The Canadian Economy in a Global Setting pptx

© 2003 McGraw-Hill Ryerson Limited
The Canadian Economy
The Canadian Economy
in a Global Setting
in a Global Setting
Chapter 3
Chapter 3
© 2003 McGraw-Hill Ryerson Limited.
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Laugher Curve
Laugher Curve
Frank: According to this economist,
Ernie, it’s all very simple.
In an endogenous business cycle
where variable-span diffusion
indices are neither rising nor
falling and the capital-to-output
ratio is low, then the interplay of
liquidity preferences and reserve
ratios escalates and interest rates
rise, causing the yield ratio to drop
on common stocks.
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Laugher Curve
Laugher Curve
Ernie: I get it!
In other words, when the
economy goes higgledy-piggledy,
the TSE goes blooey!
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The Canadian Economy
The Canadian Economy

Ultimately the Canadian economy’s
strength is its people and its other
resources.

The Canadian economy is far from
perfect.
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Diagram of a Market
Diagram of a Market
Economy
Economy

The Canadian economy, as most
market economies, is divided into three
groups: business, households, and
government.
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Diagram of a Market
Diagram of a Market
Economy
Economy

Households supply factors of production
to business and are paid by business

for doing so. The place where this takes
place is called the factor market.
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Diagram of a Market
Diagram of a Market
Economy
Economy

Business produces goods and services
and sells them to households and
government. The place where this takes
place is called the goods market.
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Diagram of a Market
Diagram of a Market
Economy
Economy

Government engages in the following
activities:

It buys goods and services from business
and buys labour services from households.

It provides services to both business and
households.
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Diagram of a Market
Diagram of a Market
Economy
Economy

Government engages in the following
activities:

It gives some of its tax revenues directly back to
individuals (income redistribution).

It oversees the interaction of business and
households in the goods and factor markets.
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Diagram of a Market
Diagram of a Market
Economy,
Economy,
Fig. 3-1, p 56
Fig. 3-1, p 56
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Business
Business

Business is the name given to private
producing units in our society.

Businesses decide what to produce, how

much to produce, and for whom to
produce it.
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Entrepreneurship and
Entrepreneurship and
Business
Business

Entrepreneurship is the ability to
organize and get something done.

It is an important part of business, and
an important ingredient in the economy.
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Consumer Sovereignty and
Consumer Sovereignty and
Business
Business

Although businesses decide what to
produce, they are guided by consumer
sovereignty.

Consumer sovereignty means that
consumers’ wishes rule what is
produced by businesses.
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Consumer Sovereignty and
Consumer Sovereignty and
Business
Business

Before deciding to start a business, the
key question is: "Can I make a profit?"

Profit is what’s left over from total revenues after
all the appropriate costs have been subtracted.
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Consumer Sovereignty and
Consumer Sovereignty and
Business
Business

By channeling the desire to make a
profit for the general good of society,
the Canadian economic system allows
the invisible hand to work.
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Forms of Business
Forms of Business

There are three major types of
businesses:

sole proprietorships


partnerships

corporations.
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Sole Proprietorship
Sole Proprietorship

Businesses that have only one owner.

Advantages:

Minimum bureaucratic hassle.

Direct control by owner.

Disadvantages:

Limited ability to get funds.

Unlimited personal liability.
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Partnership
Partnership

Businesses with two or more owners.

Advantages:


Ability to share work and risks.

Relatively easy to form.

Disadvantages:

Unlimited personal liability (even for
partner's blunder).

Limited ability to get funds.
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Corporation
Corporation

Businesses that are treated as a person
and are legally owned by their
stockholders who are not liable for the
actions of the corporate "person."
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Corporation
Corporation

Advantages:

No personal liability.

Increasing ability to get funds.


Ability to shed personal income and gain added expenses.
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Corporation
Corporation

Disadvantages:

Legal hassle to organize.

Possible double taxation of income.

Monitoring problems.
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Finance and Business
Finance and Business

The dynamic stock market allows initial
public offerings (IPOs) to quickly
change value and to make their owners
rich (or poor).

E-commerce and the digital economy
are very important, as they add
competitive pressure to the “traditional”
economy
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Households
Households

Households are a single person or
groups of persons living together and
making joint decisions.
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The Power of Households
The Power of Households

Households influence the other two
economic institutions – government and
business.
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Households as Suppliers of
Households as Suppliers of
Labour
Labour

The largest source of household income
is wages and salaries.

Households supply the labour with
which businesses produce and
government governs.