Business Essentials, Eighth Canadian Edition Solution Manual

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INSTRUCTOR’SMANUALforRonald J. EbertRicky W. GriffinFrederick A. StarkeGeorge DracopoulosBusiness EssentialsEighth Canadian Editionprepared byFrederick A. StarkeUniversity of Manitoba

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iiTable of ContentsIntroduction to The Instructor’s Manual............................................................................ iiiCHAPTER 1Understanding the Canadian Business System ........................................1CHAPTER 2The Environment of Business................................................................24CHAPTER 3Conducting Business Ethically and Responsibly...................................53CHAPTER 4Entrepreneurship, Small Business, and New Venture Creation ............82CHAPTER 5The Global Context of Business ..........................................................115CHAPTER 6Managing the Business Enterprise.......................................................183CHAPTER 7Organizing the Business Enterprise .....................................................217CHAPTER 8Managing Human Resources and Labour Relations............................246CHAPTER 9Motivating, Satisfying, and Leading Employees.................................282CHAPTER 10Operations Management, Productivity, and Quality............................323CHAPTER 11Understanding Accounting ..................................................................363CHAPTER 12Understanding Marketing Principles and Developing Products..........397CHAPTER 13Pricing, Promoting, and Distributing Products ....................................435CHAPTER 14Money and Banking.............................................................................477CHAPTER 15Financial Decisions and Risk Management.........................................504

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iiiINTRODUCTION TO THEINSTRUCTOR’S MANUALThis Instructor’s Manual is intended for use withBusiness Essentials, 8thCanadian edition. Each chapter's manual contains the following features:1.Chapter Synopsis—The key topics that are discussed in the text chapter areconcisely summarized here.2.Chapter Outline—A detailed chapter outline of topic coverage in the chapter isprovided. This gives instructors a clear organization scheme for the chapter and helpswith planning lectures.3.Quick Questions—These questions focus on the major topics that are presented inthe chapter, and are designed to test whether students understand fundamental issues.4.In-Class Exercises—Several structured in-class exercises are described andspecific directions given for conducting the exercises. The topics covered in theseexercises relate to topics that are presented in the text chapter; they will increase studentinterest and engagement in the topics.5.Teaching Tips—Numerous teaching tips are presented that help the instructormake topic coverage more interesting. These teaching tips include examples that willclarify concepts for students, interesting scenarios that get students thinking aboutimportant issues, and clarifications of topics to increase student understanding.6.Using the Boxed Inserts—Each chapter in the text contains an opening case andseveral boxed inserts which are designed to increase student interest.Questions forDiscussionorCritical Thinking Questionsare provided for students to consider. Answersto these questions are provided for instructors, as well as ideas for in-class discussionsand debates on interesting and controversial topics that may relate to the issues raised inthe insert.7.Questions and Exercises—At the end of each chapter in the text, severalQuestions for AnalysisandApplication Exercisesare presented. Answers to the questionsand exercises are provided for instructors. Assisted-graded assignments are provided inMyBizLab for various questions. These provide guidelines for instructors when they aregrading student assignments.8.Assisted-Graded Writing Assignments—Selected end-of-chapter questions,identified by an >>>, have been built as assisted-graded assignments within MyBizLab.Each one helps assess students' written communication skills, and is built with markingrubrics to help facilitate grading. For items in this Instructor's Manual which are alsoavailable as an assisted-graded assignments, the notation >>> is included.9.Team Exercises—Two team exercises are found at the end of each chapter in thetext, one titledBuilding Your Business Skills, and the other titledExercising Your Ethics.

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ivAnswers to the questions raised in these exercises are provided. Suggestions for in-classactivities related to these exercises are also provided.10.Case Analysis—A case study is presented at the end of each chapter in the text.Included at the end of the case study areQuestions for Discussionwhich ask students touse concepts presented in the chapter to analyze the case. Answers to these questions areprovided for the instructor.11.Crafting a Business Plan—The business plan feature is found at the end of eachmajor section of the text (i.e., at the end of Chapters 5, 9, 11, 13, and 15). Furtherinformation for instructors is provided here.12.Video Cases—Two to three video cases are found at the end of each major Part ofthe text. Answers to theQuestions for Discussionat the end of each video case areprovided.Additional video cases are available in MyBizLab. These videos are accompanied by asynopsis, classroom application, discussion questions, and multiple-choice questions. Thespreadsheet below indicates the titles of these videos and their relevance for variouschapters in the text.

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vADDITIONAL VIDEOS CASES AVAILABLE IN MYBIZLAB,CORRELATED WITH THE TEXTBOOK'S CHAPTERS.123456789101112131415$250,000 KickstarterCampaign for a HoverboardXXXAbercrombie & FitchXXAcer vs. HPXAirbus vs. BoeingXAmazon Cracks Down OnFake ReviewsXBlackbird GuitarsXBlackbird Guitars: POMX‘Blurred Lines’ Verdict HasMusic Industry Singing theBluesXBurger KingMarkets NewFries as HealthierXCadillacXCH2MHill: AbilityXCH2MHill: CultureXCH2MHill: D-MXCH2MHill: DiversityXCH2MHill: EthicsXCH2MHill: FoundationsXCH2MHill: HRMX

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vi123456789101112131415CH2MHill: Job SatisfactionXCH2MHill: LeadershipXCH2MHill: MotivationXCH2MHill: PlanningXCH2MHill: POMXCH2MHill: StrategyXCH2MHill: StructureXCoca-Cola Getting a Jolt onWall StreetXCompanies Making Fun ofThemselvesXControllingXCraigslistXDecision Making (TWZ)XDid Burger King Defect toCanada to Save Tax Money?XDiversity (TWZ)XDomino’s Pizza: FranchisingXXDomino’s Pizza: ManagingMarketing InformationXElm City Market: HRMXElm City Market: StructureXEmerging Markets: Spotlighton India and MexicoX

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Introduction to the Instructor’s Manualvii123456789101112131415Entering the Chinese MarketXEntrepreneurshipXFacebook Stock ImplodesXFacebook’s Bet on GrowthHits ProfitXXFast Food WorkersXGawker Media: SatisfactionXGeneral Electric Wants toPay You for Your Big IdeaXGlobal Ethics and SiemensXGovernment InterventionXGovernment Intervention:Spotlight on China andGermanyXGravity PaymentsXGrocery Shopping Tips:Watch Out for ShrinkingProductsXHautelook: AppraisingXHautelook: RecruitingXHerman Miller: ManagersXHerman Miller: MotivationXHonest Tea: MissionXHonest Tea: SocialResponsibilityX

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viii123456789101112131415How Counterfeit Goods MakeIt From China To a StoreNear YouXHSN: Direct and OnlineMarketingXHSN: Retailing andWholesalingXInside GoogleXiRobot StrategyXJoby: Individual BehaviorXJohnny Cupcakes: FinancialandCash Flow ManagementXJohnny Cupcakes: FinanceXJones Soda: SocialResponsibiltyXKid Toy Testers Make BigBucks on YouTubeX‘Kids Eat Right’ Logo onKraft Singles May ConfuseConsumersXLeadership (TWZ)XLeadingXLululemon Searches for CEOWith Help Wanted SignsXMarketing a Movie Globally:The Global MarketplaceXMcdonald’s Customers NotLovin’ ItX

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Introduction to the Instructor’s Manualix123456789101112131415Mcdonald’s Eyeing NaturalchickenXMajor Sponsor ‘DeeplyDisturbed’ by NFL Players’BehaviourXMatthew McConaughey’sLincoln CommercialsGenerate Lots of BuzzXMichael Kors HoldingsAccuses Costco ofBait andSwitchXXMINI: GlobalizationXMotivation (TWZ)XMyGym: Organizing theBusinessXNFL Reportedly AsksMusicians to Pay to Play theSuper BowlXNielsen: Observing andPredicting ConsumerBehaviorXNikeXOrganizational Change (TWZ)XOrganizational Culture (TWZ)XPatagonia: Ethics/SocialResponsibilityXPatagonia: HRMXPatagonia: SocialResponsibilityX

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x123456789101112131415Patagonia: TestingXPlanning (TWZ)XPlatinum Auto BodyXPowerXPTC: EngagementXPTC: Green ManagementXRed Frog: StructureXRegional EconomicIntegration: Outlook for theEuropean UnionXRudi’s Bakery: AbilityXRudi’s Bakery: ControlXRudi’s Bakery: CultureXRudi’s Bakery: DecisionMakingXRudi’s Bakery: DesignXRudi’s Bakery: DiversityXRudi’s Bakery: EthicsXRudi’s Bakery: GroupsXRudi’s Bakery: HRMXRudi’s Bakery: JobSatisfactionXRudi’s Bakery: LeadershipX

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Introduction to the Instructor’s Manualxi123456789101112131415Rudi’s Bakery: MotivationXRudi’s Bakery: POMXRudi’s Bakery: StrategyXRudi’s Bakery: StructureXRudi’s Bakery: TeamsX‘Shark Tank’’ Success Story:GrooveBook Snapped UpXShock Advertising: DoesBuzz Lead to Business?XSound In MotionXTeamsXThe Long Anticipated AppleWatch is HereXThe Super BowlCommercials That ScoredBig on Social MediaXXTurning a Small BusinessInto a Big SuccessXToyota: OutsourcingXToyota: Production ProblemsXUPS: Equal OpportunityXUPS: Unionand ManagementXVerizon: DiversityXWalmart in China and MexicoXWarby Parker: VisionX

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xii123456789101112131415Weather Channel: AppraisalXWhat to Expect at theRegister with Apple PayXWild Planet: TheEntrepreneurial SpiritXWitness.org: Financing &Tracking BusinessOperationsXZane’s Cycles: ControlX

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1CHAPTER 1UNDERSTANDING THE CANADIAN BUSINESS SYSTEMCHAPTER SYNOPSISChapter 1 creates a context for understanding the business concepts that are presentedthroughout the text. This chapter presents the ideas of business and profit, outlines theworld’s major economic systems, and describes the basic aspects of Canada’s marketeconomy, including markets, demand, supply, private enterprise, and degrees ofcompetition. A supplement at the end of Chapter 1 provides a brief history of business inCanada.CHAPTER OUTLINEI.THE IDEA OF BUSINESS AND PROFITA business is an organization that seeks to earn profits by providing goods andservices to customers. Profit is what remains after a business’s expenses incurredare subtracted from its sales and revenues. Profits are what encourage people toopen and expand business and are required in order for the organization to be “agoing concern.”In Canada, not-for-profit organizations such as charities,educational institutions or government agencies are also important. As the termsuggests, these are organizations that do not try to make a profit; instead, they usethe funds they get from government grants or from the sale of goods and servicesto provide various services to the public.II.ECONOMIC SYSTEMS AROUND THE WORLDAn economic system is the way in which a nation allocates its resources among itscitizens. Various systems differ in terms of who owns or controls these resources,or“factors of production.”A.Factors of Production—The basic resources used by a business to producegoods and services include natural resources, human resources, capital,entrepreneurs, and information.1.Labour—The people who work for a company.2.Capital—The funds needed to operate a business.3.Entrepreneurs—Those people who accept the opportunities andrisks involved in creating and operating a business.4.Natural resources—Land, water, mineral deposits, trees and othernaturally occurring resources that businesses need to operate.

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Part 1—Introducing the Contemporary Business World25.Information—Market forecasts, specialized knowledgepossessed by employees, and various forms of economic data about theeconomy and consumers that are used by businesses.B.Types of Economic Systems—Different types of economic systemsmanage the factors of production in different ways. Command economies, marketeconomies, and mixed economies are three basic types.1.Command economies—Government controls many (or all) of thefactors of production. The government decides how much will beproduced and who will produce it. Command economies have fallen intodisfavour during the past decade, and only a few are left (e.g., Cuba andNorth Vietnam).2.Market economies—Factors of production are controlled bymarkets, not by government. Individuals are free to start their ownbusinesses, and consumers are free to buy from whomever they wish.a.Input and output markets—In input markets, companiesbuy resources from households; in the output market, companiessupply goods and services in response to demand from households.3.Mixed market economies—Have features of both command andmarket economies. Most countries of the world, including Canada, havemixed market economies.III.INTERACTIONS BETWEEN BUSINESS AND GOVERNMENTA.How Government Influences Business—The government influencesbusiness by taking on the roles of customer, competitor, regulator, taxationagent, provider of incentives, and a provider of essential services.1.Government as a customer—Government buys many services andproducts which amount to billions of dollars each year.2.Government as a competitor—Crown corporations at both federaland provincial levels compete with business.3.Government as a regulator—The federal and provincialgovernments regulate many aspects of business activity, including thefollowing:a.Promoting competition—Competition policy seeks toeliminate restrictive trade practices to stimulate maximum businessactivity. The guidelines for Canada’s competition policy are contained inThe Competition Act.

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Chapter 1—The Canadian Business System3b.Protecting consumers—The Canada Consumer ProductSafety Act, the Tobacco Act, Weights and Measures Act, TextileLabelling Act, and the Food and Drug Act, are examples of regulationsthat protect consumers.c.Achieving social goals—The achievement of social goalspromotes the well-being of our society. Social goals include universalaccess to health care, safe workplaces, employment insurance and decentpensions.d.Protecting the environment—Legislation to protect theenvironment includes the Canada Water Act, the Fisheries Act, and theEnvironmental Contaminants Act.4.Government as a taxation agent—Taxes are imposed and collectedby all three levels of government. Revenue taxes (e.g., income taxes) arelevied primarily to fund government services and programs; they form themajority of all taxes. Progressive and regressive taxes are described.Restrictive taxes, such as excise taxes on alcohol, tobacco and gasolineserve as both a revenue source and a“deterrent to excesses.”5.Government as a provider of incentive programs—These programsare intended to stimulate economic development. Governments offernumerous incentive programs through various government organizations.Several examples of grant incentive programs are described. Incentivesare also provided through the services provided to companies by thegovernment (several examples are given).6.Government as a provider of essential services—Business activityis facilitated by the government services that are supplied, e.g. roads,postal service, police and fire departments.B.How Business Influences Government—Business can influencegovernments through the use of lobbyists, trade associations, and advertising.IV.THE CANADIAN MARKET ECONOMYA.Demand and Supply in a Market Economy—Markets, demand, supply, thelaw of demand, the law of supply, equilibrium, surplus, and shortage are defined.1.The laws of supply and demand—Demand is the willingness andability of buyers to purchase a product or service. Supply is thewillingness and ability of producers to offer a good or service for sale.

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Part 1—Introducing the Contemporary Business World42.Demand and supply schedules—Show how many units of aproduct are likely to be sold at various prices.3.Demand and supply curves—A demand curve shows how manyproducts will be demanded at different prices, while a supply curve showshow many products will be supplied at different prices.4.Surpluses and shortages—When the quantity demanded exceedsthe quantity business are willing to supply, a shortage exists. When thequantity demanded is less than the quantity businesses are willing tosupply, a surplus exists.V.PRIVATE ENTERPRISE AND COMPETITIONAdam Smith’s belief that allowing individuals to pursue self-interest wouldeventually benefit society as a whole through“the invisible hand of competition”is discussed. Four elements must be present in private enterprise: privateproperty rights, freedom of choice, profits and competition.A.Degrees of Competition—Four degrees of competition withinprivate enterprise are identified. Examples of each are given.1.Perfect competition—A market or industry characterized by a largenumber of small firms producing an identical product so that no one firmis powerful enough to influence the price of their product in the marketplace. Agriculture (wheat production) is given as an example.2.Monopolistic competition—A market or industry characterized bya large number of firms supplying products that are similar but distinctiveenough from one another to give firms some ability to influence price.Examples given: detergents, soft drinks, fashion.3.Oligopoly—A market or industry characterized by a small numberof large firms that have the power to influence the price of their productand/or resources. Generally large initial capital investment is necessary fornew competitors to enter the market, therefore, barriers to entry are high.Examples given: automobile, rubber, and steel industries.4.Monopoly—A market or industry with only one producer, who canset the price of its product and/or resources. Natural monopolies likeprovincial utilities are described.QUICK QUESTIONS1.What are the factors of production used to produce a litre of orange juice?

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Chapter 1—The Canadian Business System52.Entrepreneurship involves risk-taking, which is an important ingredient in a free-market system. What characteristics of our free-market system encourage risk-taking?3.Give an example of a country with a planned economy. What makes thiseconomy planned? Give an example of country with a market economy. How is theeconomic system different in this country?4.What is an equilibrium price? What happens if incomes rise and demandincreases? What happens if producers have a surplus and supply increases?5.Which level of competition best describes the market in each of the followingscenarios: Your local Pizza Hut? A local farmer selling apples for applesauce?Gap jeans?IN-CLASS EXERCISESExercise #1: What Do You Know About Business?Activity Overview:This activity helps students assess their level of knowledge about business and set theirown learning goals for the class.Time Limit:20 minutesWhat to Do:1.Ask each student to take out a piece of paper and divide it into two columns. Inthe first column, students should write the most important four or five things theycurrently know about business, and in the second column, the four or five things theywould like to learn. Tell them if they are having difficulty coming up with items to list,take a look at the table of contents of the text. It will give them some clues so that thistask doesn’t frustrate them. (5 minutes)2.Divide students into groups of three to five people and ask them to share their listswith each other. As they listen, they can delete or add anything that seems relevant. (5minutes)3.Ask them to switch groups so that they are with all new people, and repeat theprocess of sharing their lists. (5 minutes)4.Ask students to switch to a third group of all new people. With this group, thegoal is to synthesize their lists into one big idea of what they know, and one big idea ofwhat they want to learn. (5 minutes)

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Part 1—Introducing the Contemporary Business World6Don’t Forget:This activity allows students to get to know each other as well as set expectations for thecourse. The underlying agenda is to get them talking to each other, setting the stage foractive participation throughout the class.Wrap-Up:Wrap up the discussion by having each group report back to the class. You may want torecord their responses and post them in the room for reference as you move through thecourse.Exercise #2: Comparing Economic SystemsActivity Overview:This activity gets students talking about the similarities and differences between theCanadian economic system and other economic systems.Time Limit:30 minutesWhat to Do:1.Divide the class into small groups. Ask the groups to assume they have justoverheard a classmate say, “Canada is becoming more socialist everyday—with all thegovernment control.” Have each group list reasons why the statement couldbe true andreasons why the statement could be false. (15 minutes)2.Reassemble the class and discuss each group’s thoughts. (15 minutes)Don’t Forget:Remind students that a government’s level of control distinguishes capitalism fromsocialism. If you have foreign students in your class, it will be very interesting to hearthem describe the characteristics of the economic system in their native country.Wrap-Up:Wrap up the discussion by reminding students that the Canadian economic system and asocialist system have many similarities and differences. For example, workers in socialisteconomies often work fewer hours, have longer vacations, and receive more health,education, and child-care benefits than do workers in capitalist economies. On the otherhand, the federal government does control some basic services in Canada as well asvarious aspects of the market through agencies such as the Hazardous Products Act, TheFood and Drug Act, and the Canadian Radio-Television and TelecommunicationsCommission.Exercise #3: Case Study: Supply and Demand for Pollution PermitsActivity Overview:This activity asks students to apply chapter concepts to a case study.

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Chapter 1—The Canadian Business System7Time Limit:30 minutesWhat to Do:1.In advance, make copies of the following case study and distribute to students:-------------------------------------------------------------------------------------------------------Case StudyPollution PermitsWhen Julie Hardwick, a manager for a division of BP Amoco PLC, checks hercomputer every day, she’s not looking for information about her company’s stock. She’sfinding out whether other divisions of BP are looking to trade their permits to emitpollutants that cause global warming. Units that have leftover permits after meeting theiremission-reduction quotas are allowed to sell them to other units that need them to covershortfalls in their own efforts to meet their goals. The company reports that it is savingmillions of dollars through creative reductions in fuel consumption, prompted by the useof permits. Other firms in the developed countries are using permits as well, hoping toreduce pollution before their governments make it mandatory.Some believe that trading permits between companies or across national borderswill prove difficult because of the wide variety of sources of pollution and the problem ofmaintaining fairness in the use of the permits. For instance, should heavy polluters bemade to clean up pollution instead of being able to trade for permits to continue topollute? Some corporations already use an alternative called offset rights, which arepositive steps that offset the pollution a company can’t easily control. Some typical offsetsinclude the use of clean energy, such as solar or wind power, and the planting orprotecting of forests and fields that absorb carbon dioxide, a major pollutant. The NatureConservancy has used several offset deals to fund rain forest preservation projects, forexample.Others believe that trading can succeed, and that measuring each country’s use offossil fuels will provide a usable gauge of how many permits it should be allowed. Oncerules for trading have been established, the cost of complying with pollution controls willdrop, and opportunities to come up with creative new sources of energy will proliferate.(Source: Janet Ginsberg, “Letting the Free Market Clear the Air,” Business Week,November 6, 2000, 200, 204.)---------------------------------------------------------------------------------------------------------2.Divide students into groups and ask them to read the case and answer thefollowing questions in their small groups. (15 minutes)(a)How does trading in pollution permits at BP demonstrate the laws ofdemand and supply?(b)What would influence the demand for pollution permits if they weretraded globally?

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Part 1—Introducing the Contemporary Business World8(c)Should companies be allowed to trade permits? Should countries beallowed to? Why or why not?3.Once students have answered the questions, discuss their answers as a class. Asstudents discuss their answers, make sure they touch on the following points: (15minutes)(a)Those who want to buy permits and those who want to sell them havecreated a market where the price is set by the action of supply and demand.(b)The strictness of government controls on emissions and the individualcompany’s ability to meet the quota, as well as the cost of failure and the price ofthe needed permit must be considered.(c)Answers will vary, though there will be much debate about the ethicsinvolved in buying and selling permits.Don’t Forget:Make sure that you keep students on the topic of supply and demand.Wrap-Up:Wrap up the discussion by asking students for other examples of environmental issuesaffecting supply and demand.Exercise #4: Flying into Trouble: The OneWorld Alliance and Antitrust LawsActivity Overview:This activity asks students to apply chapter concepts to a case study.Time Limit:30 minutesWhat to Do:1.In advance, make copies of the supplemental case study below and distribute tostudents.-----------------------------------------------------------------------------------------------------------Case StudyFlying into Trouble: The OneWorld Alliance and Antitrust LawsOver the last number of years, airline alliances have become an increasing realityin international travel. The Star Alliance is currently the largest of these with twentymember airlines including Lufthansa, Continental Airlines, United Airlines, BritishMidland International , Singapore, Air China and U.S. Airways. Another significantplayer is the OneWorld Alliance that has eleven member airlines including BritishAirways, American Airlines, Cathay Pacific Iberian, Finnair and Royal Jordanian.SkyTeam us the third of the main grouping and includes Air France, Delta Airlines andAeroflot.

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Chapter 1—The Canadian Business System9The U.S. Department of Justice, however, does not always think these alliancesare good for business. I a recent ruling against give members of the OneWorld Allianceincluding British Airways and American Airlines, the Department of Justice indicatedthat OneWorld’s third proposal to expand their alliance could result in “competitiveharm” on six transatlantic routes. As a compromise the Department of Justice proposedthat OneWorld give up some of its lucrative slots at congested airports includingLondon’s Heathrow Airport.To make matters more complicated, it is the Department of Transportation, notthe Department of Justice that has the final say on airline regulation in the U.S..OneWorld points out that the Department of Transportation overruled similar concernsfrom the Department of Justice to approve a Star Alliance proposal earlier this year. As aresult, OneWorld have indicated that they will issues a “robust response” to theDepartment of Justice recommendations.In Europe the European Commission have also expressed reservations about theOneWorld proposal. In addition, Virgin Atlantic, which isn’t a member of any alliance,has repeatedly called for the Department of Transportation to reject OneWorld’s anti-competitive application.Source: Doug Cameron “Justice Department Objects to OneWorld Extension” WallStreet Journal, 12/21/09.Questions for Discussion1.Why would large airlines want to join alliances such as OneWorld, Star, orSkyTeam? What are the potential advantages and disadvantages?2.Why do you think Virgin Atlantic refuses to join an airline alliance?3.Do you think the government should have a role in overseeing thesealliances? Is it good for competition for the government to keep intervening?4.Does it make sense to have several government departments involved inantitrust regulations?------------------------------------------------------------------------------------------------------2.Divide students into groups and ask them to answer the questions in their smallgroups. (15 minutes)3.Once students have answered the questions, discuss their answers as a class. Asstudents discuss their answers, make sure they touch on the following points: (15minutes)(a) What role should any government play in regulating an industry?

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Part 1—Introducing the Contemporary Business World10(b) If government prevent expansions of global airline alliances will this forcesmaller, non-aligned, airlines out of business?Exercise #5: Is Competition Good?Activity Overview:This activity asks students to think about competition and the role that it plays in oureconomic system.Time Limit:45 minutesWhat to Do:1.Ask students to think about competition as an essential ingredient in a free-enterprise system.” (10 minutes)2.Divide the class into small groups and ask them to discuss and make notes onsome situations in which competition is good for the Canadian economy and somesituations in which competition is bad for the Canadian economy. Group members shouldtry to reach agreement. (15 minutes)3.Regroup the class and ask the groups to explain the rationale for their answers,asking for feedback from the class as the various situations are discussed. On what partsof the discussion does the class agree or disagree? (15 minutes)4.Ask the class to come to a consensus: Is competition good or bad? (5 minutes)Don’t Forget:If the class cannot arrive at a consensus, they might consider voting.Wrap-Up:Remind students that competition is an essential part of a free-enterprise system, asentrepreneurship invites competition in many industries. Not every enterprise willsucceed in the marketplace, but competition does hold prices at market level andcontributes to a high quality of goods and services.TEACHING TIPS1.Individuals set up businesses in Canada with the intention of making a profit. As acourse opener, ask students to provide a definition for the term“profit.”2.Though the definition of business includes profit as a motive, remind students thatmost business principles also apply to not-for-profit organizations.3.There have been business people who have said:“For me, making a profit is NOTthe most important thing about operating my business!”Ask students to identify some

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Chapter 1—The Canadian Business System11other good reasons for opening a business and going through the work of making thatbusiness a successful venture.4.Have the students imagine a typical new small business that has just completed itsfirst period of operation. If there are profits from operations, where are some places towhich these profits might be allocated? Have students make the list as long as possible.5.Most, if not all, of the students have heard of non-profit or not-for-profitorganizations. Ask the students to explain what such terms mean. Is there really such athing as a non-profit organization?6.Profits reward owners for taking the risks involved in investing their money andtime in a business. Ask students to describe some of the risks involved.7.Remind students that inputs used to produce outputs are also called factors ofproduction; they include physical resources, labour, capital, entrepreneurship, andinformation resources.8.As a way to make the factors of production—labour, capital, entrepreneurs, andnatural resources—stay with the students, engage in a synonym game. Ask students,perhaps in teams, to develop a string of synonyms for the four factors. Here’s anexample: “people, money, risk takers, and raw materials.”9.Ever since the factors of production were first proposed, various individuals haveattempted to indicate which of the four is most important. Have students do the same.Usually entrepreneurs come out ahead. However, you can point out that all are neededand making one of them the “star” could be a mistake.10.It has been said that entrepreneurs are a special breed. Encourage some students toindicate why they would or would not like to be an entrepreneur.11.Ask students to evaluate this statement:“An owner of a business can take moretime away from work than a hired employee can.”12.Remind students that an economic system is defined by how it allocates factors ofproduction. In a planned economy, the government owns and controls these factors; in amarket economy, producers/consumers buy and sell what they choose.13.Encourage students to see the logic behind some of the ideas that Karl Marxespoused. Students should also be encouraged to take from Marxian theory severalnotions that we accept in Canada today.14.If students agree that some Marxian ideas truly have merit, they are ready totackle a timely question:“What has gone wrong in so many nations that have tried tofollow the teachings of Marx?”

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Part 1—Introducing the Contemporary Business World1215.Ask students to do some investigative research on the status of human rights incommunist countries like Cuba, North Korea, and Vietnam. Is there a common thread?If students find a common thread, ask them this:“What seems to be the relationshipbetween communism and the value placed on the rights of the individual?”16.Cuba is on the list of communist countries. Assume that tomorrow morning,Castro calls the Canadian Prime Minister and says:“I want to restore economic stabilityto my country. Please help me!”Appoint one of your students (or a student team) asHigh Commissioner for Economic Restoration in Cuba. What will that student (or studentteam) do to help Cuba?17.Have students reveal what picture comes to mind when someone uses the term“capitalist.”Is the first reaction positive or negative? Why?18.Make sure students understand that a mixed market economy is characterized bygovernment ownership of major industries working alongside privately owned industries.19.Ask students to give examples of how government plays each of the rolesmentioned in the text (customer, competitor, regulator, taxation agent, provider ofincentives and financial assistance, and provider of essential services).20.Price represents a balance between supply and demand, so consumers should beable to do a lot to determine prices of products and services. Why do consumers oftenfeel that they have little or no power over prices they are charged?21.Ask the students to show ways in which consumers can cause the price of certainproducts to fall.22.Degrees of competition are best taught through liberal use of examples. Moderatea class discussion where the goal is to develop examples of each of the four degrees ofcompetition.23.What degree of competition exists in professional hockey? In major leaguebaseball?24.Remind students that perfect competition is characterized by (a) many buyers,(b) many sellers, and (c) buyers and sellers who accept a going price.25.Remind students that monopolistic competition is characterized by (a) manybuyers, (b) many sellers, and (c) products that are differentiated.26.Reinforce that oligopoly is characterized by (a) many buyers, (b) few sellers,(c) products that are quite similar, and (d) a change in price by one seller oftenmeans a change in price by all sellers.

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Chapter 1—The Canadian Business System1327.The concept of the“invisible hand of competition”is often hard for students tograsp. Help them understand the concept by working through an example which beginswith an individual perspective and show how many individuals working for their ownbenefit actually benefit a much larger group of people. Price reductions, which occur overtime in products (e.g., electronic calculators or computers) are good examples.28.Remind students of the importance of learning the key terms in the text. Althoughthe“jargon”of a field of study can be annoying to some, it provides a useful shorthandfor describing concepts and learning about the field.29.Remind students that in an introductory course the material is not covered indepth. Rather, the approach is to“sample”all the important areas of business.30.One of the review questions at the end of the chapter asks students to giveexamples of the four basic degrees of competition. Ask students to share these in class.31.Have students interview an entrepreneur and ask the person about theirexperiences. Have students make a brief report to the class about their findings.32.Have students make a list of products they use every day. Compile a master listas part of a class discussion. Most will be surprised at how long the list is.33.One way to end the chapter discussion is to play a form of Jeopardy with theclass. Divide the class into teams and ask teams quick questions about the chaptermaterial. The winning team continues to get the first chance to answer until they lose toanother team. You, the instructor, serve as timekeeper, scorer, and moderator.USING THE BOXED INSERTSOpening Case: Combining the Whopper and the TimbitThe opening case describes the high-visibility merger of Tim Hortons and BurgerKing, and notes the interesting fact that Burger King moved its headquarters to Canada aspart of the deal. The material in the opening case should be of considerable interest tostudents because it deals with two companies that are very prominent on the retail scenein Canada. The case helps students understand the complex world of business activity inthe 21stcentury.Questions for Discussion1.What are the advantages of the merger for Burger King? For Tim Hortons? Whatare the potential disadvantages for each company?For Burger King, the merger means that the company will have a popular andiconic Canadian brand as part of its organization. This will mean increased sales andgreater visibility for the company in Canada. There is also the matter of lower corporatetax rates for Burger King since it moved its corporate headquarters to Canada. For Tim

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Part 1—Introducing the Contemporary Business World14Hortons, the most obvious advantage is its new access to the U.S. market. As noted in thecase, Tim Hortons has been trying for years to get a foothold in the U.S. market, and cannow take advantage of Burger King’s knowledge of that market to improve itsperformance in the U.S.There are two potential disadvantages associated with the merger. First, BurgerKing’s movement of its corporate headquarters to Canada caused concern in the U.S. thatthe company made the move because it wanted to lower its corporate income taxes. Thatmay (or may not) negatively influence the perception that U.S. and Canadian consumershave of Burger King. Second, anytime two companies merge there is always the potentialthat itwon’t work as wellas intended. Only time will tell whether there are unanticipatednegative consequences of the merger for either Burger King or Tim Hortons.2.What kind of economic system is evident in Canada? What roles does governmentplay in the economic system? How are those roles evident in the Burger King-TimHortons merger?Canada has a mixed market economic system. That means that the Canadianeconomy is not a “pure” command or market economy. Rather, it has somecharacteristics of each. Governments in Canada are involved in regulating businessactivity, but not nearly as involved as governments in command economies are. Freemarket operations are also evident in Canada, but business is not completely free to doanything it wants. Canada is not unique in having some aspects of a command economyand some aspects of a market economy. Most countries in the world have some mix ofthe two basic types of economies.The text describes the various roles that government plays in the Canadianeconomy (customer, competitor, regulator, provider of essential services, taxation agent,and provider of incentives).In the Burger King-Tim Hortons merger, the most important role that governmentplayed was that of regulator. The merger had to be approved by two Canadiangovernment agencies. The Competition Bureau analyzed the situation and concluded thatthe merger would not unduly lessen competition in the Canadian market because there isso much competition in the fast food industry. Investment Canada imposed severalconditions: Burger King had to agree to keep the Tim Hortons brand separate from theBurger King brand, to maintain significant employment levels at Tim Hortons, toguarantee that at least 50 percent of the Tim Hortons board of directors would beCanadians, and to maintain Tim Hortons pre-merger level of charity work in Canada. TheCanadian government’s role as taxation agent was also relevant in the merger, sinceBurger King knew that if it moved its headquarters to Canada it would pay less corporatetax than it had been paying in the U.S.3.Are the restrictions that were imposed on the merger by the Canadian governmentconsistent with our economic system? What potential problems might arise as a result ofthese restrictions?

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Chapter 1—The Canadian Business System15If we assume that Canada has a “pure” market economy, then the restrictionsimposed by the merger are inconsistent because government should not restrict businessactivity. But, of course, we do not have a “pure” market economy. Instead, we haveamixed market economy, and the restrictions that were imposed are consistent with thatkind of economic system. That is not to say that there won’t be controversy aboutmergers such as this one. For example, the Canadian Centre for Policy Alternativeswarned that there would be layoffs and cost-cutting in the merged companies. They werein effect saying that the government’s rulingwas not restrictive enough. Otherindividuals and organizations took the opposite view and argued that the government’sdecision was too restrictive. In any mixed market economy, there will always be debateabout whether there is too much or too little government intervention in the economy.An obvious potential problem that might arise is financial difficulties for BurgerKing. If it runs into significant difficulties it might have to engage in serious cost-cuttingand laying off of employees. But the company could run afoul of government regulationsif it tries to do this, given the terms of the merger that they accepted (for example, BurgerKing agreed to maintain significant levels of employment in Canada). But what does“significant”mean?Entrepreneurship and New Ventures: Riversong: Innovative Canadian GuitarsMike Miltimore is an entrepreneur who started Riversong Guitars, a brand whichis built on innovative guitar manufacturing. Mike is now trying to increase consumerawareness and demand for his improved guitar design.Critical Thinking Question1.What else does Mike Miltimore need to do to get his brand to be noticed in anindustry dominated by well-known brands with long storied histories?There will be great variation in student answers here. Individuals who areassigned this question early in the term are likely to have fewer ideas than those who areassigned this question later in the term. This is particularly true for those who have beenexposed to the information in the two marketing chapters (12 and 13). If the question isassigned early in the term, it is probably best for the instructor to moderate an in-classdiscussion which is designed to solicit student ideas. This will generate more ideas andwill be more interesting to the class. It will also allow for a group critique of the ideasthat are suggested.Suggestions for getting the brand noticed will likely revolve around the“promotion” aspect of marketing, whether or not that is explicitly recognized by theindividuals who make the suggestions. As well, it is likely that student ideas will focus onsocial media as a promotion tool because that is what they are familiar with. Whateverideas are put forward (and whether the question is assigned early or late in the term), theinstructor should make it clear that (a) promotion is important, and (b) it is only one ofthe 4 P’s of marketing and must not be considered in isolation. For example, if a

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Part 1—Introducing the Contemporary Business World16suggestion is made that “buzz” marketing should be used, it is important tostatespecifically how this would work, how the promotion aspect interacts with price anddistribution of the product, and the advantages (and disadvantages) that may be evident inbuzz marketing. Likewise, since the question focuses on increasing brand recognition, thesection in Chapter 13 on brands must be considered during the discussion. For example, itis difficult, expensive, and time-consuming to establish brand recognition for a product.Given that, the issue of what a start-up company like this one can reasonably achieve inthe short-run must be assessed.Students may be less likely to suggest more traditional promotion ideas (e.g., atraditional television or radio advertising campaign), but the possible benefits of suchapproaches should at least be recognized and examined. Essentially, the instructor shouldmonitor the discussion to ensure that all aspects of promotion are examined and then themost promising and appropriate approach chosen.E-Business and Social Media: Taking a Bite Out of Internet RadioThis insert describes Apple’s movement into streaming radio, the fastest growingform of music listening. In 2013, Apple rolled out the iTunes Radio service with morethan 200 stations; it allows users to create custom stations to fit their personal musicaltastes. Apple has entered this market rather late, and it remains to be seen if its venturewill be successful, given such competitors as Pandora and Spotify.Critical Thinking Questions1.In terms of degrees of competition, how would you describe the market forInternet radio? Do you think that this will change in the next five years? If so, how?Students should focus on the number of service providers that currently exist inthis market. They can then determine what degree of competition exists in the market.Their comparisons should be based on information provided in the text regarding degreesof competition. For example, this is clearlynota case of perfect competition or monopolybecause the market does not have the characteristics of either of these markets. So thatleaves us with the two middle ground markets (monopolistic competition or oligopolisticcompetition). There are fewer sellers than in perfect competition, but more sellers thanare typically found in an oligopoly, so monopolistic competition seems to be the mostappropriate. [Note: The four degrees of competition described in the text are basic types,and it can be difficult to decide where one type ends and another one begins. Forexample, in the early days of the automobile in North America, the industry illustratedthe characteristics of monopolistic competition. Over the years, many companiesdisappeared and the industry came to represent perhaps the classic case of an oligopoly,with just three domestic suppliers. But during the last 30 years, numerous foreign carmakers have entered the North American market, and now there are once again manysellers of automobiles. It is still difficult to start up an automobile company because ofthe large capital investment that is required, and that is consistent with an oligopoly. Butthe existence of automobile manufacturers in numerous countries around the world doesnot fit with the traditional conception of an oligopoly. Perhaps a global oligopoly will

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Chapter 1—The Canadian Business System17eventually emerge in the auto industry like the one that exists in the large commercialairliner industry, with Boeing, Airbus, and Bombardier being the only sellers.]If this industry proceeds like others have in the past, there will be a gradualweeding out of many of the sellers over the next five years and the industry will bedominated by a few large sellers. But it remains to be seen whether this industry becomesa “classic” oligopolysituation such as that found in the rubber, steel, and largecommercial airline industries.2.Do you think that Apple will be successful in this new venture? Do you think thatit was a wise decision for them to enter the already crowded market?There will be two distinct patterns in student answers here. Some students willthink that the market is too crowded, and that Apple should not have undertaken thisventure. Students who take this position will likely be influenced by the opinionsexpressed in the boxed insert that Apple is simply copying Spotify. Other students willtake the position that the previous success that Apple has had with other products andserviceswill positively influence potential buyers to use Apple’s new service rather thansome other competing service.QUESTIONS AND EXERCISESQuestions for Analysis1.On various occasions, government provides financial incentives to business firms.For example, the Canadian government provided export assistance to Bombardier Inc.with its Technology Transfer Program. Is this consistent with a basically free marketsystem? Explain how this might distort the system.Government incentive programs may or may not have the desired effect ofstimulating the economy. The free market is one in which decisions about what toproduce and in what quantities are made by the market- that is the buyers and sellersnegotiating prices for goods and services. Financial incentives by government areinconsistent with a free market system.2.In recent years, many countries have moved from command economies to marketeconomies. Why do you think this has occurred? Can you envision a situation that wouldcause a resurgence of command economies?In many countries, the disastrous failures of communism precipitated the movefrom a command economy to a market economy. It is unlikely that command economieswill re-emerge. Extreme civil unrest leading to authoritarian rule could cause a country torevert to a command economy.3.In your opinion, what industries in Canada should be regulated by thegovernment? Defend your arguments.

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Part 1—Introducing the Contemporary Business World18Answers will vary, but students will most likely identify those industries whichappear to act as monopolies, such as the cable industry. This question is a good basis foran in-class discussion of the broader issue of government regulation of business. Theextent and specific types of government regulation and its effect on the economy willelicit vigorous opinions from students.4.Familiarize yourself with a product or service that is sold under conditions of purecompetition. Explain why it is an example of pure competition and identify the factorsthat make it so. Then do the same for a product in each of the other three competitivesituations described in the chapter (monopolistic competition, oligopoly, and monopoly).Answers will vary. This is a good exercise for assisting students in understandingthat not all industries are equally competitive.5.Analyze how the factors of production (labour, capital, entrepreneurs, naturalresources, and information) work together for a product or service of your choice.Answers will vary. Make sure that students are correctly identifying the factors ofproduction in the examples they develop.6.Government plays a variety of roles in the Canadian mixed economy (customer,regulator, taxation agent, provider of services, etc.). Consider each of the roles discussedin the text and state your view as to whether government involvement in each role isexcessive, insufficient, or about right. What criteria did you use to make yourassessment?Answers will vary. Some government rules and regulations are necessary tomake sure that all of a business’s stakeholders are protected and that people who areunable to work get the basic care they need.Application Exercises7.For a product that is not discussed in Chapter 1, find an example where a surplusof a product led to decreased prices. Then find an example where a shortage led toincreased prices. What eventually happened in each case? Why? Is what happenedconsistent with what economics predicts?Answers will vary. Students may have difficulty coming up with an example of aproduct where a surplus has led to decreased prices, but most of them will use oil as anexample of a product where a shortage has led to increased prices.It is very likely that the examples students come up with will be consistent withwhat economic theory predicts. That is, the law of demand states that buyers willpurchase (demand) more of a product as its price drops. Conversely, the law of supplystates that producers will offer more for sale as the price rises. If there seem to be

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