In every economy, there are many stakeholders. These include government, workers, labour unions, and business (also called firms). Firms and market structures affect and are affected by regulations and the actions of various stakeholders. Business is not a single concept, however, as there are many forms of business. The type of business ownership and the markets within which they operate will determine what goods and services are available to consumers and pricing. How and by whom a business is owned also has an impact on their perspective on issues. To be clear about the differences, let's review.
Sole proprietorship is a sole owner, and fully responsible for all debts and obligations related to the business. All profits are yours to keep. Because you are personally liable, a creditor can make a claim against your personal assets as well as your business assets in order to satisfy any debts.
Partnership is a non-incorporated business that is created between two or more people. In a partnership, your financial resources are combined with those of your business partner(s), and put into the business. You and your partner(s) would then share in the profits of the business according to any legal agreement you have drawn up.
Corporation is a legal entity that is separate and distinct from its owners. Corporations enjoy most of the rights and responsibilities that an individual possesses; that is, a corporation has the right to enter into contracts, loan and borrow money, sue and be sued, hire employees, own assets and pay taxes.
Crown corporations are wholly owned federal, provincial or municipal organizations structured like private or independent companies, often used for utilities. When governments decide to sell them, it is called privatization.
Multinational corporations (MNC) have facilities and other assets in at least one country other than its home country. Such companies have offices and/or factories in different countries and usually have a centralized head office where they coordinate global management.
Private limited companies are companies that do not issue publicly traded shares in Canada and are a huge part of the economy. Many are subsidiaries of multinationals, or are family-owned.
Cooperative is an autonomous association of persons united voluntarily to meet their common economic, social, and cultural needs and aspirations through a jointly owned and democratically controlled enterprise.
Not for profit companies are organizations that provide products or services without making profit. They are generally dedicated to activities that improve or benefit a community.
Franchise is a type of license that a party (franchisee) acquires to allow them to have access to a business's (the franchisor) proprietary knowledge, processes and trademarks in order to allow the party to sell a product or provide a service under the business's name.
Types of Business Ownership
Answer the following questions. Save your answers as they may be required later.
You agree to meet your friend for coffee to catch up over the school holiday. Which would you choose: a Franchise or a Sole Proprietorship? What are 2 advantages of your choice from the perspective of the local community?
You need new sports equipment for the upcoming season. Which source would you choose: a Cooperative or a Multinational Corporation? What are the advantages of your choice from the perspective of the workers?
You decide to start early to get into shape for the upcoming sports season. Which source would you choose: Crown Corporation or a Corporation? What are the disadvantages of your choice from the perspective of consumers?
You injured yourself playing soccer for your school team and need to have physiotherapy. Which source would you choose: a Partnership or a Crown Corporation? What are the advantages or disadvantages of your choice to from the perspective of government?
You are shopping for a gift to celebrate your friend’s birthday. Which source would you choose: Not for Profit Company or Sole Proprietorship? What are the advantages of your choice from the perspective of the world economy?
Select two different types of business organizations and compare them.
Using the criteria for economic perspective, compare how each might respond to an economic issue of your choice such as increased regulation or taxes.
Give examples to support your ideas.
ACTION
Underground Economy
The different firms in the "Minds On" section represent the types of businesses we see and use regularly, but there are other business transactions that we don't always think about. These include what is known as the underground economy. According to the Canada Revenue Agency, the underground economy is any activity that is unreported or under-reported for tax and GST/HST purposes. Often called "moonlighting" or "working under the table," it can include bartering, failing to file tax returns, omitting an entire business activity from your tax return, "skimming" a portion of business income from what you report on your taxes, and not reporting a portion of employment income like tips and gratuities.
Plus/Minus Organizer
As you check out the evidence that follows, select one topic, and create a Plus/Minus Organizer.
Using point-form, keep track of arguments/evidence to support each side about the underground economy or the sharing economy from the perspective of whether there should be more government involvement (e.g. regulation, enforcement etc). Then create a proper citation for each source. You may wish to go back to Unit 1 Activity 1 to review how to properly cite sources.
If you want to view any links in this pdf, right click and select "Open Link in New Tab" to avoid leaving this page. (View the original article.)
Evading taxes is illegal and can result in severe penalties, criminal convictions, fines and jail time.
The underground economy deprives all Canadians of much-needed funds for our communities and essential public services like schools and hospitals. It also undermines the competitiveness of honest businesses, especially small businesses that follow the rules and create employment in your community.
If you pay cash or don’t get a written contract or receipt when you purchase goods or services, you may be helping someone cheat on their taxes. Not only that, but you are putting yourself at risk, particularly when it comes to home renovations (mistakes, errors, poor quality etc., which can’t be followed-up legally for compensation)
The grey market, or parallel market, or shadow economy, is a market where a product is bought and sold outside of the manufacturer’s authorized trading channels.
There are many economic causes and effects of the underground economy. After examining the evidence below, answer the following questions.
What are the costs and benefits of grey markets for consumers?
What impact does the underground economy have on government revenues?
How can this affect the citizens of a country?
The Sharing Economy
All of the previous examples of traditional market structures are based on the 20th century industrial model of economic activity. In the 21st century, however, technology is changing the way consumers and businesses interact and this is having an effect on the ways that governments try to manage economic activities through regulation and taxes. One very prominent example is that of the sharing economy.
The Sharing Economy
As you examine the evidence that follows, consider these questions:
Using statistics, what predictions can you make about the sharing economy, refer to stability and variability.
What policy recommendations would you make for local governments. Consider at least two stakeholders.
If you want to view any links in this pdf, right click and select "Open Link in New Tab" to avoid leaving this page. (View the original article.)
Note: Uber co-founder Travis Kalanick has left the company for a variety of reasons. There have been more ride-sharing companies to increase competition.
The Sharing Economy
Answer the following:
Using statistics, what predictions can you make about the sharing economy, refer to stability and variability.
What policy recommendations would you make for local governments. Consider at least two stakeholders.
What questions do you have?
The Sharing Economy and Government Regulation
Write a paragraph to argue for or against increased regulation for any part of the sharing economy.
Economic Thought
“
Our freedom of choice in a competitive society rests on the fact that, if one person refuses to satisfy our wishes, we can turn to another. But if we face a monopolist we are at his absolute mercy. And an authority directing the whole economic system of the country would be the most powerful monopolist conceivable … it would have complete power to decide what we are to be given and on what terms. It would not only decide what commodities and services were to be available and in what quantities; it would be able to direct their distributions between persons to any degree it liked.
~ Friedrich A. Hayek, The Road to Serfdom 1943
Market Structures
In addition to business structures, there are four types of market structures, falling into two broad categories, that affect how producers and consumers interact.
The categories are “competitive” or “non-competitive” markets. Under a competitive market structure, you will find businesses operating in perfectly competitive markets or businesses operating under monopolistic competition. Within the non-competitive category, there are oligopolies and monopolies.
Competition
Non-Competition
Perfect
Oligopoly
Monopolistic
Monopoly
As you read through the market descriptions below, you will be asked to make predictions about the advantages and disadvantages of each from the perspective of the producer, consumer and government.
Perfect Competition
Characteristics:
many buyers and many sellers
buyers and sellers have knowledge of prices
sell identical products
sellers are price takers
firms can enter/exit without restrictions
Examples:
grain producers
Stock market
tuna fishermen
Monopolistic Competition
Characteristics:
many sellers and buyers
producers are selling differentiated but close substitute products
differentiate through product differences, branding differences, marketing differences or distribution differences
no one business has complete control over market prices, have some control over price
some medications (for which patents have not expired)
Oligopoly
Characteristics:
few sellers exist in this market structure, and those that do dominate it (oligopolies exist if four or less companies own greater than 50% of the total market share)
entry and exit barriers are usually very high.
oligopolies are created a number of ways, although noncompetitive practices, government mandates, or advanced technology are usually precursors.
From the perspective of each: consumer, producer and government which market system would be preferred?
What criteria would you use to support your choice?
Market Interference
Using the sources below, answer the following questions:
What are the advantages and limitations of a monopoly and a firm in perfect competition?
How do firms in different market structures reach and maintain equilibrium?
How would you characterize the Organization of the Petroleum Exporting Countries (OPEC) with respect to its market structure? What impact does the organization have on prices and consumer behaviour?
Barriers To Entry
Barriers to entry is any obstacle that restricts or impedes a company’s efforts to enter an industry.
Examples of barriers to entry include: government regulation, control of resources (e.g. mining), high start up costs, price wars, patent, economies of scale, technology:
To what degree does the article below believe OPEC still has oligopolist control?
What impact does the current price of oil have on other oil producing countries?
Based on this evidence, what advice would you give to the Canadian government about pipelines?
What is the cause and effect of the current market situation?
Privatization
Privatization is the transfer of a business, industry, or service from public to private ownership and control. The reasons for government owned and regulated businesses also known as crown corporations such as transportation or electricity is often one that happens because of economies of scale. One historical example of privatization is Petro Canada.
1975 - Created by the Trudeau Liberals to protect and develop a Canadian presence in the energy sector
1979 - The company discovers (with partners Chevron, Mobil and Gulf) the Hibernia oil field off Newfoundland
1982 - Discovers oil at Valhalla, Alberta
1984 - Discovers Terra Nova oil field off Newfoundland
1990 - Governing Mulroney Tories announce privatization of Petro-Canada
1991 - First shares of Petro-Canada sold to public
1995 - Ottawa reduces its interest in the company to 20 per cent
2004 - Martin Liberals announce they will sell off remaining stake in company.
If you want to view any links in this pdf, right click and select "Open Link in New Tab" to avoid leaving this page. (View the original article.)
Regulations
Regulation is one policy approach that governments can take to influence cause and effects of the actions of firms on consumers. As you learned, some firms such as those in a monopoly can set any price they want, unless governments regulate the producers. Some producers may choose to relocate to other jurisdictions with fewer regulations.Then consumers need to make informed choices about the products they purchase. Regulations can also be part of terms of negotiation in trade agreements, which you will learn more about in unit 4.
As you learn about some of the types of regulations that follow, consider the pros and cons of regulations from different stakeholders (consumers, producers, shareholders, government, workers).
Labour Protection
According to McMillan LLP, “Although in many ways similar, there is a considerable difference in focus between the United States and Canada as it pertains to employment and labour relations. In essence, Canadian law presumes the vulnerability of employees, and provides protections and minimum standards with which all employers must comply. Through American eyes, Canada has a strong employee or labour bias that is less evident in the United States. American law stresses instead a higher level of contractual liberty, and fewer prescribed standards.” Canada is also more union friendly than the USA, with an average total unionization rate between 2006 and 2010 in the U.S. is 13.1%, compared to 31.5%.
Marketing Boards
There are currently more than 80 agricultural marketing boards in Canada. Marketing boards operate in every province and regulate a wide variety of agricultural products. The first boards developed from farmers' efforts to gain market power through joint action and as a reaction to unstable farm prices and incomes.
If you want to view any links in this pdf, right click and select "Open Link in New Tab" to avoid leaving this page. (View the original article.)
Health and Safety or Environmental Regulations
Healthy Menu Choices Act (Ontario, 2017)
"Under the new law, we set out rules about how to display calorie information on menus. Those rules deal with things such as the exact size and placement of the text. We also define the role of inspectors and how the rules are enforced. Inspectors from local public health units will visit all businesses that must follow the law. After that, public health units will respond to any complaints about a business not following the law. This could lead to education, a warning and then a fine if they continue not to follow the law."
If you want to view any links in this pdf, right click and select "Open Link in New Tab" to avoid leaving this page. (View the original article.)
Technology
The internet provides opportunities for both consumers and producers to connect. Goods/services can be exchanged without the need for money, simply by providing a credit card. There are regulations and policies to prevent fraud. There are also digital currencies, in which encryption techniques are used to regulate the generation of units of currency and verify the transfer of funds, operating independently of a central bank. Bitcoins can be used for online transactions between individuals. There are other forms of digital currencies. Unlike the money you withdraw from a bank machine or your own financial institution, or cash-back at the grocery store, digital currencies are not regulated by the state. Countries have different approaches to the use of digital currencies.
Types of Business Ownership
Business Structures
The Underground Economy
Learning Goals and Success Criteria
Learning Skills and Work Habits