Business Essentials, Eighth Canadian Edition Solution Manual

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INSTRUCTOR ’ S MANUAL
for
Ronald J. Ebert
Ricky W. Griffin
Frederick A. Starke
George Dracopoulos
Business Essentials
Eighth Canadian Edition
prepared by
Frederick A. Starke
University of Manitoba

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

iii
INTRODUCTION TO THE INSTRUCTOR’S MANUAL
This Instructor’s Manual is intended for use with Business Essentials, 8th
Canadian edition. Each chapter's manual contains the following features:
1. Chapter Synopsis—The key topics that are discussed in the text chapter are
concisely summarized here.
2. Chapter Outline—A detailed chapter outline of topic coverage in the chapter is
provided. This gives instructors a clear organization scheme for the chapter and helps
with planning lectures.
3. Quick Questions—These questions focus on the major topics that are presented in
the chapter, and are designed to test whether students understand fundamental issues.
4. In-Class Exercises—Several structured in-class exercises are described and
specific directions given for conducting the exercises. The topics covered in these
exercises relate to topics that are presented in the text chapter; they will increase student
interest and engagement in the topics.
5. Teaching Tips—Numerous teaching tips are presented that help the instructor
make topic coverage more interesting. These teaching tips include examples that will
clarify concepts for students, interesting scenarios that get students thinking about
important issues, and clarifications of topics to increase student understanding.
6. Using the Boxed Inserts—Each chapter in the text contains an opening case and
several boxed inserts which are designed to increase student interest. Questions for
Discussion or Critical Thinking Questions are provided for students to consider. Answers
to these questions are provided for instructors, as well as ideas for in-class discussions
and debates on interesting and controversial topics that may relate to the issues raised in
the insert.
7. Questions and Exercises—At the end of each chapter in the text, several
Questions for Analysis and Application Exercises are presented. Answers to the questions
and exercises are provided for instructors. Assisted-graded assignments are provided in
MyBizLab for various questions. These provide guidelines for instructors when they are
grading 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 marking
rubrics to help facilitate grading. For items in this Instructor's Manual which are also
available as an assisted-graded assignments, the notation >>> is included.
9. Team Exercises—Two team exercises are found at the end of each chapter in the
text, one titled Building Your Business Skills, and the other titled Exercising Your Ethics.

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Answers to the questions raised in these exercises are provided. Suggestions for in-class
activities 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 are Questions for Discussion which ask students to
use concepts presented in the chapter to analyze the case. Answers to these questions are
provided for the instructor.
11. Crafting a Business Plan—The business plan feature is found at the end of each
major section of the text (i.e., at the end of Chapters 5, 9, 11, 13, and 15). Further
information for instructors is provided here.
12. Video Cases—Two to three video cases are found at the end of each major Part of
the text. Answers to the Questions for Discussion at the end of each video case are
provided.
Additional video cases are available in MyBizLab. These videos are accompanied by a
synopsis, classroom application, discussion questions, and multiple-choice questions. The
spreadsheet below indicates the titles of these videos and their relevance for various
chapters in the text.

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ADDITIONAL VIDEOS CASES AVAILABLE IN MYBIZLAB,
CORRELATED WITH THE TEXTBOOK'S CHAPTERS.
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
$250,000 Kickstarter
Campaign for a Hoverboard X X X
Abercrombie & Fitch X X
Acer vs. HP X
Airbus vs. Boeing X
Amazon Cracks Down On
Fake Reviews X
Blackbird Guitars X
Blackbird Guitars: POM X
‘Blurred Lines’ Verdict Has
Music Industry Singing the
Blues
X
Burger King Markets New
Fries as Healthier X
Cadillac X
CH2MHill: Ability X
CH2MHill: Culture X
CH2MHill: D-M X
CH2MHill: Diversity X
CH2MHill: Ethics X
CH2MHill: Foundations X
CH2MHill: HRM X

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
CH2MHill: Job Satisfaction X
CH2MHill: Leadership X
CH2MHill: Motivation X
CH2MHill: Planning X
CH2MHill: POM X
CH2MHill: Strategy X
CH2MHill: Structure X
Coca-Cola Getting a Jolt on
Wall Street X
Companies Making Fun of
Themselves X
Controlling X
Craigslist X
Decision Making (TWZ) X
Did Burger King Defect to
Canada to Save Tax Money? X
Diversity (TWZ) X
Domino’s Pizza: Franchising X X
Domino’s Pizza: Managing
Marketing Information X
Elm City Market: HRM X
Elm City Market: Structure X
Emerging Markets: Spotlight
on India and Mexico X

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Introduction to the Instructor’s Manual
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Entering the Chinese Market X
Entrepreneurship X
Facebook Stock Implodes X
Facebook’s Bet on Growth
Hits Profit X X
Fast Food Workers X
Gawker Media: Satisfaction X
General Electric Wants to
Pay You for Your Big Idea X
Global Ethics and Siemens X
Government Intervention X
Government Intervention:
Spotlight on China and
Germany
X
Gravity Payments X
Grocery Shopping Tips:
Watch Out for Shrinking
Products
X
Hautelook: Appraising X
Hautelook: Recruiting X
Herman Miller: Managers X
Herman Miller: Motivation X
Honest Tea: Mission X
Honest Tea: Social
Responsibility X

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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
How Counterfeit Goods Make
It From China To a Store
Near You
X
HSN: Direct and Online
Marketing X
HSN: Retailing and
Wholesaling X
Inside Google X
iRobot Strategy X
Joby: Individual Behavior X
Johnny Cupcakes: Financial
and Cash Flow Management X
Johnny Cupcakes: Finance X
Jones Soda: Social
Responsibilty X
Kid Toy Testers Make Big
Bucks on YouTube X
‘Kids Eat Right’ Logo on
Kraft Singles May Confuse
Consumers
X
Leadership (TWZ) X
Leading X
Lululemon Searches for CEO
With Help Wanted Signs X
Marketing a Movie Globally:
The Global Marketplace X
Mcdonald’s Customers Not
Lovin’ It X

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Introduction to the Instructor’s Manual
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Mcdonald’s Eyeing Natural
chicken X
Major Sponsor ‘Deeply
Disturbed’ by NFL Players’
Behaviour
X
Matthew McConaughey’s
Lincoln Commercials
Generate Lots of Buzz
X
Michael Kors Holdings
Accuses Costco of Bait and
Switch
X X
MINI: Globalization X
Motivation (TWZ) X
MyGym: Organizing the
Business X
NFL Reportedly Asks
Musicians to Pay to Play the
Super Bowl
X
Nielsen: Observing and
Predicting Consumer
Behavior
X
Nike X
Organizational Change (TWZ) X
Organizational Culture (TWZ) X
Patagonia: Ethics/Social
Responsibility X
Patagonia: HRM X
Patagonia: Social
Responsibility X

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x
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Patagonia: Testing X
Planning (TWZ) X
Platinum Auto Body X
Power X
PTC: Engagement X
PTC: Green Management X
Red Frog: Structure X
Regional Economic
Integration: Outlook for the
European Union
X
Rudi’s Bakery: Ability X
Rudi’s Bakery: Control X
Rudi’s Bakery: Culture X
Rudi’s Bakery: Decision
Making X
Rudi’s Bakery: Design X
Rudi’s Bakery: Diversity X
Rudi’s Bakery: Ethics X
Rudi’s Bakery: Groups X
Rudi’s Bakery: HRM X
Rudi’s Bakery: Job
Satisfaction X
Rudi’s Bakery: Leadership X

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Introduction to the Instructor’s Manual
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1 2 3 4 5 6 7 8 9 10 11 12 13 14 15
Rudi’s Bakery: Motivation X
Rudi’s Bakery: POM X
Rudi’s Bakery: Strategy X
Rudi’s Bakery: Structure X
Rudi’s Bakery: Teams X
‘Shark Tank’’ Success Story:
GrooveBook Snapped Up X
Shock Advertising: Does
Buzz Lead to Business? X
Sound In Motion X
Teams X
The Long Anticipated Apple
Watch is Here X
The Super Bowl
Commercials That Scored
Big on Social Media
X X
Turning a Small Business
Into a Big Success X
Toyota: Outsourcing X
Toyota: Production Problems X
UPS: Equal Opportunity X
UPS: Union and Management X
Verizon: Diversity X
Walmart in China and Mexico X
Warby Parker: Vision X

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1
CHAPTER 1
UNDERSTANDING THE CANADIAN BUSINESS SYSTEM
CHAPTER SYNOPSIS
Chapter 1 creates a context for understanding the business concepts that are presented
throughout the text. This chapter presents the ideas of business and profit, outlines the
world’s major economic systems, and describes the basic aspects of Canada’s market
economy, including markets, demand, supply, private enterprise, and degrees of
competition. A supplement at the end of Chapter 1 provides a brief history of business in
Canada.
CHAPTER OUTLINE
I. THE IDEA OF BUSINESS AND PROFIT
A business is an organization that seeks to earn profits by providing goods and
services to customers. Profit is what remains after a business’s expenses incurred
are subtracted from its sales and revenues. Profits are what encourage people to
open and expand business and are required in order for the organization to be “a
going concern.” In Canada, not-for-profit organizations such as charities,
educational institutions or government agencies are also important. As the term
suggests, these are organizations that do not try to make a profit; instead, they use
the funds they get from government grants or from the sale of goods and services
to provide various services to the public.
II. ECONOMIC SYSTEMS AROUND THE WORLD
An economic system is the way in which a nation allocates its resources among its
citizens. 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 produce
goods 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 and
risks involved in creating and operating a business.
4. Natural resources—Land, water, mineral deposits, trees and other
naturally occurring resources that businesses need to operate.

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5. Information—Market forecasts, specialized knowledge
possessed by employees, and various forms of economic data about the
economy and consumers that are used by businesses.
B. Types of Economic Systems—Different types of economic systems
manage the factors of production in different ways. Command economies, market
economies, and mixed economies are three basic types.
1. Command economies—Government controls many (or all) of the
factors of production. The government decides how much will be
produced and who will produce it. Command economies have fallen into
disfavour during the past decade, and only a few are left (e.g., Cuba and
North Vietnam).
2. Market economies—Factors of production are controlled by
markets, not by government. Individuals are free to start their own
businesses, and consumers are free to buy from whomever they wish.
a. Input and output markets—In input markets, companies
buy resources from households; in the output market, companies
supply goods and services in response to demand from households.
3. Mixed market economies—Have features of both command and
market economies. Most countries of the world, including Canada, have
mixed market economies.
III. INTERACTIONS BETWEEN BUSINESS AND GOVERNMENT
A. How Government Influences Business—The government influences
business by taking on the roles of customer, competitor, regulator, taxation
agent, provider of incentives, and a provider of essential services.
1. Government as a customer—Government buys many services and
products which amount to billions of dollars each year.
2. Government as a competitor—Crown corporations at both federal
and provincial levels compete with business.
3. Government as a regulator—The federal and provincial
governments regulate many aspects of business activity, including the
following:
a. Promoting competition—Competition policy seeks to
eliminate restrictive trade practices to stimulate maximum business
activity. The guidelines for Canada’s competition policy are contained in
The Competition Act.

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Chapter 1—The Canadian Business System
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b. Protecting consumers—The Canada Consumer Product
Safety Act, the Tobacco Act, Weights and Measures Act, Textile
Labelling Act, and the Food and Drug Act, are examples of regulations
that protect consumers.
c. Achieving social goals—The achievement of social goals
promotes the well-being of our society. Social goals include universal
access to health care, safe workplaces, employment insurance and decent
pensions.
d. Protecting the environment—Legislation to protect the
environment includes the Canada Water Act, the Fisheries Act, and the
Environmental Contaminants Act.
4. Government as a taxation agent—Taxes are imposed and collected
by all three levels of government. Revenue taxes (e.g., income taxes) are
levied primarily to fund government services and programs; they form the
majority of all taxes. Progressive and regressive taxes are described.
Restrictive taxes, such as excise taxes on alcohol, tobacco and gasoline
serve as both a revenue source and a “deterrent to excesses.”
5. Government as a provider of incentive programs—These programs
are intended to stimulate economic development. Governments offer
numerous incentive programs through various government organizations.
Several examples of grant incentive programs are described. Incentives
are also provided through the services provided to companies by the
government (several examples are given).
6. Government as a provider of essential services—Business activity
is facilitated by the government services that are supplied, e.g. roads,
postal service, police and fire departments.
B. How Business Influences Government—Business can influence
governments through the use of lobbyists, trade associations, and advertising.
IV. THE CANADIAN MARKET ECONOMY
A. Demand and Supply in a Market Economy—Markets, demand, supply, the
law of demand, the law of supply, equilibrium, surplus, and shortage are defined.
1. The laws of supply and demand—Demand is the willingness and
ability of buyers to purchase a product or service. Supply is the
willingness and ability of producers to offer a good or service for sale.

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2. Demand and supply schedules—Show how many units of a
product are likely to be sold at various prices.
3. Demand and supply curves—A demand curve shows how many
products will be demanded at different prices, while a supply curve shows
how many products will be supplied at different prices.
4. Surpluses and shortages—When the quantity demanded exceeds
the quantity business are willing to supply, a shortage exists. When the
quantity demanded is less than the quantity businesses are willing to
supply, a surplus exists.
V. PRIVATE ENTERPRISE AND COMPETITION
Adam Smith’s belief that allowing individuals to pursue self-interest would
eventually benefit society as a whole through “the invisible hand of competition”
is discussed. Four elements must be present in private enterprise: private
property rights, freedom of choice, profits and competition.
A. Degrees of Competition—Four degrees of competition within
private enterprise are identified. Examples of each are given.
1. Perfect competition—A market or industry characterized by a large
number of small firms producing an identical product so that no one firm
is powerful enough to influence the price of their product in the market
place. Agriculture (wheat production) is given as an example.
2. Monopolistic competition—A market or industry characterized by
a large number of firms supplying products that are similar but distinctive
enough 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 number
of large firms that have the power to influence the price of their product
and/or resources. Generally large initial capital investment is necessary for
new 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 can
set the price of its product and/or resources. Natural monopolies like
provincial utilities are described.
QUICK QUESTIONS
1. What are the factors of production used to produce a litre of orange juice?

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Chapter 1—The Canadian Business System
5
2. 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 this
economy planned? Give an example of country with a market economy. How is the
economic system different in this country?
4. What is an equilibrium price? What happens if incomes rise and demand
increases? What happens if producers have a surplus and supply increases?
5. Which level of competition best describes the market in each of the following
scenarios: Your local Pizza Hut? A local farmer selling apples for applesauce?
Gap jeans?
IN-CLASS EXERCISES
Exercise #1: What Do You Know About Business?
Activity Overview:
This activity helps students assess their level of knowledge about business and set their
own learning goals for the class.
Time Limit: 20 minutes
What to Do:
1. Ask each student to take out a piece of paper and divide it into two columns. In
the first column, students should write the most important four or five things they
currently know about business, and in the second column, the four or five things they
would 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 this
task doesn’t frustrate them. (5 minutes)
2. Divide students into groups of three to five people and ask them to share their lists
with each other. As they listen, they can delete or add anything that seems relevant. (5
minutes)
3. Ask them to switch groups so that they are with all new people, and repeat the
process of sharing their lists. (5 minutes)
4. Ask students to switch to a third group of all new people. With this group, the
goal is to synthesize their lists into one big idea of what they know, and one big idea of
what they want to learn. (5 minutes)

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Don’t Forget:
This activity allows students to get to know each other as well as set expectations for the
course. The underlying agenda is to get them talking to each other, setting the stage for
active participation throughout the class.
Wrap-Up:
Wrap up the discussion by having each group report back to the class. You may want to
record their responses and post them in the room for reference as you move through the
course.
Exercise #2: Comparing Economic Systems
Activity Overview:
This activity gets students talking about the similarities and differences between the
Canadian economic system and other economic systems.
Time Limit: 30 minutes
What to Do:
1. Divide the class into small groups. Ask the groups to assume they have just
overheard a classmate say, “Canada is becoming more socialist everyday—with all the
government control.” Have each group list reasons why the statement could be true and
reasons 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 from
socialism. If you have foreign students in your class, it will be very interesting to hear
them 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 a
socialist system have many similarities and differences. For example, workers in socialist
economies often work fewer hours, have longer vacations, and receive more health,
education, and child-care benefits than do workers in capitalist economies. On the other
hand, the federal government does control some basic services in Canada as well as
various aspects of the market through agencies such as the Hazardous Products Act, The
Food and Drug Act, and the Canadian Radio-Television and Telecommunications
Commission.
Exercise #3: Case Study: Supply and Demand for Pollution Permits
Activity Overview:
This activity asks students to apply chapter concepts to a case study.

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Time Limit: 30 minutes
What to Do:
1. In advance, make copies of the following case study and distribute to students:
-------------------------------------------------------------------------------------------------------
Case Study
Pollution Permits
When Julie Hardwick, a manager for a division of BP Amoco PLC, checks her
computer every day, she’s not looking for information about her company’s stock. She’s
finding out whether other divisions of BP are looking to trade their permits to emit
pollutants that cause global warming. Units that have leftover permits after meeting their
emission-reduction quotas are allowed to sell them to other units that need them to cover
shortfalls in their own efforts to meet their goals. The company reports that it is saving
millions of dollars through creative reductions in fuel consumption, prompted by the use
of permits. Other firms in the developed countries are using permits as well, hoping to
reduce pollution before their governments make it mandatory.
Some believe that trading permits between companies or across national borders
will prove difficult because of the wide variety of sources of pollution and the problem of
maintaining fairness in the use of the permits. For instance, should heavy polluters be
made to clean up pollution instead of being able to trade for permits to continue to
pollute? Some corporations already use an alternative called offset rights, which are
positive steps that offset the pollution a company can’t easily control. Some typical offsets
include the use of clean energy, such as solar or wind power, and the planting or
protecting of forests and fields that absorb carbon dioxide, a major pollutant. The Nature
Conservancy has used several offset deals to fund rain forest preservation projects, for
example.
Others believe that trading can succeed, and that measuring each country’s use of
fossil fuels will provide a usable gauge of how many permits it should be allowed. Once
rules for trading have been established, the cost of complying with pollution controls will
drop, 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 the
following questions in their small groups. (15 minutes)
(a) How does trading in pollution permits at BP demonstrate the laws of
demand and supply?
(b) What would influence the demand for pollution permits if they were
traded globally?

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(c) Should companies be allowed to trade permits? Should countries be
allowed to? Why or why not?
3. Once students have answered the questions, discuss their answers as a class. As
students discuss their answers, make sure they touch on the following points: (15
minutes)
(a) Those who want to buy permits and those who want to sell them have
created a market where the price is set by the action of supply and demand.
(b) The strictness of government controls on emissions and the individual
company’s ability to meet the quota, as well as the cost of failure and the price of
the needed permit must be considered.
(c) Answers will vary, though there will be much debate about the ethics
involved 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 issues
affecting supply and demand.
Exercise #4: Flying into Trouble: The OneWorld Alliance and Antitrust Laws
Activity Overview:
This activity asks students to apply chapter concepts to a case study.
Time Limit: 30 minutes
What to Do:
1. In advance, make copies of the supplemental case study below and distribute to
students.
-----------------------------------------------------------------------------------------------------------
Case Study
Flying into Trouble: The OneWorld Alliance and Antitrust Laws
Over the last number of years, airline alliances have become an increasing reality
in international travel. The Star Alliance is currently the largest of these with twenty
member airlines including Lufthansa, Continental Airlines, United Airlines, British
Midland International , Singapore, Air China and U.S. Airways. Another significant
player is the OneWorld Alliance that has eleven member airlines including British
Airways, American Airlines, Cathay Pacific Iberian, Finnair and Royal Jordanian.
SkyTeam us the third of the main grouping and includes Air France, Delta Airlines and
Aeroflot.

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Chapter 1—The Canadian Business System
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The U.S. Department of Justice, however, does not always think these alliances
are good for business. I a recent ruling against give members of the OneWorld Alliance
including British Airways and American Airlines, the Department of Justice indicated
that OneWorld’s third proposal to expand their alliance could result in “competitive
harm” on six transatlantic routes. As a compromise the Department of Justice proposed
that OneWorld give up some of its lucrative slots at congested airports including
London’s Heathrow Airport.
To make matters more complicated, it is the Department of Transportation, not
the 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 concerns
from the Department of Justice to approve a Star Alliance proposal earlier this year. As a
result, OneWorld have indicated that they will issues a “robust response” to the
Department of Justice recommendations.
In Europe the European Commission have also expressed reservations about the
OneWorld 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” Wall
Street Journal, 12/21/09.
Questions for Discussion
1. Why would large airlines want to join alliances such as OneWorld, Star, or
SkyTeam? 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 these
alliances? Is it good for competition for the government to keep intervening?
4. Does it make sense to have several government departments involved in
antitrust regulations?
------------------------------------------------------------------------------------------------------
2. Divide students into groups and ask them to answer the questions in their small
groups. (15 minutes)
3. Once students have answered the questions, discuss their answers as a class. As
students discuss their answers, make sure they touch on the following points: (15
minutes)
(a) What role should any government play in regulating an industry?

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(b) If government prevent expansions of global airline alliances will this force
smaller, 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 our
economic system.
Time Limit: 45 minutes
What 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 on
some situations in which competition is good for the Canadian economy and some
situations in which competition is bad for the Canadian economy. Group members should
try 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 parts
of 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, as
entrepreneurship invites competition in many industries. Not every enterprise will
succeed in the marketplace, but competition does hold prices at market level and
contributes to a high quality of goods and services.
TEACHING TIPS
1. Individuals set up businesses in Canada with the intention of making a profit. As a
course opener, ask students to provide a definition for the term “profit.”
2. Though the definition of business includes profit as a motive, remind students that
most business principles also apply to not-for-profit organizations.
3. There have been business people who have said: “For me, making a profit is NOT
the most important thing about operating my business!” Ask students to identify some

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Chapter 1—The Canadian Business System
11
other good reasons for opening a business and going through the work of making that
business a successful venture.
4. Have the students imagine a typical new small business that has just completed its
first period of operation. If there are profits from operations, where are some places to
which 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-profit
organizations. Ask the students to explain what such terms mean. Is there really such a
thing as a non-profit organization?
6. Profits reward owners for taking the risks involved in investing their money and
time 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 of
production; they include physical resources, labour, capital, entrepreneurship, and
information resources.
8. As a way to make the factors of production—labour, capital, entrepreneurs, and
natural 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 an
example: “people, money, risk takers, and raw materials.”
9. Ever since the factors of production were first proposed, various individuals have
attempted 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 needed
and making one of them the “star” could be a mistake.
10. It has been said that entrepreneurs are a special breed. Encourage some students to
indicate 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 more
time away from work than a hired employee can.”
12. Remind students that an economic system is defined by how it allocates factors of
production. In a planned economy, the government owns and controls these factors; in a
market economy, producers/consumers buy and sell what they choose.
13. Encourage students to see the logic behind some of the ideas that Karl Marx
espoused. Students should also be encouraged to take from Marxian theory several
notions that we accept in Canada today.
14. If students agree that some Marxian ideas truly have merit, they are ready to
tackle a timely question: “What has gone wrong in so many nations that have tried to
follow the teachings of Marx?”

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15. Ask students to do some investigative research on the status of human rights in
communist 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 relationship
between 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 stability
to my country. Please help me!” Appoint one of your students (or a student team) as
High Commissioner for Economic Restoration in Cuba. What will that student (or student
team) 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 by
government ownership of major industries working alongside privately owned industries.
19. Ask students to give examples of how government plays each of the roles
mentioned in the text (customer, competitor, regulator, taxation agent, provider of
incentives and financial assistance, and provider of essential services).
20. Price represents a balance between supply and demand, so consumers should be
able to do a lot to determine prices of products and services. Why do consumers often
feel 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 certain
products to fall.
22. Degrees of competition are best taught through liberal use of examples. Moderate
a class discussion where the goal is to develop examples of each of the four degrees of
competition.
23. What degree of competition exists in professional hockey? In major league
baseball?
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) many
buyers, (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 often
means a change in price by all sellers.

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27. The concept of the “invisible hand of competition” is often hard for students to
grasp. Help them understand the concept by working through an example which begins
with an individual perspective and show how many individuals working for their own
benefit actually benefit a much larger group of people. Price reductions, which occur over
time 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. Although
the “jargon” of a field of study can be annoying to some, it provides a useful shorthand
for describing concepts and learning about the field.
29. Remind students that in an introductory course the material is not covered in
depth. 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 give
examples 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 their
experiences. 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 list
as 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 the
class. Divide the class into teams and ask teams quick questions about the chapter
material. The winning team continues to get the first chance to answer until they lose to
another team. You, the instructor, serve as timekeeper, scorer, and moderator.
USING THE BOXED INSERTS
Opening Case: Combining the Whopper and the Timbit
The opening case describes the high-visibility merger of Tim Hortons and Burger
King, and notes the interesting fact that Burger King moved its headquarters to Canada as
part of the deal. The material in the opening case should be of considerable interest to
students because it deals with two companies that are very prominent on the retail scene
in Canada. The case helps students understand the complex world of business activity in
the 21st century.
Questions for Discussion
1. What are the advantages of the merger for Burger King? For Tim Hortons? What
are the potential disadvantages for each company?
For Burger King, the merger means that the company will have a popular and
iconic Canadian brand as part of its organization. This will mean increased sales and
greater visibility for the company in Canada. There is also the matter of lower corporate
tax rates for Burger King since it moved its corporate headquarters to Canada. For Tim

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14
Hortons, the most obvious advantage is its new access to the U.S. market. As noted in the
case, Tim Hortons has been trying for years to get a foothold in the U.S. market, and can
now take advantage of Burger King’s knowledge of that market to improve its
performance in the U.S.
There are two potential disadvantages associated with the merger. First, Burger
King’s movement of its corporate headquarters to Canada caused concern in the U.S. that
the company made the move because it wanted to lower its corporate income taxes. That
may (or may not) negatively influence the perception that U.S. and Canadian consumers
have of Burger King. Second, anytime two companies merge there is always the potential
that it won’t work as well as intended. Only time will tell whether there are unanticipated
negative consequences of the merger for either Burger King or Tim Hortons.
2. What kind of economic system is evident in Canada? What roles does government
play in the economic system? How are those roles evident in the Burger King-Tim
Hortons merger?
Canada has a mixed market economic system. That means that the Canadian
economy is not a “pure” command or market economy. Rather, it has some
characteristics of each. Governments in Canada are involved in regulating business
activity, but not nearly as involved as governments in command economies are. Free
market operations are also evident in Canada, but business is not completely free to do
anything it wants. Canada is not unique in having some aspects of a command economy
and some aspects of a market economy. Most countries in the world have some mix of
the two basic types of economies.
The text describes the various roles that government plays in the Canadian
economy (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 government
played was that of regulator. The merger had to be approved by two Canadian
government agencies. The Competition Bureau analyzed the situation and concluded that
the merger would not unduly lessen competition in the Canadian market because there is
so much competition in the fast food industry. Investment Canada imposed several
conditions: Burger King had to agree to keep the Tim Hortons brand separate from the
Burger King brand, to maintain significant employment levels at Tim Hortons, to
guarantee that at least 50 percent of the Tim Hortons board of directors would be
Canadians, and to maintain Tim Hortons pre-merger level of charity work in Canada. The
Canadian government’s role as taxation agent was also relevant in the merger, since
Burger King knew that if it moved its headquarters to Canada it would pay less corporate
tax than it had been paying in the U.S.
3. Are the restrictions that were imposed on the merger by the Canadian government
consistent with our economic system? What potential problems might arise as a result of
these restrictions?

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Chapter 1—The Canadian Business System
15
If we assume that Canada has a “pure” market economy, then the restrictions
imposed by the merger are inconsistent because government should not restrict business
activity. But, of course, we do not have a “pure” market economy. Instead, we have a
mixed market economy, and the restrictions that were imposed are consistent with that
kind of economic system. That is not to say that there won’t be controversy about
mergers such as this one. For example, the Canadian Centre for Policy Alternatives
warned that there would be layoffs and cost-cutting in the merged companies. They were
in effect saying that the government’s ruling was not restrictive enough. Other
individuals and organizations took the opposite view and argued that the government’s
decision was too restrictive. In any mixed market economy, there will always be debate
about whether there is too much or too little government intervention in the economy.
An obvious potential problem that might arise is financial difficulties for Burger
King. If it runs into significant difficulties it might have to engage in serious cost-cutting
and laying off of employees. But the company could run afoul of government regulations
if it tries to do this, given the terms of the merger that they accepted (for example, Burger
King agreed to maintain significant levels of employment in Canada). But what does
“significant” mean?
Entrepreneurship and New Ventures: Riversong: Innovative Canadian Guitars
Mike Miltimore is an entrepreneur who started Riversong Guitars, a brand which
is built on innovative guitar manufacturing. Mike is now trying to increase consumer
awareness and demand for his improved guitar design.
Critical Thinking Question
1. What else does Mike Miltimore need to do to get his brand to be noticed in an
industry dominated by well-known brands with long storied histories?
There will be great variation in student answers here. Individuals who are
assigned this question early in the term are likely to have fewer ideas than those who are
assigned this question later in the term. This is particularly true for those who have been
exposed to the information in the two marketing chapters (12 and 13). If the question is
assigned early in the term, it is probably best for the instructor to moderate an in-class
discussion which is designed to solicit student ideas. This will generate more ideas and
will be more interesting to the class. It will also allow for a group critique of the ideas
that 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 the
individuals who make the suggestions. As well, it is likely that student ideas will focus on
social media as a promotion tool because that is what they are familiar with. Whatever
ideas are put forward (and whether the question is assigned early or late in the term), the
instructor should make it clear that (a) promotion is important, and (b) it is only one of
the 4 P’s of marketing and must not be considered in isolation. For example, if a

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16
suggestion is made that “buzz” marketing should be used, it is important to state
specifically how this would work, how the promotion aspect interacts with price and
distribution of the product, and the advantages (and disadvantages) that may be evident in
buzz marketing. Likewise, since the question focuses on increasing brand recognition, the
section in Chapter 13 on brands must be considered during the discussion. For example, it
is 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 in
the short-run must be assessed.
Students may be less likely to suggest more traditional promotion ideas (e.g., a
traditional television or radio advertising campaign), but the possible benefits of such
approaches should at least be recognized and examined. Essentially, the instructor should
monitor the discussion to ensure that all aspects of promotion are examined and then the
most promising and appropriate approach chosen.
E-Business and Social Media: Taking a Bite Out of Internet Radio
This insert describes Apple’s movement into streaming radio, the fastest growing
form of music listening. In 2013, Apple rolled out the iTunes Radio service with more
than 200 stations; it allows users to create custom stations to fit their personal musical
tastes. Apple has entered this market rather late, and it remains to be seen if its venture
will be successful, given such competitors as Pandora and Spotify.
Critical Thinking Questions
1. In terms of degrees of competition, how would you describe the market for
Internet 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 in
this 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 degrees
of competition. For example, this is clearly not a case of perfect competition or monopoly
because the market does not have the characteristics of either of these markets. So that
leaves us with the two middle ground markets (monopolistic competition or oligopolistic
competition). There are fewer sellers than in perfect competition, but more sellers than
are typically found in an oligopoly, so monopolistic competition seems to be the most
appropriate. [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. For
example, in the early days of the automobile in North America, the industry illustrated
the characteristics of monopolistic competition. Over the years, many companies
disappeared 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 car
makers have entered the North American market, and now there are once again many
sellers of automobiles. It is still difficult to start up an automobile company because of
the large capital investment that is required, and that is consistent with an oligopoly. But
the existence of automobile manufacturers in numerous countries around the world does
not fit with the traditional conception of an oligopoly. Perhaps a global oligopoly will

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Chapter 1—The Canadian Business System
17
eventually emerge in the auto industry like the one that exists in the large commercial
airliner industry, with Boeing, Airbus, and Bombardier being the only sellers.]
If this industry proceeds like others have in the past, there will be a gradual
weeding out of many of the sellers over the next five years and the industry will be
dominated by a few large sellers. But it remains to be seen whether this industry becomes
a “classic” oligopoly situation such as that found in the rubber, steel, and large
commercial airline industries.
2. Do you think that Apple will be successful in this new venture? Do you think that
it was a wise decision for them to enter the already crowded market?
There will be two distinct patterns in student answers here. Some students will
think that the market is too crowded, and that Apple should not have undertaken this
venture. Students who take this position will likely be influenced by the opinions
expressed in the boxed insert that Apple is simply copying Spotify. Other students will
take the position that the previous success that Apple has had with other products and
services will positively influence potential buyers to use Apple’s new service rather than
some other competing service.
QUESTIONS AND EXERCISES
Questions for Analysis
1. 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 market
system? Explain how this might distort the system.
Government incentive programs may or may not have the desired effect of
stimulating the economy. The free market is one in which decisions about what to
produce and in what quantities are made by the market- that is the buyers and sellers
negotiating prices for goods and services. Financial incentives by government are
inconsistent with a free market system.
2. In recent years, many countries have moved from command economies to market
economies. Why do you think this has occurred? Can you envision a situation that would
cause a resurgence of command economies?
In many countries, the disastrous failures of communism precipitated the move
from a command economy to a market economy. It is unlikely that command economies
will re-emerge. Extreme civil unrest leading to authoritarian rule could cause a country to
revert to a command economy.
3. In your opinion, what industries in Canada should be regulated by the
government? Defend your arguments.

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18
Answers will vary, but students will most likely identify those industries which
appear to act as monopolies, such as the cable industry. This question is a good basis for
an in-class discussion of the broader issue of government regulation of business. The
extent and specific types of government regulation and its effect on the economy will
elicit vigorous opinions from students.
4. Familiarize yourself with a product or service that is sold under conditions of pure
competition. Explain why it is an example of pure competition and identify the factors
that make it so. Then do the same for a product in each of the other three competitive
situations described in the chapter (monopolistic competition, oligopoly, and monopoly).
Answers will vary. This is a good exercise for assisting students in understanding
that not all industries are equally competitive.
5. Analyze how the factors of production (labour, capital, entrepreneurs, natural
resources, and information) work together for a product or service of your choice.
Answers will vary. Make sure that students are correctly identifying the factors of
production 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 discussed
in the text and state your view as to whether government involvement in each role is
excessive, insufficient, or about right. What criteria did you use to make your
assessment?
Answers will vary. Some government rules and regulations are necessary to
make sure that all of a business’s stakeholders are protected and that people who are
unable to work get the basic care they need.
Application Exercises
7. For a product that is not discussed in Chapter 1, find an example where a surplus
of a product led to decreased prices. Then find an example where a shortage led to
increased prices. What eventually happened in each case? Why? Is what happened
consistent with what economics predicts?
Answers will vary. Students may have difficulty coming up with an example of a
product where a surplus has led to decreased prices, but most of them will use oil as an
example 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 with
what economic theory predicts. That is, the law of demand states that buyers will
purchase (demand) more of a product as its price drops. Conversely, the law of supply
states that producers will offer more for sale as the price rises. If there seem to be

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