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NCERT Solutions for Class 11th: Ch 1 Nature and Purpose of Business

Business Studies

Page No: 19

Exercises

Multiple Choice Questions

1. Which of the following does not characterize a business activity?

(a) Production of goods and services
(b) Presence of risk
(c) Sale or exchange of goods and services
(d) Salary or wages
► (d) Salary or wages

2. Which of the broad categories of industries covers oil refinery and

sugar mills?
(a) Primary
(b) Secondary
(c) Tertiary
(d) None of them
► (b) Secondary

3. Which of the following cannot be classified as an auxiliary to trade?

(a) Mining
(b) Insurance
(c) Warehousing
(d) Transport
► (a) Mining

4. The occupation in which people work for others and get remunerated
in return is known as
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(a) Business
(b) Employment
(c) Profession
(d) None of them
► (b) Employment

5. The industries which provide support services to other industries are

known as
(a) Primary industries
(b) Secondary industries
(c) Commercial industries
(d) Tertiary industries
► (d) Tertiary industries

Page No: 20

6. Which of the following cannot be classified as an objective of

business?
(a) Investment
(b) Productivity
(c) Innovation
(d) Profit earning
► (a) Investment

7. Business risk is not likely to arise due to

(a) Changes in government policy
(b) Good management
(c) Employee dishonesty
(d) Power failure
► (b) Good management

Short Answer Questions

1. State the different types of economic activities.

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Answer

The different types of economic activities are:

→ Business: It refers to those economic activities, which are connected

with the production or purchase and sale of goods or supply of services
with the main object of earning profit. People engaged in business earn
income in the form of profit.

→ Profession: It includes those activities, which require special

knowledge and skill to be applied by individuals in their occupation.
Those engaged in professions are known as professionals.

→ Employment: It refers to the occupation in which people work for

others and get remunerated in return. Those who are employed by others
are known as employees.

2. Why is business considered an economic activity?

Answer

Business is considered to be an economic activity because it is

undertaken with the object of earning money or livelihood and not
because of love, affection, sympathy or any other sentimental reason.

3. Explain the concept of business.

Answer

The term 'business' has been derived from the word 'busy',Thus, business
means being busy. However, in a specific sense, business refers to an
occupation in which people regularly engage in activities related to
purchase, production or sale of goods and services with a view to
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earning profits. The activity may consist of production or purchase of

goods for sale, or exchange of goods or supply of services to satisfy the
needs of other people.

4. How would you classify business activities?

Answer

The business activities can be classified as:

→ Industry: It refers to economic activities, which are connected with

conversion of resources into useful goods. These include activities
relating to producing or processing of goods as well as breeding and
raising of animals.Among the major activities that are performed by an
industry are production, processing and manufacturing. Industries are
classified into the three categories as primary, secondary and tertiary.

→ Commerce: It does not involve manufacturing or production. It

basically involves trading and its related activities. It includes both,
buying and selling of goods as well as auxiliaries such as
transport, banking, etc. It provides the necessary
link between producers and consumers. It includes all those activities,
which are necessary for maintaining a free flow of goods and services.

5. What are the various types of industries?

Answer

The various types of industries are:

→ Primary Industries: These include all those activities which are

connected with the extraction and production of natural resources and
reproduction and development of living organisms, plants

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etc. Agriculture, mining and fishing are some of the examples of these
industries.

→ Secondary Industries: These industries uses raw material from

primary industries to produce
goods for final consumption or for further processing by other industrial
units. For example, mining of an iron ore is a primary industry, but
manufacturing of steel by way of further processing of raw irons is a
secondary industry.

→ Tertiary Industries: These industries provide support services to

primary and secondary industries as well as activities relating to trade.
These industries provide service facilities such as transport, banking,
insurance, warehousing, communication, packaging and advertising.

6. Explain any two business activities which are auxiliaries to trade.

Answer

Two business activities which auxiliaries to trade are:

→ Insurance: Business involves various types of risks. Factory building,

machinery, furniture etc. must be protected against fire, theft and other
risks also employees are required to be protected against the risks of
accident and occupational hazards. Insurance provides protection in all
such cases. On payment of a nominal premium, the amount of loss or
damage and compensation for injury, if any, can be recovered from the
insurance company.

→ Advertising: It is one of the most important methods of promoting the

sale of products, particularly, consumers goods like electronic goods,
automobiles, soaps, detergents etc. This provides a medium to reach a
large number of potential buyers and increase the number of sales.

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7. What is the role of profit in business?

Answer

The business exist only due to profit. Making money is the sole purpose
of any business. It is a source of income for business persons. It can be a
source of finance for meeting expansion requirements of business. It
indicates the efficient working of business. Profit can be taken as
society’s approval of the utility of business and builds up the reputation
of a business enterprise.

8. What is business risk? What is its nature?

Answer

Business risk is the possibility of failing to earn sufficient profits or

incurring losses as a result of various unforeseen circumstances which
are beyond the control of a business. The nature of business risk are:
→ Business risks arise due to uncertainties,
→ Risk is an essential part of every business,
→ Degree of risk depends mainly upon the nature and size of business,
→ Profit is the reward for risk taking. Business risks arise due to a
variety of causes including natural, human, economic and other causes.

Long Answer question

1. Explain the characteristics of business.

Answer

The characteristics of business are:

→ Economic Activity: The sole purpose of an business activity is to

make money to earn livelihood.
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→ Sale or exchange of goods and services: Business basically involves

sale or exchange of goods and services for a value between the seller and
the buyer.

→ Dealings in goods and services on a regular basis: Business involves

dealings in goods or services on a regular basis. One single transaction
of sale or purchase, therefore, does not constitute business.

→ Profit earning: The main aim of any business activity is to make

profit. No business can
survive for long without earning profit.

→ Uncertainty of return: It refers to the lack of knowledge relating to

the amount of money that the business is going to earn in a given period.
Every business invests money to earn money but it is not certain as to
what amount of profit will be earned or losses may also occur.

→ Element of risk: Risk is the uncertainty associated with an exposure

to loss. It is caused by some unfavourable or undesirable event.No
business can altogether do away with risks.

2. Compare business with profession and employment.

Answer
Basis Business Profession Employment
Mode of Entrepreneur’s Membership of Appointment
establishment decision and a professional letter and
other legal body and service
formalities, if certificate of agreement.
necessary. practice.
Nature of work Provision of Rendering of Performing
goods and personalized, work as per
expert services. service contract
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services to the or rules of

public. service.
Qualification No minimum Expertise and Qualification
qualification is training in a
and training as
necessary. specific field is
prescribed
must. by the
employer.
Reward or Profit earned. Professional Salary or
return fee. wages.
Capital Capital Limited capital No capital
investment investment needed for required.
required as per establishment.
size and nature
of business.
Risk Profits are Fee is generally Fixed and
uncertain and regular and regular pay; no
irregular; risk is certain; some or little risk.
present. risk.

Transfer of Transfer Not possible. Not possible.

interest possible with
some
formalities.
Code of No code of Professional Norms of
conduct conduct is code of behavior laid
prescribed. conducts is to down by the
be followed. employer are to
be followed.

3. Explain with examples the various types of industries.

Answer

The various types of industries are:

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→ Primary Industries: These industries directly use natural resources as

their raw materials and convert them into a consumable form such as
Agriculture, mining, fishing, etc. These can be sub divided as
• Extractive industries: These industries supply some basic raw materials
that are mostly products of geographical or natural environment, which
further process these products into useful goods. Example: Agriculture,
fisheries, mining, etc.
• Genetic industries: These industries remain engaged in breeding plants
and animals for their use in further reproduction. Example: Seeds and
nursery industries and poultry farming.

→ Secondary industries: These industries uses raw material from

primary industries to produce
goods for final consumption or for further processing by other industrial
units. For example, mining of an iron ore is a primary industry, but
manufacturing of steel by way of further processing of raw irons is a
secondary industry.
• Manufacturing industries: These industries are engaged in
producing goods through processing of raw materials and thus creating
form utilities. These can be further divided into:
(i) Analytical industry which analyses and separates different elements
from the same materials, as in the case of oil refinery.
(ii) Synthetical industry which combines various ingredients into a new
product, as in the case of cement.
(iii) Processing industry which involves successive stages for
manufacturing finished products, as in the case of sugar and paper.
(iv) Assembling industry which assembles different component parts to
make a new product, as in the case of television, car, computer, etc.
• Construction industries: These industries are involved in the
construction of buildings, dams, bridges, roads as well as tunnels and
canals.

→ Tertiary Industries: These are concerned with providing support

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services to primary and secondary industries as well as activities relating

to trade. This include transport, banking, insurance, warehousing,
communication, packaging and advertising.. These industries are not
engaged in hardcore production activities but are basically service
providers.

4. Describe the activities relating to commerce.

Answer

Commerce includes two types of activities- trade and auxiliaries to trade.

Buying and selling of goods is termed as trade. Auxiliaries to trade are
activities that facilitate the trading process.
→ Trade: It refers to sale, transfer or exchange of goods. It helps in
making the goods produced available to ultimate consumers or users.
Trade may be classified into two broad categories — internal and
external.
• Internal, domestic or home trade is concerned with the buying and
selling of goods and services within the geographical boundaries of a
country.
• External or foreign trade consists of the exchange of goods and
services between persons or organisations operating in two or more
countries.

→ Auxiliaries to trade: These activities are generally referred to as

services because these are in the nature of facilitating the activities
relating to industry and trade. The various auxiliaries to trade are:
• Transport and Communication: Transport facilitates movement of raw
material to the place of production and the finished products from
factories to the place of consumption. Communication facilities allow
the producers, traders and consumers to exchange information with one
another.
• Banking and Finance: banking helps business activities to overcome
the problem of finance. Commercial banks generally lend money by
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providing overdraft and cash credit facilities, loans and advances. Banks
also undertake collection of cheques, remittance of funds to different
places, and discounting of bills on behalf of traders.
• Insurance: It provides protection to business against various risks such
as fire, theft. On payment of a nominal premium, the amount of loss or
damage and compensation for injury, if any, can be recovered from the
insurance company.
• Warehousing: Warehousing helps business firms to overcome the
problem of storage and facilitates the availability of goods when needed.
• Advertising: is one of the most important methods of promoting the
sale of products, particularly, consumers goods like electronic goods,
automobiles, soaps, detergents etc.

5. Why does business need multiple objective? Explain any five such
objectives.

Answer

Since a business has to balance a number of needs and goals, it requires

multiple objectives. The objectives define in concrete terms what the
business is going to do. Objectives also enable the business to analyse
their own performance and take steps as necessary to improve their
performance in future. Objectives are needed in every area where
performance and results affect the survival and prosperity of business.

The five such objectives are:

→ Market Standing: It refers to the position of an enterprise in relation

to its competitors. A business enterprise must aim at standing on
stronger footing in terms of offering competitive products to its
customers and serving them to their satisfaction.

→ Innovation: Innovation is the introduction of new ideas or methods in

the way something is done or made. There are two kinds of innovation
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in every business
(i) innovation in product or service and
(ii) innovation in various skills and activities needed to supply products
and services.

→ Earning profits: One of the objectives of business is to earn profits on

the capital employed. Profitability refers to profit in relation to capital
investment. Every business must earn a reasonable profit which is so
important for its survival and growth.

→ Productivity: It is ascertained by comparing the value of output with

the value of inputs. It is used as a measure of efficiency. In order to
ensure continuous survival and progress, every enterprise must aim at
greater productivity through the best use of available resources.

→ Social responsibility: It refers to the obligation of business firms to

contribute resources for solving social problems and work in a socially
desirable manner.

6. Explain the concept of business risk and its causes.

Answer

Business risk is the possibility of failing to earn sufficient profits or

incurring losses as a result of various unforeseen circumstances which
are beyond the control of a business. For example, demand for a
particular product may decline due to change in tastes and preferences of
consumers or due to increased competition from other producers.

→ Natural causes: Human beings have little control over natural

calamities like flood, earthquake, lightning, heavy rains, famine, etc.
These result in heavy loss of life, property and income in business.

→ Human causes: Human causes include such unexpected events like

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dishonesty, carelessness or negligence of employees, stoppage of work

due to power failure, strikes, riots, management inefficiency, etc.

→ Economic Causes: These include uncertainties relating to demand for

goods, competition, price, collection of dues from customers, change of
technology or method of production, etc.

→ Other Causes: These are unforeseen events like political disturbances,

mechanical failures such
as the bursting of boiler, fluctuations in exchange rates, etc., which lead
to the possibility of business risks.

7. What factors are important to be considered while starting a business?

Explain.

Answer

The following are important factors needs to be considered while

starting a business:

→ Selecting the line of business: The line of business is the foremost

decision that involves choosing the kind of product to produce,
analysing its existing and future market demand, profit considerations
and the level of technical knowhow possessed by the entrepreneur.

→ Scale of the business: Once the line of business is selected, the

entrepreneur needs to decide the scale of the business, i.e., the business
size, whether to operate on large scale or small scale. The choice of scale
of business is made on the degree of risk embedded in
(i) the line of business
(ii) the ease of obtaining capital and
(iii) the projected demand for the product
A larger scale of business is preferred if the risk involved is low and the
entrepreneur is confident about the high demand for the product.
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Similarly, the greater the ease of obtaining capital, the greater is the ease
of operating a business on a large scale and vice versa.

→ Location: The choice of business location is dependent on numerous

factors such as easy and cheap availability of raw material and labour,
well-connected transportation facilities, and power and other
infrastructural facilities. Generally, locations where good infrastructure
is available are preferred.

→ Financial requirement: Finance is required for every aspect of

business- from the purchase of raw material and machinery to further
investment for the growth of the business. Therefore, while starting a
business, the availability of alternatives to raise funds must be carefully
analysed.

→ Efficient workforce: A competent and trained workforce is the basic

input to carry on various business activities. In this regard, the
entrepreneur must appropriately identify the requirement of human
resources for the business, both at the worker level and at the managerial
level.

→ Physical requirements: These requirements include machinery, other

equipment, tools and technology that add to the efficiency of a business.
The entrepreneur must carefully consider and decide the physical
requirements on the basis of the nature and production scale of the
business

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