economic system, and therefore influences business activities. Government plays many roles\u00a0 and influences business activities in many ways. The roles government plays are as follows:<\/p>\r\n\r\n<ul>\r\n \t<li class=\"c7 c63\">Government as customer<\/li>\r\n \t<li class=\"c7 c63\">Government as a competitor<\/li>\r\n \t<li class=\"c7 c63\">Government as a regulator - promoting competition, protecting consumers, achieving social goals and protecting the environment<\/li>\r\n \t<li class=\"c7 c63\">Government as a taxation agent<\/li>\r\n \t<li class=\"c7 c63\">Government as a provider of incentives<\/li>\r\n \t<li class=\"c7 c63\">Government as a protector of consumers or customers<\/li>\r\n \t<li class=\"c7 c63\">Government as a provider of essential services.<\/li>\r\n<\/ul>\r\n<p class=\"c7 c63\">Businesses may also influence government through lobbying, joining trade associations, making political donations and trying to convince voters to support or oppose certain regulations and policies.<\/p>\r\n<p class=\"c7 c63\">In managing the economy three main policies may be used by the government: Monetary policy, Fiscal policy and National Debt management.<\/p>\r\n\r\n<h2 class=\"c7 c63\"><span class=\"c19 c13 c6\">Monetary Policy<\/span><\/h2>\r\n<p class=\"c27\"><span class=\"c13\">[pb_glossary id=\"698\"]Monetary policy[\/pb_glossary]<\/span><span class=\"c1\"> is exercised by the The Bank of Canada, which is empowered to take various actions that decrease or increase the money supply and raise or lower short-term interest rates, making it harder or easier to borrow money. When The Bank of Canada believes that inflation is a problem, it will use contractionary policy to decrease the money supply and raise interest rates. When rates are higher, borrowers have to pay more for the money they borrow, and banks are more selective in making loans. Because money is \u201ctighter\u201d<span class=\"c3\"> \u2014 <\/span>more expensive to borrow<span class=\"c3\"> \u2014 <\/span>demand for goods and services will go down, and so will prices. In any case, that\u2019s the theory.<\/span><\/p>\r\n<p class=\"c66\"><span class=\"c6 c86\">The Bank of Canada will typically tighten or decrease the money supply during inflationary periods, making it harder to borrow money<\/span>.<\/p>\r\n<p class=\"c27\"><span class=\"c1\">To counter a recession, The Bank of Canada uses expansionary policy to increase the money supply and reduce interest rates. With lower interest rates, it\u2019s cheaper to borrow money, and banks are more willing to lend it. We then say that money is \u201ceasy.\u201d Attractive interest rates encourage businesses to borrow money to expand production and encourage consumers to buy more goods and services. In theory, both sets of actions will help the economy escape or come out of a recession.<\/span><\/p>\r\n\r\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Fiscal Policy<\/span><\/h2>\r\n<p class=\"c62\"><span class=\"c13\">[pb_glossary id=\"700\"]Fiscal policy[\/pb_glossary]<\/span> relies on the government\u2019s powers of spending and taxation. Both taxation and government spending can be used to reduce or increase the total supply of money in the economy<span class=\"c3\"> \u2014 <\/span>the total amount, in other words, that businesses and consumers have to spend. When the country is in a recession, government policy is typically to increase spending, reduce taxes, or both. Such expansionary actions will put more money in the hands of businesses and consumers, encouraging businesses to expand and consumers to buy more goods and services. <span class=\"c13 c24\">Expansionary fiscal policy<\/span><span class=\"c24\">\u00a0is used to <\/span><span class=\"c6 c24\">increase<\/span><span class=\"c24\">\u00a0government expenditures and\/or <\/span><span class=\"c6 c24\">decrease<\/span><span class=\"c24\"> taxes, which causes the government's budget deficit to increase or its budget surplus to decrease.\u00a0<\/span>When the economy is experiencing inflation, the opposite policy is adopted: the government will decrease spending or increase taxes, or both. Because such contractionary measures reduce spending by businesses and consumers, prices come down and inflation eases. <span class=\"c13 c24\">Contractionary fiscal policy<\/span><span class=\"c24\">\u00a0is used to <\/span><span class=\"c6 c24\">decrease<\/span><span class=\"c24\">\u00a0government expenditures and\/or <\/span><span class=\"c6 c24\">increase<\/span><span class=\"c24\"> taxes, which causes the government's budget deficit to decrease or its budget surplus to increase.<\/span><\/p>\r\n\r\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">The National<\/span> Debt<\/h2>\r\nThe [pb_glossary id=\"701\"]national debt[\/pb_glossary] is also referred to as Canada's public debt. According to the Department of Finance Canada,\u00a0<b><\/b><a href=\"https:\/\/tradingeconomics.com\/canada\/government-debt\">Government Debt in Canada<\/a> increased to 1134.49 CAD Billion in 2022 from 1048.75 CAD Billion in 2021. The expected rise is due to the\u00a0massive new borrowing to cover COVID-19 pandemic responses.\r\n<p class=\"c27\">If, in any given year, the government takes in more money (through taxes) than it spends on goods and services (for things such as defense, transportation, and social services), the result is a <span class=\"c13\">budget surplus<\/span>. If, on the other hand, the government spends more than it takes in, we have a <span class=\"c13\">budget deficit<\/span> (which the government pays off by borrowing through the issuance of Treasury bonds). Historically, deficits have occurred much more often than surpluses; typically, the government spends more than it takes in.<\/p>\r\n\r\n<div class=\"textbox shaded\" style=\"text-align: center\">This number is moving too quickly for the authors to keep the graph current \u2013 you can see the current debt at <a href=\"https:\/\/www.nationaldebtclocks.org\/debtclock\/canada.\">Canadian National Debt Clock<\/a>.<\/div>\r\n<h1 class=\"textbox__header\">Put It Into Practice<\/h1>\r\n<div class=\"textbox__content\">\r\n\r\n1. Search credible business press and Internet for recent examples of Canadian business outlook and answer the following questions:\r\n<ol>\r\n \t<li>Is the current level of unemployment rising or falling?<\/li>\r\n \t<li>Is the current level of inflation rate rising or falling?<\/li>\r\n \t<li>What do economist expect will happen to unemployment rates and inflation in the near future?<\/li>\r\n<\/ol>\r\n2. Get together in groups of four selected by your instructor.\r\n\r\nPART A - Pick any three items from the following list:\r\n<ul>\r\n \t<li>litre of milk;<\/li>\r\n \t<li>litre of gas;<\/li>\r\n \t<li>roundtrip airline ticket between Vancouver and Toronto;<\/li>\r\n \t<li>large cheese pizza;<\/li>\r\n \t<li>monthly cost of internet; and<\/li>\r\n \t<li>quarter-pound burger.<\/li>\r\n<\/ul>\r\nPART B - Each member of the team should check the prices of the three items, using his or her own sources. Then, get together and compare the prices found by team members. Based on your findings, answer the following questions as a group:\r\n<ol>\r\n \t<li>Are the prices of given products similar, or do they vary?<\/li>\r\n \t<li>Why do the prices of some products vary while those of others are similar?<\/li>\r\n \t<li>Can any price differences be explained by applying the concepts of supply and demand or types of competition?<\/li>\r\n<\/ol>\r\n<\/div>\r\n<h1>Comprehension Check<\/h1>\r\n<ol>\r\n \t<li>Distinguish between the main types of economic systems and describe their unique characteristics.<\/li>\r\n \t<li>Using the principles of supply and demand, what happens to the price when there is more supply than demand? What happens to the price when there is more demand than supply? What do you call the point at which supply and demand meet?<\/li>\r\n \t<li>What are the types of competition? What are the opportunities and challenges with operating within each type of competition?<\/li>\r\n \t<li>What are the key indicators of economic growth and how does each one indicate economic health?<\/li>\r\n<\/ol>\r\n<div class=\"textbox textbox--key-takeaways\"><header class=\"textbox__header\">\r\n<h1 class=\"textbox__title\">Key Takeaways<\/h1>\r\n<\/header>\r\n<div class=\"textbox__content\">\r\n\r\nImportant terms and concepts:\r\n<ol>\r\n \t<li class=\"c22\"><span class=\"c33 c13\">Economics<\/span><span class=\"c2\"> is the study of the production, distribution, and consumption of goods and services.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c2\">Economists address these three questions: (1) What goods and services should be produced to meet consumer needs? (2) How should they be produced, and who should produce them? (3) Who should receive goods and services?<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c2\">The answers to these questions depend on a country\u2019s <\/span><span class=\"c33 c13\">economic system<\/span><span class=\"c2\">. The primary economic systems that exist today are planned and free market systems.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c2\">In a <\/span><span class=\"c33 c13\">planned system<\/span><span class=\"c2\">, such as communism and socialism, the government exerts control over the production and distribution of all or some goods and services.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c2\">In a <\/span><span class=\"c33 c13\">free market system<\/span><span class=\"c2\">, also known as capitalism, business is conducted with only limited government involvement. <\/span><span class=\"c33 c13\">Competition<\/span><span class=\"c2\"> determines what goods and services are produced, how they are produced, and for whom.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c2\">In a free market system, buyers and sellers interact in a <\/span><span class=\"c33 c13\">market<\/span><span class=\"c2\"> to set prices.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c2\">When the market is characterized by <\/span><span class=\"c13 c33\">perfect competition<\/span><span class=\"c2\">, many small companies sell identical products. The price is determined by supply and demand.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c33 c13\">Supply<\/span><span class=\"c2\"> is the quantity of a product that sellers are willing to sell at various prices. Price also in\ufb02uences the quantity of a product that producers are willing to supply: they\u2019ll sell more of a product when prices are high and less when they\u2019re low.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c33 c13\">Demand<\/span><span class=\"c2\"> is the quantity of a product that buyers are willing to purchase at various prices. The quantity of a product that people will buy depends on its price; they\u2019ll buy more when the price is low and less when it\u2019s high.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c1\">In a competitive market, the decisions of buyers and sellers interact until the market reaches an <\/span><span class=\"c15 c13\">equilibrium price<\/span><span class=\"c1\">\u2014the price at which buyers are willing to buy the same amount that sellers are willing to sell.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c1\">There are four types of <\/span><span class=\"c15 c13\">competition<\/span><span class=\"c1\"> in a free market system: perfect competition, monopolistic competition, oligopoly, and monopoly.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c1\">Under <\/span><span class=\"c15 c13\">perfect competition<\/span><span class=\"c1\">, many sellers o<\/span><span class=\"c28\">\ufb00<\/span><span class=\"c1\">er di<\/span><span class=\"c28\">\ufb00<\/span><span class=\"c1\">erentiated products \u2014 products that di<\/span><span class=\"c28\">\ufb00<\/span><span class=\"c1\">er slightly but serve similar purposes. By making consumers aware of product di<\/span><span class=\"c28\">\ufb00<\/span><span class=\"c1\">erences, sellers exert some control over price.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c1\">In an <\/span><span class=\"c15 c13\">oligopoly<\/span><span class=\"c1\">, a few sellers supply a sizable portion of products in the market. They exert some control over price, but because their products are similar, when one company lowers prices, the others follow.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c1\">In a <\/span><span class=\"c15 c13\">monopoly<\/span><span class=\"c1\">, there is only one seller in the market. The market could be a geographical area, such as a city or a regional area, and does not necessarily have to be an entire country. The single seller is able to control prices.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c1\">Most monopolies fall into one of two categories: natural and legal.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c15 c13\">Natural monopolies<\/span><span class=\"c1\"> include public utilities, such as electricity and gas suppliers. They inhibit competition, but they\u2019re legal because they\u2019re important to society.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c1\">A <\/span><span class=\"c15 c13\">legal monopoly <\/span><span class=\"c1\">arises when a company receives a patent giving it exclusive use of an invented product or process for a limited time, generally twenty years. E<\/span><span class=\"c1\">conomies share three goals: growth, high employment, and price stability.<\/span><\/li>\r\n \t<li class=\"c22\"><span class=\"c15 c13\">Growth<\/span><span class=\"c1\">. An economy provides people with goods and services, and economists measure its performance by studying the <\/span><span class=\"c15 c13\">gross domestic product<\/span><span class=\"c1\"> (GDP)\u2014the market value of all goods and services produced by the economy in a given year. If the GDP goes up, the economy is growing; if it goes down, the economy is contracting.<\/span><\/li>\r\n<\/ol>\r\n<\/div>\r\n<\/div>\r\n<div class=\"page-break-before\">\r\n\r\n&nbsp;\r\n\r\n<\/div>","rendered":"<div class=\"textbox textbox--learning-objectives\">\n<header class=\"textbox__header\">\n<h1 class=\"textbox__title\">Learning Objectives<\/h1>\n<\/header>\n<div class=\"textbox__content\">\n<p>By the end of the chapter, you should be able to:<\/p>\n<ol>\n<li class=\"c21\"><span class=\"c1\">describe the foundational philosophies of capitalism and socialism;<\/span><\/li>\n<li class=\"c21\"><span class=\"c1\">discuss private property rights and why they are key to economic development;<\/span><\/li>\n<li class=\"c21\"><span class=\"c1\">discuss the concept of GDP (gross domestic product);<\/span><\/li>\n<li class=\"c21\">explain the di<span class=\"c73\">\ufb00<\/span><span class=\"c1\">erence(s) between \ufb01scal and monetary policy;<\/span><\/li>\n<li class=\"c21\"><span class=\"c1\">discuss the concept of the unemployment rate measurement;<\/span><\/li>\n<li class=\"c21\"><span class=\"c1\">discuss the concepts of in\ufb02ation and deflation; and<\/span><\/li>\n<li class=\"c21\"><span class=\"c1\">explain other <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_456\">key terms<\/a> related to this chapter including: supply, demand, equilibrium price, monopoly, recession and depression.<\/span><\/li>\n<\/ol>\n<\/div>\n<\/div>\n<p><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-28 size-thumbnail alignleft\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-150x150.png\" alt=\"\" width=\"150\" height=\"150\" srcset=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-150x150.png 150w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-65x65.png 65w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1-225x225.png 225w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/1E-ShowWhatYouKnow-1.png 294w\" sizes=\"auto, (max-width: 150px) 100vw, 150px\" \/><\/p>\n<h2><strong>Show What You Know<\/strong><\/h2>\n<p style=\"text-align: center\">\n<div id=\"h5p-6\">\n<div class=\"h5p-iframe-wrapper\"><iframe id=\"h5p-iframe-6\" class=\"h5p-iframe\" data-content-id=\"6\" style=\"height:1px\" src=\"about:blank\" frameBorder=\"0\" scrolling=\"no\" title=\"Show (Economics)\"><\/iframe><\/div>\n<\/div>\n<div class=\"page-break-before\"><\/div>\n<h1>What is Economics?<\/h1>\n<p class=\"c27\">To appreciate how a business functions, we need to know something about the economic environment in which it operates. We begin with a definition of economics and a discussion of the resources used to produce goods and services.<\/p>\n<h2><span class=\"c19 c13 c6\">Resources: Inputs and Outputs<\/span><\/h2>\n<p class=\"c27\"><span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_651\">Economics<\/a><\/span> is the study of how individuals, businesses, governments and nations allocate their limited resources to satisfy their unlimited wants and needs. The allocation of resources is concerned with the production, distribution and consumption of goods and services. <span class=\"c13\">Resources<\/span>\u00a0are the <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_711\">inputs<\/a><span class=\"c6\">\u00a0<\/span>used to produce <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_712\">outputs<\/a>. Resources may include any or all of the following and their connections with one another:<\/p>\n<ul>\n<li class=\"c84\">land and other natural resources;<\/li>\n<li>labour (physical and mental);<\/li>\n<li>capital, including buildings and equipment;<\/li>\n<li>entrepreneurship; and<\/li>\n<li>knowledge.<\/li>\n<\/ul>\n<p class=\"c27\"><span class=\"c1\">Resources are combined to produce goods and services. Land and natural resources provide the needed raw materials. Labour transforms raw materials into goods and services. Capital (equipment, buildings, vehicles, cash, and so forth) is needed for the production process. Entrepreneurship provides the skill, drive and creativity needed to bring the other resources together to produce a good or service to be sold in the marketplace.<\/span><\/p>\n<p class=\"c27\">Because a business uses resources to produce things, we also call these resources <span class=\"c13\">factors of production<\/span><span class=\"c1\">. The factors of production used to produce a shirt would include the following:<\/span><\/p>\n<ul class=\"c23 lst-kix_list_6-0 start\">\n<li class=\"c5\"><span class=\"c1\">the land that the shirt factory sits on, the electricity used to run the plant, and the raw cotton from which the shirts are made;<\/span><\/li>\n<li class=\"c5\"><span class=\"c1\">the labourers who make the shirts;<\/span><\/li>\n<li class=\"c5 c8\"><span class=\"c1\">the factory and equipment used in the manufacturing process, as well as the money needed to operate the factory; and<\/span><\/li>\n<li class=\"c74 c85\"><span class=\"c1\">the entrepreneurship skills and production knowledge used to coordinate the other resources to make the shirts and distribute them to the marketplace.<\/span><\/li>\n<\/ul>\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">Input and Output Markets<\/span><\/h2>\n<p class=\"c27\">Many of the factors of production are provided to businesses by households. For example, households provide businesses with labour (as workers), land and buildings (as landlords), and capital (as investors). In turn, businesses pay households for these resources by providing them with income, such as wages, rent, and interest. The resources obtained from households are then used by businesses to produce <span class=\"c13\">goods<\/span>\u00a0and <span class=\"c13\">services<\/span>, which are sold to provide businesses with revenue. The revenue obtained by businesses is then used to buy additional resources, and the cycle continues. This is described in the figure below, \u201cThe Circular Flow of <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_711\">Inputs<\/a> and <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_712\">Outputs<\/a>\u201d, which illustrates the dual roles of households and businesses:<\/p>\n<ul class=\"c23 lst-kix_list_7-0 start\">\n<li class=\"c5\"><span class=\"c1\">Households not only provide factors of production (or resources) but also consume goods and services.<\/span><\/li>\n<li class=\"c72\"><span class=\"c1\">Businesses not only buy resources but also produce and sell both goods and services.<\/span><\/li>\n<\/ul>\n<p><strong>Figure 3.1 <\/strong>The Circular Flow of Inputs and Outputs<\/p>\n<figure id=\"attachment_36\" aria-describedby=\"caption-attachment-36\" style=\"width: 1280px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-36 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro.png\" alt=\"\" width=\"1280\" height=\"720\" srcset=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro.png 1280w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro-300x169.png 300w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro-1024x576.png 1024w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro-768x432.png 768w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro-65x37.png 65w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro-225x127.png 225w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/chap1-bus-enviro-350x197.png 350w\" sizes=\"auto, (max-width: 1280px) 100vw, 1280px\" \/><figcaption id=\"caption-attachment-36\" class=\"wp-caption-text\">Figure 3.1 The Circular Flow of Inputs and Outputs illustrates the dual roles of households and businesses. Households not only provide factors of production (or resources) but also consume goods and services. Businesses not only buy resources but also produce and sell both goods and services. Outputs include goods and services (or products). Inputs include labor, capital, land, and entrepreneurship.*<\/figcaption><\/figure>\n<h1 class=\"c18\"><span class=\"c19 c13 c6\">Economic Systems<\/span><\/h1>\n<p class=\"c27\">Economists study the interactions between households and businesses and look at the ways in which the factors of production are combined to produce the goods and services that people need. Basically, economists try to answer three sets of questions:<\/p>\n<ol class=\"c23 lst-kix_list_12-0 start\" start=\"1\">\n<li class=\"c5\"><span class=\"c1\">What goods and services should be produced to meet consumers\u2019 needs? In what quantity? When?<\/span><\/li>\n<li class=\"c5\"><span class=\"c1\">How should goods and services be produced? Who should produce them, and what resources, including technology, should be combined to produce them?<\/span><\/li>\n<li class=\"c74 c85\"><span class=\"c1\">Who should receive the goods and services produced? How should they be allocated among consumers?\u00a0<\/span>The answers to these questions depend on a country\u2019s <span class=\"c13\">economic system <\/span><span class=\"c1\">\u2014 the means by which a society (households, businesses, and government) makes decisions about allocating resources to produce products and about distributing those products. The degree to which individuals and business owners, as opposed to the government, enjoy freedom in making these decisions varies according to the type of economic system.<\/span><\/li>\n<\/ol>\n<p class=\"c27\"><span class=\"c1\">Generally speaking, economic systems can be divided into two systems: planned systems and free market systems.<\/span><\/p>\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Planned Systems<\/span><\/h2>\n<p class=\"c27 c8\">In a <span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_652\">planned system<\/a><\/span><span class=\"c1\">, the government exerts control over the allocation and distribution of all or some goods and services. The system with the highest level of government control is communism. In theory, a communist economy is one in which the government owns all or most enterprises. Central planning by the government dictates which goods or services are produced, how they are produced, and who will receive them. In practice, pure communism is practically nonexistent today, and only a few countries (notably North Korea and Cuba) operate under rigid, centrally planned economic systems.<\/span><\/p>\n<p class=\"c27\">Under <span class=\"c13\">socialism<\/span><span class=\"c1\">, industries that provide essential services, such as utilities, banking, and health care, may be government owned. Some businesses may also be owned privately. Central planning allocates the goods and services produced by government-run industries and tries to ensure that the resulting wealth is distributed equally. In contrast, privately owned companies are operated for the purpose of making a profit for their owners. In general, workers in socialist economies work fewer hours, have longer vacations, and receive more health care, education, and child-care benefits than do workers in capitalist economies. To offset the high cost of public services, taxes are generally steep. Examples of countries that lean towards a socialistic approach include Venezuela, Sweden, and France.<\/span><\/p>\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Free Market System<\/span><\/h2>\n<p class=\"c27\">The <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_654\">free market system<\/a> is an economic system in which most businesses are owned and operated by individuals, also known as <span class=\"c13\">capitalism<\/span>. In a free market economy, <span class=\"c13\">competition <\/span>dictates how goods and services will be allocated. Business is conducted with more limited government involvement concentrated on regulations that dictate how businesses are permitted to operate. A key aspect of a free market system is the concept of <span class=\"c13\">private property rights<\/span><span class=\"c1\">, which means that business owners can expect to own their land, buildings, machines, etc., and keep the majority of their profits, except for taxes. The profit incentive is a key driver of any free market system. The economies of the United States and other countries, such as Japan, are based on capitalism. However, a purely capitalistic economy is as rare as one that is purely communist. Imagine if a service such as police protection, one provided by government in the United States, were instead allocated based on market forces. The ability to pay would then become a key determinant in who received these services, an outcome that few in American society would consider to be acceptable.<\/span><\/p>\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">How Economic Systems Compare<\/span><\/h2>\n<p class=\"c27 c8\"><span class=\"c1\">In comparing economic systems, it can be helpful to think of a continuum with communism at one end and pure capitalism at the other, as in the following Economic Systems Figure. As you move from left to right, the amount of government control over business diminishes. So, too, does the level of social services, such as health care, child-care services, social security, and unemployment benefits. Moving from left to right, taxes are correspondingly lower as well.<\/span><\/p>\n<p><strong>Figure 3.2<\/strong> Economic Systems<\/p>\n<figure id=\"attachment_37\" aria-describedby=\"caption-attachment-37\" style=\"width: 684px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/commons.wikimedia.org\/wiki\/File:Fundamentals_of_Business_-_Fig._2.2_-_Economic_Systems.jpghttp:\/\/\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-37 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image4-2.jpg\" alt=\"Countries placed on a continuum of economic systems from pure planned economy to pure free market ~ from Communism to Socialist Leaning to Capitalist Leaning to Pure Competition. North Korea as an example of Communism; China and Venezuela as Socialist Leaning; France and Sweden as between Socialist and Capitalist, and United States and Japan at Capitalist Leaning moving toward Pure Competition.\" width=\"684\" height=\"265\" \/><\/a><figcaption id=\"caption-attachment-37\" class=\"wp-caption-text\">Figure 3.2 Wikimedia Commons | Designed for Virginia Tech by B. Craig licensed CC BY<\/figcaption><\/figure>\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Mixed Market Economies<\/span><\/h2>\n<p class=\"c27\">Though it is possible to have a pure communist system, or a pure capitalist (free market) system, in reality many economic systems are <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_655\">mixed market<\/a> economies. A <span class=\"c13\">mixed market economy<\/span>\u00a0relies on both markets and the government to allocate resources. In practice, most economies are mixed, with a leaning towards either free market or socialistic principles, rather than being purely one or the other. Some previously communist economies, such as those of Eastern Europe and China, are becoming more mixed as they adopt more capitalistic characteristics and convert businesses previously owned by the government to private ownership through a process called <span class=\"c13\">privatization<\/span><span class=\"c6\">. <\/span>By contrast, Venezuela is a country that has moved increasingly towards socialism, taking control of industries such as oil and media through a process called <span class=\"c13\">nationalization<\/span><span class=\"c6\">.<\/span><\/p>\n<h1 class=\"c18\"><span class=\"c19 c13 c6\">The Canadian Economic System<\/span><\/h1>\n<p class=\"c27 c8\"><span class=\"c1\">Like most countries, Canada features a mixed market system much like its neighbor to the south; though the Canadian and U.S. economic systems are primarily free market systems, the federal government controls some basic services, such as the postal service and air traffic control. The Canadian economy also has some characteristics of a socialist system, such as providing social security retirement benefits to retired workers or free health care to its population.<\/span><\/p>\n<p class=\"c27\">The free market system was espoused by Adam Smith in his book <span class=\"c45 c6\">The Wealth of Nations<\/span>, published in 1776. According to Smith, competition alone would ensure that consumers received the best products at the best prices. In the kind of competition he assumed, a seller who tries to charge more for his product than other sellers would not be able to find any buyers. A job-seeker who asks more than the going wage won\u2019t be hired. Because the \u201cinvisible hand\u201d of competition will make the market work effectively, there won\u2019t be a need to regulate prices or wages. Almost immediately, however, a tension developed among free market theorists between the principle of <span class=\"c13 c6\">laissez-faire<\/span><span class=\"c1\">\u2014leaving things alone \u2014 and government intervention. Today, it is common for the Canadian government to intervene in the operation of the economic system. For example, government exerts influence on the food and pharmaceutical industries through Canada\u2019s Food and Drug Act and Regulations, which protect consumers by preventing unsafe or mislabeled products from reaching the market.<\/span><\/p>\n<p class=\"c27\">To appreciate how businesses operate, we must first get an idea of how prices are set in competitive markets. The next section, \u201cPerfect Competition and Supply and Demand,\u201d begins by describing how markets establish prices in an environment of perfect competition.<\/p>\n<h2 class=\"c43\"><span class=\"c44 c13\">Perfect Competition <\/span><span class=\"c44 c13\">and Supply and Demand<\/span><\/h2>\n<p class=\"c27 c8\"><span class=\"c1\">Under a mixed economy, such as we have in Canada, businesses make decisions about which goods to produce or services to offer and how they are priced. Because there are many businesses making goods or providing services, customers can choose among a wide array of products. The competition for sales among businesses is a vital part of our economic system. Economists have identified four types of competition\u2014<a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_656\">perfect competition<\/a>, <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_657\">monopolistic competition<\/a>, <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_658\">oligopoly<\/a>, and <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_659\">monopoly<\/a>. We will introduce the first of these\u2014perfect competition\u2014in this section and cover the remaining three in the following section.<\/span><\/p>\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">Perfect Competition<\/span><\/h2>\n<p class=\"c27\"><span class=\"c13\">Perfect competition<\/span>\u00a0exists when there are many consumers buying a standardized product from numerous small businesses. Because no seller is big enough or influential enough to affect price, sellers and buyers accept the going price. For example, when a commercial fisher brings his fish to the local market, he has little control over the price he gets and must accept the going market price.<\/p>\n<h1 class=\"c36\"><span class=\"c19 c13 c6\">The Basics of Supply and Demand<\/span><\/h1>\n<p class=\"c27\">To appreciate how perfect competition works, we need to understand how buyers and sellers interact in a market to set prices. In a market characterized by perfect competition, price is determined through the mechanisms of supply<span class=\"c6\">\u00a0<\/span><span class=\"c1\">and demand. Prices are influenced both by the <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_661\">supply<\/a> of products from sellers and by the <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_660\">demand <\/a>for products by buyers. <\/span><\/p>\n<p class=\"c62\">To illustrate this concept, let us create a <span class=\"c6\">supply and demand schedule <\/span>for one particular good sold at one point in time. Then we\u2019ll define demand and create a demand curve and define <span class=\"c6\">supply <\/span>and create a <span class=\"c6\">supply curve. <\/span>Finally, we\u2019ll see how supply and demand interact to create an <span class=\"c6\">equilibrium price <\/span><span class=\"c1\">\u2014 the price at which buyers are willing to purchase the amount that sellers are willing to sell.<\/span><\/p>\n<h2 class=\"c17\"><span class=\"c46 c13 c6\">Demand and the Demand Curve<\/span><\/h2>\n<figure id=\"attachment_40\" aria-describedby=\"caption-attachment-40\" style=\"width: 318px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-40\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image11-293x300.jpg\" alt=\"A graph with numbers 0-5000 on the X axis for pounds of apples per day and 0-1.0 for Price per pound on the Y axis. The demand curve shows a diagonal line moving lower from left to right.\" width=\"318\" height=\"325\" srcset=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image11-293x300.jpg 293w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image11-65x67.jpg 65w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image11-225x230.jpg 225w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image11-350x358.jpg 350w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image11.jpg 715w\" sizes=\"auto, (max-width: 318px) 100vw, 318px\" \/><figcaption id=\"caption-attachment-40\" class=\"wp-caption-text\">Chart 3.1 The Demand Curve for apples per day and price.<\/figcaption><\/figure>\n<p class=\"c27\"><span class=\"c13\">Demand<\/span>\u00a0is the quantity of a product that buyers are willing to purchase at various prices. The quantity of a product that people are willing to buy depends on its price. You\u2019re typically willing to buy <span class=\"c6\">less <\/span>of a product when prices <span class=\"c6\">rise <\/span>and <span class=\"c6\">more <\/span>of a product when prices <span class=\"c6\">fall<\/span><span class=\"c1\">. Generally speaking, we find products more attractive at lower prices, and we buy more at lower prices because our income goes further.\u00a0<\/span><\/p>\n<p class=\"c27 c8\"><span class=\"c1\">Using this logic, we can construct a demand curve that shows the quantity of a product that will be demanded at different prices. Let\u2019s assume that the diagram \u201cThe Demand Curve\u201d represents the daily price and quantity of apples sold by farmers at a local market. Note that as the price of apples goes down, buyers\u2019 demand goes up. Thus, if a pound of apples sells for $0.80, buyers will be willing to purchase only fifteen hundred pounds per day. But if apples cost only $0.60 a pound, buyers will be willing to purchase two thousand pounds. At $0.40 a pound, buyers will be willing to purchase twenty-five hundred pounds.<\/span><\/p>\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">Supply and the Supply Curve<br \/>\n<\/span><\/h2>\n<figure id=\"attachment_41\" aria-describedby=\"caption-attachment-41\" style=\"width: 300px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-41 size-medium\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1-300x266.jpg\" alt=\"A graph with numbers 0-5000 on the X axis for pounds of apples per day and 0-1.0 for Price per pound on the Y axis. The demand curve shows a diagonal line moving higher from left to right.\" width=\"300\" height=\"266\" srcset=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1-300x266.jpg 300w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1-65x58.jpg 65w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1-225x199.jpg 225w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1-350x310.jpg 350w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image6-1.jpg 643w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-41\" class=\"wp-caption-text\">Chart 3.2 The Supply Curve for apples per day and price.<\/figcaption><\/figure>\n<p class=\"c27 c8\"><span class=\"c13\">Supply<\/span>\u00a0is the quantity of a product that sellers are willing to sell at various prices. The quantity of a product that a business is willing to sell depends on its price. Businesses are <span class=\"c6\">more <\/span>willing to sell a product when the price <span class=\"c6\">rises <\/span>and <span class=\"c6\">less <\/span>willing to sell it when prices <span class=\"c6\">fall<\/span><span class=\"c1\">. Again, this fact makes sense: businesses are set up to make profits, and there are larger profits to be made when prices are high.<\/span><\/p>\n<p class=\"c27\"><span class=\"c1\">Now we can construct a supply curve that shows the quantity of apples that farmers would be willing to sell at different prices, regardless of demand. As you can see in \u201cThe Supply Curve\u201d, the supply curve goes in the opposite direction from the demand curve: as prices rise, the quantity of apples that farmers are willing to sell also goes up. The supply curve shows that farmers are willing to sell only a thousand pounds of apples when the price is $0.40 a pound, two thousand pounds when the price is $0.60, and three thousand pounds when the price is $0.80.<\/span><\/p>\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">Equilibrium Price<\/span><\/h2>\n<p class=\"c27\">We can now see how the market mechanism works under perfect competition. We do this by plotting both the supply curve and the demand curve on one graph, as we have done in the figure below, \u201c<a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_662\">The Equilibrium Price<\/a>\u201d. The point at which the two curves intersect is the <span class=\"c13\">equilibrium price<\/span><span class=\"c1\">.<\/span><\/p>\n<figure id=\"attachment_42\" aria-describedby=\"caption-attachment-42\" style=\"width: 300px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-42 size-medium\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-3-300x290.jpg\" alt=\"A graph with numbers 0-5000 on the X axis for pounds of apples per day and 0-1.0 for Price per pound on the Y axis. The supply curve shows a diagonal line moving higher from left to right. The demand curve shows a diagonal line moving lower from left to right. These two are combined and the Equilibrium Price revealed at the intersection.\" width=\"300\" height=\"290\" srcset=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-3-300x290.jpg 300w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-3-65x63.jpg 65w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-3-225x217.jpg 225w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-3-350x338.jpg 350w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image2-3.jpg 693w\" sizes=\"auto, (max-width: 300px) 100vw, 300px\" \/><figcaption id=\"caption-attachment-42\" class=\"wp-caption-text\">Chart 3.3 The Equilibrium Price<\/figcaption><\/figure>\n<p class=\"c27\"><span class=\"c1\">You can see in \u201cThe Equilibrium Price\u201d that the supply and demand curves intersect at the price of $0.60 and quantity of two thousand pounds. Thus, $0.60 is the equilibrium price: at this price, the quantity of apples demanded by buyers equals the quantity of apples that farmers are willing to supply. If a single farmer tries to charge more than $0.60 for a pound of apples, he won\u2019t sell very many because other suppliers are making them available for less. As a result, his profits will go down. If, on the other hand, a farmer tries to charge less than the equilibrium price of $0.60 a pound, he will sell more apples but his profit per pound will be less than at the equilibrium price. With profit being the motive, there is no incentive to drop the price.<\/span><\/p>\n<p class=\"c27\">What have you learned in this discussion? Without outside influences, markets in an environment of perfect competition will arrive at an equilibrium point at which both buyers and sellers are satisfied. But you must be aware that this is a very simplistic example. Things are much more complex in the real world. For one thing, markets rarely operate without outside influences. Sometimes, sellers supply more of a product than buyers are willing to purchase; in that case, there\u2019s a <span class=\"c13\">surplus<\/span>. Sometimes, they don\u2019t produce enough of a product to satisfy demand; then we have a <span class=\"c13\">shortage<\/span><span class=\"c1\">.<\/span><\/p>\n<p class=\"c27\"><span class=\"c1\">Circumstances also have a habit of changing. What would happen, for example, if incomes rose and buyers were willing to pay more for apples? The demand curve would change, resulting in an increase in equilibrium price. This outcome makes intuitive sense: as demand increases, prices will go up. What would happen if apple crops were larger than expected because of favorable weather conditions? Farmers might be willing to sell apples at lower prices rather than letting part of the crop spoil. If so, the supply curve would shift, resulting in another change in equilibrium price: the increase in supply would bring down prices.<\/span><\/p>\n<h1 class=\"c53\"><span class=\"c44 c13\">Monopolistic Competition, Oligopoly, and Monopoly<\/span><\/h1>\n<p class=\"c27\">The Canadian economy is founded on the principles of private enterprise; private property rights, freedom of choice, profits and competition. As mentioned previously, economists have identified four types of competition \u2014 <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_656\">perfect competition<\/a>, <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_657\">monopolistic competition<\/a>, <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_658\">oligopoly<\/a>, and <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_659\">monopoly<\/a>. Perfect competition was discussed in the last section; we will cover the remaining three types of competition here.<\/p>\n<table style=\"height: 336px;width: 100%\">\n<caption><strong>Table 3.1<\/strong>\u00a0<span class=\"c9\">Four Major Market Structures<\/span><\/caption>\n<tbody>\n<tr class=\"c68\" style=\"height: 56px\">\n<th scope=\"col\">Characteristic<\/th>\n<th scope=\"col\">Perfect Competition<\/th>\n<th scope=\"col\">Monopolistic Competition<\/th>\n<th scope=\"col\">Oligopoly<\/th>\n<th scope=\"col\">Pure Monopoly<\/th>\n<\/tr>\n<tr class=\"c26\" style=\"height: 56px\">\n<th scope=\"row\">Number of firms<\/th>\n<td>Very many<\/td>\n<td>Many<\/td>\n<td>A few<\/td>\n<td>One<\/td>\n<\/tr>\n<tr class=\"c65\" style=\"height: 56px\">\n<th scope=\"row\">Types of product<\/th>\n<td>Homogeneous<\/td>\n<td>Differentiated<\/td>\n<td>Homogeneous or differentiated<\/td>\n<td>Homogeneous<\/td>\n<\/tr>\n<tr class=\"c65\" style=\"height: 56px\">\n<th scope=\"row\">Barriers to entry or exit from industry<\/th>\n<td>No substantial barriers<\/td>\n<td>Minor barriers<\/td>\n<td>Considerable barriers<\/td>\n<td>Extremely great barriers<\/td>\n<\/tr>\n<tr class=\"c41\" style=\"height: 56px\">\n<th scope=\"row\">Examples<\/th>\n<td>Agriculture<\/td>\n<td>Retail trade<\/td>\n<td>Banking<\/td>\n<td>Public utilities<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n<h2 class=\"c36\">Monopolistic Competition<\/h2>\n<p class=\"c27\">In <span class=\"c13\">monopolistic competition<\/span>, we still have many sellers (as we had under perfect competition). Now, however, they do not sell identical products. Instead, they sell <span class=\"c13\">differentiated<\/span><span class=\"c1\">\u00a0products\u2014products that differ somewhat, or are perceived to differ, even though they serve a similar purpose. Products can be differentiated in a number of ways, including quality, style, convenience, location, and brand name. Some people prefer Coke over Pepsi, even though the two products are quite similar. But what if there was a substantial price difference between the two? In that case, buyers could be persuaded to switch from one to the other. Thus, if Coke has a big promotional sale at a supermarket chain, some Pepsi drinkers might switch (at least temporarily).<\/span><\/p>\n<p class=\"c27\"><span class=\"c1\">How is product differentiation accomplished? Sometimes, it\u2019s simply geographical; you probably buy gasoline at the station closest to your home regardless of the brand. At other times, perceived differences between products are promoted by advertising designed to convince consumers that one product is different from an- other \u2014 and better than it. Regardless of customer loyalty to a product, however, if its price goes too high, the seller will lose business to a competitor. Under monopolistic competition, therefore, companies have only limited control over price.<\/span><\/p>\n<h2 class=\"c36\">Oligopoly<\/h2>\n<p class=\"c27\"><span class=\"c13\">Oligopoly<\/span><span class=\"c1\">\u00a0means few sellers. In an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace. In addition, because the cost of starting a business in an oligopolistic industry is usually high, the number of firms entering it is low. Companies in oligopolistic industries include such large-scale enterprises as automobile companies and airlines. As large firms supplying a sizable portion of a market, these companies have some control over the prices they charge. But there\u2019s a catch: because products are fairly similar, when one company lowers prices, others are often forced to follow suit to remain competitive. You see this practice all the time in the airline industry: When American Airlines announces a fare decrease, Continental, United Airlines, and others do likewise. When one automaker offers a special deal, its competitors usually come up with similar promotions.<\/span><\/p>\n<h2 class=\"c36\">Monopoly<\/h2>\n<p class=\"c27\">In terms of the number of sellers and degree of competition, a <span class=\"c13\">monopoly<\/span><span class=\"c1\">\u00a0lies at the opposite end of the spectrum from perfect competition. In perfect competition, there are many small companies, none of which can control prices; they simply accept the market price determined by supply and demand. In a monopoly, however, there\u2019s only one seller in the market. The market could be a geographical area, such as a city or a regional area, and doesn\u2019t necessarily have to be an entire country.<\/span><\/p>\n<p class=\"c27\">There are few monopolies in Canada because the government limits them. Most fall into one of two categories: natural and legal. <span class=\"c13\">Natural monopolies<\/span><span class=\"c1\"> include public utilities, such as electricity and gas suppliers. Such enterprises require huge investments, and it would be inefficient to duplicate the products that they provide. They inhibit competition, but they\u2019re legal because they\u2019re important to society. In exchange for the right to conduct business without competition, they\u2019re regulated. For instance, they can\u2019t charge whatever prices they want; they must adhere to government-controlled prices. As a rule, they\u2019re required to serve all customers, even if doing so isn\u2019t cost efficient.<\/span><\/p>\n<p class=\"c27\">A <span class=\"c13\">legal monopoly<\/span> arises when a company receives a patent giving it exclusive use of an invented product or process. Patents are issued for a limited time, generally twenty years.<sup class=\"c40\">1<\/sup> During this period, other companies can\u2019t use the invented product or process without permission from the patent holder. Patents allow companies a certain period to recover the heavy costs of researching and developing products and technologies. A classic example of a company that enjoyed a patent-based legal monopoly is Polaroid, which for years held exclusive ownership of instant film technology.<sup class=\"c40\">2<\/sup><span class=\"c1\">\u00a0Polaroid priced the product high enough to <\/span>recoup, over time, the high cost of bringing it to market. Without competition, it enjoyed a monopolistic position in regard to pricing.<\/p>\n<h1 class=\"c53\"><span class=\"c44 c13\">Measuring the Health of the Economy<\/span><\/h1>\n<p class=\"c27\">Every day we are bombarded with economic news (at least if you watch the business news stations). We are told about things like unemployment, home prices, and consumer confidence trends. As a student learning about business, and later as a business manager, you need to understand the nature of the Canadian economy and the terminology that we use to describe it.<span class=\"c1\">\u00a0You need to have some idea of where the economy is heading, and you need to know something about the government\u2019s role in influencing its direction.<\/span><\/p>\n<h2 class=\"c36 c8\"><span class=\"c19 c13 c6\">Economic Goals<\/span><\/h2>\n<p class=\"c3\"><span class=\"c1\">The world\u2019s economies share three main goals:<\/span><\/p>\n<ul class=\"c23 lst-kix_list_17-0 start\">\n<li class=\"c5\"><span class=\"c1\">growth;<\/span><\/li>\n<li class=\"c5\"><span class=\"c1\">high employment; and<\/span><\/li>\n<li class=\"c5\"><span class=\"c1\">price stability.<\/span><\/li>\n<\/ul>\n<p class=\"c27\"><span class=\"c1\">Let us take a closer look at each of these goals, both to find out what they mean and to show how we determine whether or not they\u2019re being met.<\/span><\/p>\n<h3 class=\"c17\"><span class=\"c46 c13 c6\">Economic Growth<\/span><\/h3>\n<p class=\"c27 c8\">One purpose of an economy is to provide people with goods and services such as cars, computers, video games, houses, rock concerts, fast food, and amusement parks. One way in which economists measure the performance of an economy is by looking at a widely used measure of total output called the <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_663\"><span class=\"c13\">gross domestic product<\/span>\u00a0(GDP)<\/a>. The GDP is defined as the market value of all goods and services produced by the economy in a given year. The GDP includes only those goods and services produced domestically; goods produced outside the country are excluded. The GDP also includes only those goods and services that are produced for the final user; intermediate products are excluded. For example, the silicon chip that goes into a computer (an intermediate product) would not count directly because it is included when the finished computer is counted. By itself, the GDP doesn\u2019t necessarily tell us much about the direction of the economy. But change in the GDP does. If the GDP (after adjusting for inflation, which will be discussed later) goes up, the economy is growing. If it goes down, the economy is contracting.\u00a0There is some debate amongst economists that GDP provides the most accurate measure of an economy\u2019s performance. Many economists believe that <span class=\"c13\">GDP per capita<\/span>, which is the measure of total production of goods and services divided by the number of households, is a better indicator of an economy\u2019s performance. For example, according to <span class=\"c45\">The World Bank<\/span>, as of 2017, India\u2019s <span class=\"c13\">GDP<\/span>\u00a0ranked 7th in the world at $2.439 trillion (USD) while Canada\u2019s <span class=\"c13\">GDP <\/span>ranked 10th at $1.640 trillion (USD). However, as of 2017, Canada\u2019s <span class=\"c13\">GDP<\/span>\u00a0<span class=\"c13\">per capita<\/span>\u00a0ranks 18th at $44,773 per household, compared to India\u2019s <span class=\"c13\">GDP per capita<\/span> which ranked 142nd in the world at $1,852 per household.<\/p>\n<p><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_1508\">Gross national product (GNP) <\/a> is another metric used for measuring a nation&#8217;s economic output. Gross national product (GNP) is the value of all products and services produced by the citizens of a country both domestically and internationally minus income earned by foreign residents. For instance, if Canada has production facilities in the USA, its GNP would account for both the production output in Canada and in the USA.<\/p>\n<p><strong>Chart 3.4 <\/strong>Business Cycle<\/p>\n<figure id=\"attachment_43\" aria-describedby=\"caption-attachment-43\" style=\"width: 900px\" class=\"wp-caption aligncenter\"><a href=\"https:\/\/en.wikipedia.org\/wiki\/Business_cyclehttp:\/\/\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-43\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-1024x707.png\" alt=\"The business cycle, also known as the economic cycle or trade cycle, is the downward and upward movement of gross domestic product (GDP) around its long-term growth trend.[1] The length of a business cycle is the period of time containing a single boom and contraction in sequence. These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (expansions or booms), and periods of relative stagnation or decline (contractions or recessions). Business cycles are usually measured by considering the growth rate of real gross domestic product. Despite the often-applied term cycles, these fluctuations in economic activity do not exhibit uniform or predictable periodicity.\" width=\"900\" height=\"621\" srcset=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-1024x707.png 1024w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-300x207.png 300w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-768x530.png 768w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-1536x1060.png 1536w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-65x45.png 65w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-225x155.png 225w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph-350x242.png 350w, https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/2-BusinessLifeCycle-Graph.png 1571w\" sizes=\"auto, (max-width: 900px) 100vw, 900px\" \/><\/a><figcaption id=\"caption-attachment-43\" class=\"wp-caption-text\">Chart 3.4 Short-term fluctuations in the economy relative to the long term trend in output.<\/figcaption><\/figure>\n<p>The economic ups and downs resulting from expansion and contraction constitute the <span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_688\">business cycle<\/a><\/span><span class=\"c1\">. Similar to a product lifecycle, as a business cycle introduces new products, those products grow, mature and decline; when all business cycles in an economy are combined an economy\u2019s business cycle is created. A typical cycle runs from three to five years but could last much longer. Though typically irregular, a cycle can be divided into four general phases of prosperity, recession, depression (which the cycle generally skips), and recovery:<\/span><\/p>\n<ul class=\"c23 lst-kix_list_18-0 start\">\n<li class=\"c8 c48\"><span class=\"c1\">During <\/span><span class=\"c15 c13\">prosperity<\/span><span class=\"c1\">, the economy expands, unemployment is low, incomes rise, and consumers buy more products. Businesses respond by increasing production and offering new and better products.<\/span><\/li>\n<li class=\"c48 c8\"><span class=\"c1\">Eventually, however, things slow down. GDP decreases, unemployment rises, and because people have less money to spend, business revenues decline. This slowdown in economic activity is called a <\/span><span class=\"c15 c13\">recession<\/span><span class=\"c1\">.<\/span><\/li>\n<li class=\"c48 c8\"><span class=\"c1\">Economists often say that we are entering a recession when GDP goes down for two consecutive quarters.<\/span><\/li>\n<li class=\"c48\"><span class=\"c1\">Generally, a recession is followed by a <\/span><span class=\"c15 c13\">recovery <\/span><span class=\"c91\">or<\/span><span class=\"c15 c13\">\u00a0expansion<\/span><span class=\"c1\">\u00a0in which the economy starts growing again.<\/span><\/li>\n<li class=\"c31\"><span class=\"c1\">If, however, a recession lasts a long time (perhaps a decade or so), while unemployment remains very high and production is severely curtailed, the economy could sink into a <\/span><span class=\"c15 c13\">depression<\/span><span class=\"c1\">. While economists have defined recession, they have not agreed on a uniform standard for what constitutes a depression, though they are generally characterized by their duration. Though not impossible, it is unlikely that Canada will experience another severe depression like that of the 1930s. The federal government has a number of economic tools (some of which we\u2019ll discuss shortly) with which to fight any threat of a depression.<\/span><\/li>\n<\/ul>\n<div class=\"textbox shaded\">\n<p>If you want or need a more interactive examples of the business cycle, this 10 minute video provides more details:<\/p>\n<p><iframe loading=\"lazy\" id=\"oembed-1\" title=\"The business cycle | Aggregate demand and aggregate supply | Macroeconomics | Khan Academy\" width=\"500\" height=\"281\" src=\"https:\/\/www.youtube.com\/embed\/TXrOpjG4dUs?feature=oembed&#38;rel=0\" frameborder=\"0\" allowfullscreen=\"allowfullscreen\"><\/iframe><\/p>\n<\/div>\n<h3 id=\"h.m8pdhcegea1u\" class=\"c17\">The Unemployment Rate<\/h3>\n<p class=\"c27\">Statistics Canada tracks unemployment and reports the <span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_689\">unemployment rate<\/a><\/span><span class=\"c1\">: the percentage of the labour force that is unemployed and actively seeking work. The unemployment rate is an important measure of economic health. It goes up during recessionary periods because companies are reluctant to hire workers when demand for goods and services is low. Conversely, it goes down when the economy is expanding and there is high demand for products and workers to supply them.<\/span><\/p>\n<p class=\"c27\">\u201cThe Canadian Unemployment Rate, 1946\u20132015\u201d traces the Canadian unemployment rate between 1946 and 2015. Please be aware that there are multiple measures of unemployment and that this graph is based on what is known as R4, the most commonly used measurement, and is comparable to the U.S. unemployment measure, U3. Another measurement, R8, is considered to provide a broader picture of unemployment in Canada and includes unemployed workers that are discouraged by their job search, involuntary part-time workers, and those unemployed workers that are awaiting confirmation of new work.<span class=\"c1\"> Since, by definition, R8 is always higher than R4, it is likely that R4 is discussed more often because it paints a more favorable, if not completely accurate, picture.<\/span><\/p>\n<p><strong>Chart 3.5<\/strong> Unemployment Rate by Sex<\/p>\n<p>&nbsp;<\/p>\n<figure id=\"attachment_42\" aria-describedby=\"caption-attachment-42\" style=\"width: 945px\" class=\"wp-caption aligncenter\"><a href=\"http:\/\/www.statcan.gc.ca\/pub\/75-005-m\/75-005-m2016001-eng.pdf\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-42 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image5.png\" alt=\"Illustrates the unemployment rate by sex in Canada from 1946-2015 on a three-colour graph. Access the report for the text version of the statistics.\" width=\"945\" height=\"568\" \/><\/a><figcaption id=\"caption-attachment-42\" class=\"wp-caption-text\">Chart 3.5 Canada&#8217;s Unemployment Rates 1946-2015 | Statistics Canada.<\/figcaption><\/figure>\n<div class=\"textbox shaded\"><strong>Pick a peak; view a valley.<\/strong><br \/>\nConsider what was happening in Canada and\/or the world that helps explain one of the peaks or one of the valleys?<\/div>\n<h3 class=\"c17\"><span class=\"c46 c13 c6\">Full Employment<\/span><\/h3>\n<p class=\"c66\">To keep the economy going strong, people must spend money on goods and services. A reduction in personal expenditures for things like food, clothing, appliances, automobiles, housing, and medical care could severely reduce GDP and weaken the economy. Because most people earn their spending money by working, an important goal of all economies is making jobs available to everyone who wants one. In principle, <span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_690\">full employment<\/a><\/span><span class=\"c1\">\u00a0occurs when everyone who wants to work has a job. In practice, we say that we have full employment when about 95 percent of those wanting to work are employed.<\/span><\/p>\n<h3 class=\"c36\"><span class=\"c13 c6 c19\">Price Stability<\/span><\/h3>\n<p class=\"c27\">A third major goal of all economies is maintaining <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_691\">price stability<\/a>. Price stability occurs when the average of the prices for goods and services either does not change or changes very little. Rapidly rising prices are troublesome for both individuals and businesses. For individuals, rising prices mean people have to pay more for the things they need. For businesses, rising prices mean higher costs, and, at least in the short run, businesses might have trouble passing on higher costs to consumers. When the overall price level goes up, we have <span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_718\">inflation<\/a><\/span>. The graph shows inflationary trends in the Canadian economy since 1915. The i<span class=\"c1\">nflation rate in Canada averaged 3.15 percent from 1915 until 2018, reaching an all time high of 21.60 percent in June of 1920 and a record low of -17.80 percent in June of 1921.<\/span><\/p>\n<p><strong>Chart 3.6<\/strong>\u00a0Canada&#8217;s Inflation Rate 1915-2018<\/p>\n<figure id=\"attachment_43\" aria-describedby=\"caption-attachment-43\" style=\"width: 713px\" class=\"wp-caption aligncenter\"><img loading=\"lazy\" decoding=\"async\" class=\"wp-image-43 size-full\" src=\"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-content\/uploads\/sites\/1177\/2020\/11\/image1.png\" alt=\"\" width=\"713\" height=\"330\" \/><figcaption id=\"caption-attachment-43\" class=\"wp-caption-text\">Chart 3.6 Canada\u2019s Inflation Rate 1915-2018. Source: Tradingeconomics.com. Statistics Canada.<\/figcaption><\/figure>\n<p class=\"c27\">When the price level goes down (which rarely happens), we have <span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_719\">deflation<\/a><\/span><span class=\"c1\">. A deflationary situation can also be damaging to an economy. When purchasers believe they can expect lower prices in the future, they may defer making purchases, which has the effect of slowing economic growth. Japan experienced a long period of deflation which contributed to economic stagnation in that country from which it is only now beginning to recover.<\/span><\/p>\n<h3 class=\"c36\"><span class=\"c19 c13 c6\">The Consumer Price Index<\/span><\/h3>\n<p class=\"c27\">The most widely publicized measure of inflation is the <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_665\"><span class=\"c13\">consumer price index<\/span><span class=\"c1\">\u00a0(CPI)<\/span><\/a><span class=\"c1\">, which is reported monthly by Statistics Canada. The CPI measures the rate of inflation by determining price changes of a hypothetical basket of goods, such as food, housing, clothing, medical care, appliances, automobiles, and so forth, bought by a typical household.<\/span><\/p>\n<p class=\"c62\">The Bank of Canada currently measures prices against the base year of 2002, and the basket for that year is given the value of 100. In 2012 the CPI averaged\u00a0121.7, which means that what you could buy for $100 in 2002 cost $121.70 in 2012<span class=\"c58\">. <\/span><span class=\"c1\">The difference registers the effect of inflation. In fact, that\u2019s what an inflation rate is\u2014the percentage change in a price index.<\/span><\/p>\n<p class=\"c62\">The Bank of Canada created an <a href=\"https:\/\/www.bankofcanada.ca\/rates\/related\/inflation-calculator\/\" target=\"_blank\" rel=\"noopener\">Inflation Calculator<\/a><span class=\"c1\"> to compare the costs of consumer goods then and now. For example, ask a parent or an older neighbour what they paid for their first car, first house, or first formal wear. \u00a0<\/span><\/p>\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Economic Forecasting<\/span><\/h2>\n<p class=\"c62\"><span class=\"c1\">In the previous section, we introduced several measures that economists use to assess the performance of the economy at a given time. By looking at changes in the GDP, for instance, we can see whether the economy is growing. The CPI allows us to gauge inflation. These measures help us understand where the economy stands today. But what if we want to get a sense of where it\u2019s headed in the future? To a certain extent, we can forecast future economic trends by analyzing several leading economic indicators.<\/span><\/p>\n<h3 class=\"c18\"><span class=\"c19 c13 c6\">Economic Indicators<\/span><\/h3>\n<p class=\"c62\">An <span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_692\">economic indicator<\/a><\/span><span class=\"c1\"> is a statistic that provides valuable information about the economy. There\u2019s no shortage of economic indicators, and trying to follow them all would be an overwhelming task. So in this chapter, we will only discuss the general concept and a few of the key indicators.<\/span><\/p>\n<h3 class=\"c17\"><span class=\"c46 c13 c6\">Leading, Coincident and Lagging Indicators<\/span><\/h3>\n<p>Canadian economic indicators can be expressed in three main indicators<span class=\"c3\"> \u2014 <\/span><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_693\">leading indicators<\/a>, <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_694\">coincident indicators<\/a> and <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_695\">lagging indicators<\/a>.<\/p>\n<p class=\"c27\">Statistics that report the status of the economy a few months in the past are called <span class=\"c13\">lagging economic indicators<\/span>. One such indicator is average length of unemployment. If unemployed workers have remained out of work for a long time, we may infer that the economy has been slow. Indicators that predict the status of the economy three to twelve months into the future are called <span class=\"c13\">leading economic indicators<\/span><span class=\"c1\">. If such an indicator rises, the economy is more likely to expand in the coming year. If it falls, the economy is more likely to contract.<\/span><\/p>\n<p class=\"c27\"><span class=\"c1\">It is also helpful to look at indicators from various sectors of the economy: labour, manufacturing, and housing. One useful indicator of the outlook for future jobs is the number of new claims for unemployment insurance. This measure tells us how many people recently lost their jobs. If it\u2019s rising, it signals trouble ahead because unemployed consumers can\u2019t buy as many goods and services as they could if they had paychecks.<\/span><\/p>\n<p class=\"c27\"><span class=\"c1\">To gauge the level of goods to be produced in the future (which will translate into future sales), economists look at a statistic called average weekly manufacturing hours. This measure tells us the average number of hours worked per week by production workers in manufacturing industries. If it is on the rise, the economy will probably improve. For assessing the strength of the housing market, the number of housing starts is often a good indicator. An increase in this statistic<span class=\"c3\"> \u2014 <\/span>which tells us how many new housing units are being built \u2014 indicates that the economy is improving. Why? Because increased building brings money into the economy not only through new home sales but also through sales of furniture and appliances to furnish them.<\/span><\/p>\n<p class=\"c27\"><span class=\"c1\">Since employment is such a key goal in any economy, the Canadian Industry Statistics in collaboration with Statistics Canada tracks total non-farm payroll employment from which the number of net new jobs created can be determined.<\/span><\/p>\n<h1 class=\"c53\"><span class=\"c44 c13\">Government\u2019s Role in Managing the Economy<\/span><\/h1>\n<p class=\"c7 c63\">\u00a0The Canadian government, including federal, provincial and municipal governments, plays many roles within the Canadian economic system, and therefore influences business activities. Government plays many roles\u00a0 and influences business activities in many ways. The roles government plays are as follows:<\/p>\n<ul>\n<li class=\"c7 c63\">Government as customer<\/li>\n<li class=\"c7 c63\">Government as a competitor<\/li>\n<li class=\"c7 c63\">Government as a regulator &#8211; promoting competition, protecting consumers, achieving social goals and protecting the environment<\/li>\n<li class=\"c7 c63\">Government as a taxation agent<\/li>\n<li class=\"c7 c63\">Government as a provider of incentives<\/li>\n<li class=\"c7 c63\">Government as a protector of consumers or customers<\/li>\n<li class=\"c7 c63\">Government as a provider of essential services.<\/li>\n<\/ul>\n<p class=\"c7 c63\">Businesses may also influence government through lobbying, joining trade associations, making political donations and trying to convince voters to support or oppose certain regulations and policies.<\/p>\n<p class=\"c7 c63\">In managing the economy three main policies may be used by the government: Monetary policy, Fiscal policy and National Debt management.<\/p>\n<h2 class=\"c7 c63\"><span class=\"c19 c13 c6\">Monetary Policy<\/span><\/h2>\n<p class=\"c27\"><span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_698\">Monetary policy<\/a><\/span><span class=\"c1\"> is exercised by the The Bank of Canada, which is empowered to take various actions that decrease or increase the money supply and raise or lower short-term interest rates, making it harder or easier to borrow money. When The Bank of Canada believes that inflation is a problem, it will use contractionary policy to decrease the money supply and raise interest rates. When rates are higher, borrowers have to pay more for the money they borrow, and banks are more selective in making loans. Because money is \u201ctighter\u201d<span class=\"c3\"> \u2014 <\/span>more expensive to borrow<span class=\"c3\"> \u2014 <\/span>demand for goods and services will go down, and so will prices. In any case, that\u2019s the theory.<\/span><\/p>\n<p class=\"c66\"><span class=\"c6 c86\">The Bank of Canada will typically tighten or decrease the money supply during inflationary periods, making it harder to borrow money<\/span>.<\/p>\n<p class=\"c27\"><span class=\"c1\">To counter a recession, The Bank of Canada uses expansionary policy to increase the money supply and reduce interest rates. With lower interest rates, it\u2019s cheaper to borrow money, and banks are more willing to lend it. We then say that money is \u201ceasy.\u201d Attractive interest rates encourage businesses to borrow money to expand production and encourage consumers to buy more goods and services. In theory, both sets of actions will help the economy escape or come out of a recession.<\/span><\/p>\n<h2 class=\"c18\"><span class=\"c19 c13 c6\">Fiscal Policy<\/span><\/h2>\n<p class=\"c62\"><span class=\"c13\"><a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_700\">Fiscal policy<\/a><\/span> relies on the government\u2019s powers of spending and taxation. Both taxation and government spending can be used to reduce or increase the total supply of money in the economy<span class=\"c3\"> \u2014 <\/span>the total amount, in other words, that businesses and consumers have to spend. When the country is in a recession, government policy is typically to increase spending, reduce taxes, or both. Such expansionary actions will put more money in the hands of businesses and consumers, encouraging businesses to expand and consumers to buy more goods and services. <span class=\"c13 c24\">Expansionary fiscal policy<\/span><span class=\"c24\">\u00a0is used to <\/span><span class=\"c6 c24\">increase<\/span><span class=\"c24\">\u00a0government expenditures and\/or <\/span><span class=\"c6 c24\">decrease<\/span><span class=\"c24\"> taxes, which causes the government&#8217;s budget deficit to increase or its budget surplus to decrease.\u00a0<\/span>When the economy is experiencing inflation, the opposite policy is adopted: the government will decrease spending or increase taxes, or both. Because such contractionary measures reduce spending by businesses and consumers, prices come down and inflation eases. <span class=\"c13 c24\">Contractionary fiscal policy<\/span><span class=\"c24\">\u00a0is used to <\/span><span class=\"c6 c24\">decrease<\/span><span class=\"c24\">\u00a0government expenditures and\/or <\/span><span class=\"c6 c24\">increase<\/span><span class=\"c24\"> taxes, which causes the government&#8217;s budget deficit to decrease or its budget surplus to increase.<\/span><\/p>\n<h2 class=\"c36\"><span class=\"c19 c13 c6\">The National<\/span> Debt<\/h2>\n<p>The <a class=\"glossary-term\" aria-haspopup=\"dialog\" aria-describedby=\"definition\" href=\"#term_46_701\">national debt<\/a> is also referred to as Canada&#8217;s public debt. According to the Department of Finance Canada,\u00a0<b><\/b><a href=\"https:\/\/tradingeconomics.com\/canada\/government-debt\">Government Debt in Canada<\/a> increased to 1134.49 CAD Billion in 2022 from 1048.75 CAD Billion in 2021. The expected rise is due to the\u00a0massive new borrowing to cover COVID-19 pandemic responses.<\/p>\n<p class=\"c27\">If, in any given year, the government takes in more money (through taxes) than it spends on goods and services (for things such as defense, transportation, and social services), the result is a <span class=\"c13\">budget surplus<\/span>. If, on the other hand, the government spends more than it takes in, we have a <span class=\"c13\">budget deficit<\/span> (which the government pays off by borrowing through the issuance of Treasury bonds). Historically, deficits have occurred much more often than surpluses; typically, the government spends more than it takes in.<\/p>\n<div class=\"textbox shaded\" style=\"text-align: center\">This number is moving too quickly for the authors to keep the graph current \u2013 you can see the current debt at <a href=\"https:\/\/www.nationaldebtclocks.org\/debtclock\/canada.\">Canadian National Debt Clock<\/a>.<\/div>\n<h1 class=\"textbox__header\">Put It Into Practice<\/h1>\n<div class=\"textbox__content\">\n<p>1. Search credible business press and Internet for recent examples of Canadian business outlook and answer the following questions:<\/p>\n<ol>\n<li>Is the current level of unemployment rising or falling?<\/li>\n<li>Is the current level of inflation rate rising or falling?<\/li>\n<li>What do economist expect will happen to unemployment rates and inflation in the near future?<\/li>\n<\/ol>\n<p>2. Get together in groups of four selected by your instructor.<\/p>\n<p>PART A &#8211; Pick any three items from the following list:<\/p>\n<ul>\n<li>litre of milk;<\/li>\n<li>litre of gas;<\/li>\n<li>roundtrip airline ticket between Vancouver and Toronto;<\/li>\n<li>large cheese pizza;<\/li>\n<li>monthly cost of internet; and<\/li>\n<li>quarter-pound burger.<\/li>\n<\/ul>\n<p>PART B &#8211; Each member of the team should check the prices of the three items, using his or her own sources. Then, get together and compare the prices found by team members. Based on your findings, answer the following questions as a group:<\/p>\n<ol>\n<li>Are the prices of given products similar, or do they vary?<\/li>\n<li>Why do the prices of some products vary while those of others are similar?<\/li>\n<li>Can any price differences be explained by applying the concepts of supply and demand or types of competition?<\/li>\n<\/ol>\n<\/div>\n<h1>Comprehension Check<\/h1>\n<ol>\n<li>Distinguish between the main types of economic systems and describe their unique characteristics.<\/li>\n<li>Using the principles of supply and demand, what happens to the price when there is more supply than demand? What happens to the price when there is more demand than supply? What do you call the point at which supply and demand meet?<\/li>\n<li>What are the types of competition? What are the opportunities and challenges with operating within each type of competition?<\/li>\n<li>What are the key indicators of economic growth and how does each one indicate economic health?<\/li>\n<\/ol>\n<div class=\"textbox textbox--key-takeaways\">\n<header class=\"textbox__header\">\n<h1 class=\"textbox__title\">Key Takeaways<\/h1>\n<\/header>\n<div class=\"textbox__content\">\n<p>Important terms and concepts:<\/p>\n<ol>\n<li class=\"c22\"><span class=\"c33 c13\">Economics<\/span><span class=\"c2\"> is the study of the production, distribution, and consumption of goods and services.<\/span><\/li>\n<li class=\"c22\"><span class=\"c2\">Economists address these three questions: (1) What goods and services should be produced to meet consumer needs? (2) How should they be produced, and who should produce them? (3) Who should receive goods and services?<\/span><\/li>\n<li class=\"c22\"><span class=\"c2\">The answers to these questions depend on a country\u2019s <\/span><span class=\"c33 c13\">economic system<\/span><span class=\"c2\">. The primary economic systems that exist today are planned and free market systems.<\/span><\/li>\n<li class=\"c22\"><span class=\"c2\">In a <\/span><span class=\"c33 c13\">planned system<\/span><span class=\"c2\">, such as communism and socialism, the government exerts control over the production and distribution of all or some goods and services.<\/span><\/li>\n<li class=\"c22\"><span class=\"c2\">In a <\/span><span class=\"c33 c13\">free market system<\/span><span class=\"c2\">, also known as capitalism, business is conducted with only limited government involvement. <\/span><span class=\"c33 c13\">Competition<\/span><span class=\"c2\"> determines what goods and services are produced, how they are produced, and for whom.<\/span><\/li>\n<li class=\"c22\"><span class=\"c2\">In a free market system, buyers and sellers interact in a <\/span><span class=\"c33 c13\">market<\/span><span class=\"c2\"> to set prices.<\/span><\/li>\n<li class=\"c22\"><span class=\"c2\">When the market is characterized by <\/span><span class=\"c13 c33\">perfect competition<\/span><span class=\"c2\">, many small companies sell identical products. The price is determined by supply and demand.<\/span><\/li>\n<li class=\"c22\"><span class=\"c33 c13\">Supply<\/span><span class=\"c2\"> is the quantity of a product that sellers are willing to sell at various prices. Price also in\ufb02uences the quantity of a product that producers are willing to supply: they\u2019ll sell more of a product when prices are high and less when they\u2019re low.<\/span><\/li>\n<li class=\"c22\"><span class=\"c33 c13\">Demand<\/span><span class=\"c2\"> is the quantity of a product that buyers are willing to purchase at various prices. The quantity of a product that people will buy depends on its price; they\u2019ll buy more when the price is low and less when it\u2019s high.<\/span><\/li>\n<li class=\"c22\"><span class=\"c1\">In a competitive market, the decisions of buyers and sellers interact until the market reaches an <\/span><span class=\"c15 c13\">equilibrium price<\/span><span class=\"c1\">\u2014the price at which buyers are willing to buy the same amount that sellers are willing to sell.<\/span><\/li>\n<li class=\"c22\"><span class=\"c1\">There are four types of <\/span><span class=\"c15 c13\">competition<\/span><span class=\"c1\"> in a free market system: perfect competition, monopolistic competition, oligopoly, and monopoly.<\/span><\/li>\n<li class=\"c22\"><span class=\"c1\">Under <\/span><span class=\"c15 c13\">perfect competition<\/span><span class=\"c1\">, many sellers o<\/span><span class=\"c28\">\ufb00<\/span><span class=\"c1\">er di<\/span><span class=\"c28\">\ufb00<\/span><span class=\"c1\">erentiated products \u2014 products that di<\/span><span class=\"c28\">\ufb00<\/span><span class=\"c1\">er slightly but serve similar purposes. By making consumers aware of product di<\/span><span class=\"c28\">\ufb00<\/span><span class=\"c1\">erences, sellers exert some control over price.<\/span><\/li>\n<li class=\"c22\"><span class=\"c1\">In an <\/span><span class=\"c15 c13\">oligopoly<\/span><span class=\"c1\">, a few sellers supply a sizable portion of products in the market. They exert some control over price, but because their products are similar, when one company lowers prices, the others follow.<\/span><\/li>\n<li class=\"c22\"><span class=\"c1\">In a <\/span><span class=\"c15 c13\">monopoly<\/span><span class=\"c1\">, there is only one seller in the market. The market could be a geographical area, such as a city or a regional area, and does not necessarily have to be an entire country. The single seller is able to control prices.<\/span><\/li>\n<li class=\"c22\"><span class=\"c1\">Most monopolies fall into one of two categories: natural and legal.<\/span><\/li>\n<li class=\"c22\"><span class=\"c15 c13\">Natural monopolies<\/span><span class=\"c1\"> include public utilities, such as electricity and gas suppliers. They inhibit competition, but they\u2019re legal because they\u2019re important to society.<\/span><\/li>\n<li class=\"c22\"><span class=\"c1\">A <\/span><span class=\"c15 c13\">legal monopoly <\/span><span class=\"c1\">arises when a company receives a patent giving it exclusive use of an invented product or process for a limited time, generally twenty years. E<\/span><span class=\"c1\">conomies share three goals: growth, high employment, and price stability.<\/span><\/li>\n<li class=\"c22\"><span class=\"c15 c13\">Growth<\/span><span class=\"c1\">. An economy provides people with goods and services, and economists measure its performance by studying the <\/span><span class=\"c15 c13\">gross domestic product<\/span><span class=\"c1\"> (GDP)\u2014the market value of all goods and services produced by the economy in a given year. If the GDP goes up, the economy is growing; if it goes down, the economy is contracting.<\/span><\/li>\n<\/ol>\n<\/div>\n<\/div>\n<div class=\"page-break-before\">\n<p>&nbsp;<\/p>\n<\/div>\n<div class=\"glossary\"><span class=\"screen-reader-text\" id=\"definition\">definition<\/span><template id=\"term_46_456\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_456\"><div tabindex=\"-1\"><p>Key terms appear throughout the chapter. When you click on them, a definition will pop up. If you are using a downloaded or printed format, check the glossary in the back of the book. Please make sure you can define them!<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_651\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_651\"><div tabindex=\"-1\"><p>Economics is concerned with the production, distribution, and consumption of goods and services. It studies how individuals, businesses, governments, and nations make choices about how to allocate resources.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_711\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_711\"><div tabindex=\"-1\"><p>Inputs are the elements which goes into producing a good or service such as labor, raw materials, capital, land, entrepreneurship etc. <\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_712\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_712\"><div tabindex=\"-1\"><p>Output is the finished product coming from a production process.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_652\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_652\"><div tabindex=\"-1\"><p>Planned system is an economic system in which the elements of an economy (such as labor, capital, and natural resources) are subject to government control and regulation designed to achieve the objectives of a comprehensive plan of economic development.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_654\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_654\"><div tabindex=\"-1\"><p>Free market system is defined as an economy operating by free competition.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_655\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_655\"><div tabindex=\"-1\"><p>A mixed market economy is defined as an economic system blending elements of a market economy with elements of a planned economy, markets with state interventionism, or private enterprise with public enterprise.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_656\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_656\"><div tabindex=\"-1\"><p>Perfect competition\u00a0exists when there are many consumers buying a standardized product from numerous small businesses. Because no seller is big enough or influential enough to affect price, sellers and buyers accept the going price.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_657\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_657\"><div tabindex=\"-1\"><p>Monopolistic competition occurs when an industry has many firms offering products that are similar but not identical. Unlike a monopoly, these firms have little power to curtail supply or raise prices to increase profits.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_658\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_658\"><div tabindex=\"-1\"><p>Oligopoly means few sellers. In such an oligopolistic market, each seller supplies a large portion of all the products sold in the marketplace.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_659\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_659\"><div tabindex=\"-1\"><p>A monopoly is a market structure characterized by a single seller, selling a unique product in the market. In a monopoly market, the seller faces no competition, as he is the sole seller of goods with no close substitute.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_661\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_661\"><div tabindex=\"-1\"><p>Supply\u00a0is the quantity of a product that sellers are willing to sell at various prices.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_660\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_660\"><div tabindex=\"-1\"><p>Demand\u00a0is the quantity of a product that buyers are willing to purchase at various prices.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_662\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_662\"><div tabindex=\"-1\"><p>The Equilibrium Price is the price point at which the demand and supply curves intersect.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_663\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_663\"><div tabindex=\"-1\"><p>Gross domestic product\u00a0(GDP) is defined as the market value of all goods and services produced by the economy in a given year.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_1508\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_1508\"><div tabindex=\"-1\"><p>Gross national product is the value of all products and services produced by citizens of a country both domestically and internationally minus income earned by foreign residents.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_688\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_688\"><div tabindex=\"-1\"><p>The business cycle is the regular economic pattern of upturns and downturns in demand and output within the economy that tend to repeat themselves every three to five years or may last much longer.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_689\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_689\"><div tabindex=\"-1\"><p>The unemployment rate is the percentage of the labour force that is unemployed and actively seeking work.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_690\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_690\"><div tabindex=\"-1\"><p>The term full employment describes the level of employment which provides jobs for all those who wish to work.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_691\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_691\"><div tabindex=\"-1\"><p>Price stability is the stable level of prices in the economy, which avoids long periods of inflation or deflation and sustains the value of money over time.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_718\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_718\"><div tabindex=\"-1\"><p>Inflation is a sustained rise in the average prices of goods within an economy. It can also be explained as the fall in the purchasing power of money, since it is usual for wages to move ahead at least as fast as the price level.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_719\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_719\"><div tabindex=\"-1\"><p>Deflation is downward pressure upon the level of economic activity. It is a period of falling demand and prices. It is usually accompanied by reduce output and rising unemployment. <\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_665\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_665\"><div tabindex=\"-1\"><p>The Consumer Price Index (CPI) represents changes in prices as experienced by Canadian consumers. It measures price change by comparing, through time, the cost of a fixed basket of goods and services.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_692\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_692\"><div tabindex=\"-1\"><p>An economic indicators are the monthly statistics that provide information on the country's economic performance. There are different types of indicators which are all subject to considerable error, so it is unwise to draw any conclusions from just one month's data.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_693\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_693\"><div tabindex=\"-1\"><p>Leading indicators give a prediction of future events.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_694\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_694\"><div tabindex=\"-1\"><p>Coincident indicators show the state of the economy today.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_695\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_695\"><div tabindex=\"-1\"><p>Lagging indicators show the health of the economy in the recent past.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_698\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_698\"><div tabindex=\"-1\"><p>Monetary policy is concerned with the money supply, rates of interest, exchange rates and the amount of credit available in order to control the level of spending within the economy.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_700\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_700\"><div tabindex=\"-1\"><p>Fiscal policy is a government towards its raising of revenue and its level of public spending.<\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><template id=\"term_46_701\"><div class=\"glossary__definition\" role=\"dialog\" data-id=\"term_46_701\"><div tabindex=\"-1\"><p>National debt is the liabilities of the government sector. Historically, government deficits have occurred much more often than surpluses since government typically spends more than it takes  in.  <\/p>\n<\/div><button><span aria-hidden=\"true\">&times;<\/span><span class=\"screen-reader-text\">Close definition<\/span><\/button><\/div><\/template><\/div>","protected":false},"author":120,"menu_order":1,"template":"","meta":{"pb_show_title":"on","pb_short_title":"","pb_subtitle":"","pb_authors":[],"pb_section_license":""},"chapter-type":[47],"contributor":[],"license":[],"class_list":["post-46","chapter","type-chapter","status-publish","hentry","chapter-type-standard"],"part":27,"_links":{"self":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters\/46","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters"}],"about":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/types\/chapter"}],"author":[{"embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/users\/120"}],"version-history":[{"count":25,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters\/46\/revisions"}],"predecessor-version":[{"id":1800,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters\/46\/revisions\/1800"}],"part":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/parts\/27"}],"metadata":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapters\/46\/metadata\/"}],"wp:attachment":[{"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/media?parent=46"}],"wp:term":[{"taxonomy":"chapter-type","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/pressbooks\/v2\/chapter-type?post=46"},{"taxonomy":"contributor","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/contributor?post=46"},{"taxonomy":"license","embeddable":true,"href":"https:\/\/pressbooks.bccampus.ca\/fundamentalsbusiness\/wp-json\/wp\/v2\/license?post=46"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}