– North Americans live in a free market society
– In a free market, businesses can make a profit, which means that successful business people can keep some of the money that they make
– Profit drives business; the more successful a business becomes, the more profit the owner keeps
– Profits may be reinvested in new technology, business growth, paying off debt, and other areas that will often produce more profit
– Profit is the result of good management, marketing, use of human resources, and financial performance
– Some of the profits of a business are paid to the government in taxes, which support institutions that assist all Canadians
– Profit is the reward that a business person receives for risking his or her time, energy, capital, and reputation
– A business will earn this reward only if the risk pays off
– A free- market society allows Canadians to hold private property, which means that people can buy things and keep them, sell them, or give them away
– Some people use their property to make a profit
– They may decide to buy equipment and raw materials to make products
– Then, they sell their products for a people buy things at one price to sell to others at a higher price
– Still others purchase the means to provide a service to others at a cost
– The people who build factories or stores, or own trucking companies or advertising agencies, hope to make a profit when they risk their private property
– Often, people will lend their private property to others, investing in a business and spreading the risk among many people
– If the risk- taking venture is successful, the investors will make a profit on their investment
– If it is not, then the investors will lose
– Finally, having a free market means that competition is allowed, even encouraged
– Competition defines the structure of the market
– There are four major market structures: perfect competition, monopolistic competition, oligopoly, and monopoly
– Perfect competition is a market characterized by a large number of small companies, non of whom have an opportunity for market control
o Perfect competition requires government legislation to restrict growth in order to prevent market dominance by any of the competitors
– Monopolistic competition is a market consisting of a large number of companies, each having an opportunity for a degree of market control
– Oligopoly is a market with a small number of large companies, each with a substantial amount of market control
– Monopoly is a market in which a single company have complete market control
– The government insists upon competition; therefore, the government regulates monopolies
– The government also legislates against trade practices that limit competition unfairly, such as price fixing, restrictive mergers, or exclusive dealing
– Government- controlled market structures, such as those in communist countries or totalitarian dictatorships, do not permit free enterprise
– These government ban competition and forbid private ownership
– The benefits of competition
o Competition contributes to the Canadian encouraging the creation of new businesses
o One business will start within idea= for example, a machine that plays and records television programs
o Then, someone else things of a way to improve the product, maybe by adding a remote control, and anew business opens to produce the new model
o Another business creates a model with a playback system that provides sharper slow- motion images; so , that business manufactures, markets, and sells that system
o Still another business starts manufacturing videocassettes
o Now other companies start making video cameras and video rental stores open
o Each of these businesses encourages competition
o Competition will result in better services, and extras
o Each of these new businesses provides jobs and salaries and is interdependent on even more businesses
o The wide selection of goods and serves that are offered to consumers in the marketplace is another benefit of competition
o Consumers have a choice of products styles, product types, price and quality
o Without competition, there would be little or no choice for the consumer
o It is only the competitive market that permits and encourages variety
o Competition and productivity
§ One of the most effective ways to compete is by charging less than your competitors
§ In order to charge less for the same product or services, businesses must become more efficient, use fewer resources, or make better deals with suppliers
§ For a business to improve its productivity or its product, it may have to develop something new
§ Many businesses have a R&D department that support scientists and technicians who work on new ideas
– Direct and Indirect Competition
o Products that a very similar are in direct competition for consumer dollars
o With direct competition, the consumer chooses among products in the same category
o In indirect competition the products or services are not directly related to one another
