MGTA01 MIDTERM -- GROUP 2: The Building Blocks & Economic Systems (Lectures 3 & 4)

Covers the 4 factors of production, factor intensity, factor substitution, the Industrial/Information revolutions, planned vs. market economic systems, communism/socialism, pure capitalism vs. mixed markets, and Canada's tax/regulatory framework.

The four fundamental Factors of Production

1) Natural Resources, 2) Labour, 3) Capital, and 4) Entrepreneurship.

Definition of 'Natural Resources' as a factor of production

Things found in nature that grow out of the earth or can be extracted from it (e.g., land, water, oil, timber).

Definition of 'Labour' as a factor of production

The people who contribute their human physical and mental efforts to a business.

Definition of 'Capital' as a factor of production

Money, or the machinery, equipment, and technology that money can purchase.

Definition of 'Entrepreneurship' as a factor of production

The motivation to take initiative, incur financial costs/risks, and organize the other factors to create a business.

Definition of 'Factor Intensity'

The degree to which a business relies more heavily on one specific factor of production over others.

Definition of 'Factor Substitution'

Substituting one factor of production for another (e.g., machines replacing workers) to make goods faster or cheaper.

Economic impact of the Industrial Revolution on production factors

It shifted production from home crafting to factories, making capital significantly more critical than manual labour.

Core premise of the Information Revolution theory

Computing and IT advances have dramatically transformed how businesses gather information and fulfill customer needs.

Four key questions determined by an Economic System

Who owns factors, who controls them, who decides what is produced, and who decides how goods are distributed.

Definition of a Planned Economy

An economic system where the state primarily owns and controls factors of production according to a central government plan.

Structural difference between Communism and Socialism

Communism features total state ownership with no private property; Socialism allows some small private businesses alongside state-run core industries.

Primary argument in favor of Market Economies

Private owners are closer to consumers, understand local needs better, and adapt faster than central government planners.

Concept of 'Social Darwinism' in pure capitalism

The belief that wealth naturally flows to the fittest, smartest, and hardest-working, while the weak lose power.

Definition of a Mixed Market Economy

A system where private individuals own/control most factors, but the government provides regulation, public services, and oversight.

Three major roles of government in Canada's Mixed Market economy

1) Collecting taxes, 2) Passing business regulation laws, and 3) Providing public services/Crown Corporations.

Definition of Progressive Taxation

A tax structure taking a higher percentage of income from high-income earners than from low-income earners.

Largest source of federal tax revenue for the Canadian government

Personal Income Tax (accounting for over 46 percent of federal revenues).

Definition and examples of a Crown Corporation

A commercial enterprise owned and operated by the government (e.g., Canada Post, LCBO, CBC).

Definition of Privatization

Transferring ownership and control of a state-owned business or industry into private hands.

Definition of Perestroika

1980s Soviet policies that relaxed central collectivization and nationalization, introducing market elements.

Application: How automated self-checkouts represent Factor Substitution

Capital (touchscreen machines) is substituted for Labour (cashiers) to lower operational costs.

Application: Main challenge faced by central planners in Planned Economies

Government planners rely on static models that fail to predict dynamic consumer demands, causing shortages or waste.

Application: Purpose of the Canadian Competition Act

To prevent misleading advertising, price-fixing, and unfair practices that harm market competition.

Application: Purpose of Employment Insurance (EI) tax in Canada

A mandatory payroll deduction that redistributes funds to workers experiencing job loss, parental leave, or illness.

Application: Why Pure Capitalism is considered theoretical

Without government regulation and public infrastructure, societies risk corporate monopoly abuse and social anarchy.

Application: Etymology of the word 'Entrepreneur'

From French 'entre' (to enter) and 'prendre' (to take initiative).

Application: Why natural resource intensity is significant in Canada

Canada possesses vast reserves of land, oil, timber, and minerals, making forestry and mining core historical industries.

Application: Why Planned Economies usually arise during crises

Governments take control during extreme instability (war, deep recession) to ensure rapid resource mobilization.

Application: Why healthcare models spark economic debates worldwide

Countries balance public access (Canada's government-funded model) against private market efficiency (USA model).