Deck 6: Section 4: Does It Matter: Society, Ethics and Business

Question 1

Describe the stages in the Business Cycle. What part of the business cycle do think Canada is in now?

Answer 1

The business cycle refers to the rise and fall of economic activity over time. Although the economy will grow over the long term, economic growth is usually unstable. Business cycles or economic fluctuations vary in length and severity. Some periods of fluctuation are difficult and long; others are short and mild. Generally, the economy in the long run has an upward slope with ups and downs of varying. The five stages of the business cycle are expansionary, peak, contraction, trough, and recovery.
The expansionary phase is a period when economic activity is rising. Goods are being produced and sold, the workforce is expanding (that is, jobs are being created), demand for goods is increasing, and the price of goods is rising. Typically, this is a positive period for business. Profits are rising, cash flow is steady, and there is an opportunity for some risk taking. The expansionary period can experience a sudden economic boom or slow and steady growth.
Once the economy has reached its highest point, it can be said to have peaked. A peak marks the end of the expansionary phase and the beginning of the contraction phase. A contraction phase is characterized by declining economic activity and falling profits. During this phase, managers usually reduce costs, lay off workers, and halt any plans to invest in the company. A recession is realized when there are two or more consecutive quarter periods of negative or falling economic activity. The most recent recession occurred in 2008. A depression is an extreme recession that is characterized by longer economic periods of declining economic activity, high unemployment, and high levels of personal and commercial bankruptcies.
As of January 2014, Canada is likely in the expansionary phase experiencing slow growth. The answer to this question will depend on when this book and question is read.

Question 2

What type of competition would the window industry fall under? Explain.

Answer 2

The window industry would fall under the category of monopolistic competition. In monopolistic competition, a large number of companies compete with one another, offering products and services that are differentiated at least in a minor way. Differentiation strategies include branding, style or design, and advertising.
Windows are sold by various small and large companies. Certainly, windows are differentiated by different brands, styles and designs. Windows are also advertized in flyers, etc. The market controls the price. There are however a variety of prices due to lower quality and higher quality windows.

Question 3

Describe the five factors of production.

Answer 3

1. Natural resources include land and raw materials that are found either below or above the ground, such as soil, rocks, minerals, trees, fruits, and vegetables. Raw materials can also include living organisms like fish or agricultural products such as milk and eggs.
2. Labour refers to workers. These are typically employees who contribute their talents and strengths to create goods and services for the owners of a business.
3. Capital includes buildings, machines, tools, and other physical components used in producing goods and services. Money from shareowners, however, is not capital. Money can be used to purchase capital, but money is not capital itself. Money is only an investment, since it cannot create or produce anything on its own to earn income.
4. Knowledge is another factor of production-in fact, it has become the most important factor of production in today's economy. The high-tech industry has created a need for knowledge workers : individuals with specialized education, skills, training, and experience. For many companies, knowledge is the key factor in achieving a competitive advantage.
5. Entrepreneurs are individuals who establish a business in the pursuit of profit and to serve a need in society. They are the owners, decision makers, and risk takers of the business.Unlike their employees, entrepreneurs have no guarantee of income in return for their time and effort.

Question 4

Explain the type of economic system that exists in Canada.