Chapter 1 - What is a business?

Question 1

Identify six characteristics common to all businesses with examples

Answer 1

1. A business requires organization and effort. They don’t just happen but are a result of time, effort and energy of people who start and run them. Example: tutoring: discuss idea with family/friends, advertisement, time to teach students
2. A business attempts to provide the things people need or want

Example: MS: OS were needed for computers

3. A business must try to satisfy a customer’s needs. Example: tutoring, improve grades
4. By selling products to customers, and satisfying their needs, a business generates revenue. Example: Rogers: internet and direct debit
5. A business incurs expenses

Example: airline: buy and maintain aircraft, pay employees, buy meals, pay for in-flight movies

6. A business tries to generate more revenue than it incurs, in other words, a business tries to make a profit. Example: Tutoring: pay for university

Question 2

Explain the meaning of the words “revenue” and “expenses”

Answer 2

Revenue: the money that flows into a business every time it sells a product or a service to a customer

Expenses: the costs that a business incurs in its efforts to generate revenue

Question 3

Explain the meaning of the words “profit” and “loss”

Answer 3

Profit: the positive benefit of running a business

Profit: revenue - expenses = positive result

Loss: revenue - expenses produces a negative result

Question 4

What is the profit motive?

Answer 4

The idea that people will give up their time, energy and money to start a business only if they can realize some benefit from doing so

Question 5

What are the similarities difference between businesses and other not-for-profit, types of organization? Give examples

Answer 5

An organization is a group of people who work together to meet a need or pursue some common goals. Example: family, soccer team, McDonald’s Both businesses and not-for-profits are organizations. But, a business is an organized effort to provide the tings that people need and want, and are willing to pay for. A business exists to satisfy those needs, and also to make a profit. Example: Smasung, Apple. While a not-for-profit organization provides people with things they need and they may collect revenue, but is not intended to make a profit. Example: mosque, church

Question 6

Why is UofT not a business?

Answer 6

A university is NOT established with the intention of making a profit. A university in Canada is established with the intenion of being a public service. No university in Canada collects more tuition than it pays expenses:

1. Tution covers less than half of expenses
2. Govt of Ontario
3. Donations
4. people of Ontario -largely

Question 7

What are the two opposing views of the profit motive? Explain each of them.

Answer 7

Marxism: the economic and political theories developed by Karl Marx. He argued that the owners of the means of production are a class of people who grow wealthy by exploiting the labor of others. Liberalism: an economic and political theory that espouses that people should be left to pursue their own self-interest, without government interference

Question 8

Is Canada Marxist or Liberalist?

Answer 8

The prevailing view in Canada is that the opportunity to make a profit is just reward for the time, effort and sacrifice undertaken by business owners. Therefore, Canada is liberalist.

Question 9

What is required to create and run a business? Explain.

Answer 9

Taking risks. Many thousands of businesses are created every year, and many thousands of others, including large and well-known businesses, shut down