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Karnataka 1st PUC Business Studies Question Bank Chapter 1 Nature and Purpose of Business
1st PUC Business Studies Nature and Purpose of Business Text Book Questions and Answers
Multiple Choice Questions
Question 1.
Which of the following does not characterise business activity?
(a) Production of goods and services
(b) Presence of risk
(c) Sale or exchange of goods and services
(d) Salary or wages
Answer:
(d) Salary or wages
Question 2.
Which of the broad categories of industries covers oil refinery and sugar mills?
(a) Primary
(b) Secondary
(c) Tertiary
(d) None of them
Answer:
(b) Secondary
Question 3.
Which of the following cannot be classified as an auxiliary to trade?
(a) Mining
(b) Insurance
(c) Warehousing
(d) Transport
Answer:
(a) Mining
Question 4.
The occupation in which people work for others and get remunerated in return is known as
(a) Business
(b) Employment
(c) Profession
(d) None of them
Answer:
(b) Employment
Question 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
Answer:
(d) Tertiary industries
Question 6.
Which of the following cannot be classified as an objective of a business?
(a) Investment
(b) Productivity
(c) Innovation
(d) Profit earning
Answer:
(a) Investment
Question 7.
Business risk is not likely to arise due to
(a) Changes in government policy
(b) Good management
(c) Employee dishonesty
(d) Power failure
Answer:
(b) Good management
Short Answer Questions
Question 1.
State the different types of economic activities.
Answer:
Economic Activities – Economic activities are those activities – which are undertaken to earn a living. Economic activities are concerned with the production, exchange, and distribution of goods and rendering of services to earn money. Human beings engage themselves in economic activities to earn their livelihood and to acquire wealth.
A manufacturer, a trader, an agriculturist, an ice cream vendor, a doctor, a teacher, and a labourer are all doing economic activities. These activities generate income to satisfy human needs such as food, clothing, shelter, etc. For example, a businessman earns profits, a doctor charges fee for their services and an employee gets wages (or salaries) in return for his services. Economic, activities are concerned with the production and distribution of goods and services, which are used to satisfy human needs.
Types of Economic Activities – Economic activities or occupations can be broadly classified into three categories as follows
- Business – dealing in goods and services on a regular basis to earn profits. Business is an economic activity as it is concerned with earning money and acquiring wealth through the production and distribution of goods and services.
- Profession -activities requiring specialised knowledge and skills such as chartered accountants, doctors, lawyers, etc. People engaged in professions are called professionals.
- Employment – working for others in return for wages and salaries as for example, worker, salesman, foreman, manager, etc. Employment creates a relationship between employer and employee under a contract.
Question 2.
Why is business considered an economic activity?
Answer:
The business may be defined as an economic activity involving the production and sale of goods and services undertaken with a motive of earning profit by satisfying human needs in society. Business is considered to be an economic activity because it is undertaken with the aim of earning money or livelihood and not because of any sentimental reason like love, affection, or sympathy.
Question 3.
Explain the concept of business.
Answer:
Concept Of Business
“Business is an institution organised and operated to prov goods and services to society under the incentive of private gai – B.O. Whe
“Business may be defined as human activity directed towa producing or acquiring wealth through buying and selling gooo – L.H. Ha
“Business may be defined as an activity in which differ persons exchange something of value (whether goods or service for mutual gain or profit” -Peterson and Plow
In practice, business includes certain economic activities in wl people are busy or engaged. Such activities relate to product distribution, trading or exchange of goods and services to satisfy needs of people so as to earn income or profit.
Business refers to all those activities which are concert with the production and/or purchase and sale of goods or serv with the purpose of selling them at a profit. It includes active: connected with manufacturing, trading, transportation, insurance warehousing, banking and finance, etc. The business comprises the whole field of commerce and industry.
Question 4.
How would you classify business activities?
Answer:
Various business activities may be classified into two broad categories industry and commerce. The industry is concerned with the production or processing of goods and materials. Industries may be divided into three broad categories namely primary, secondary and tertiary.
Commerce includes all those activities which are necessary for facilitating the exchange of goods and services. Commerce includes two types of activities, viz.,
- Trade
- Auxiliaries.
Question 5.
What are various types of industries?
Answer:
Meaning and Types of Industry:
Definition of Industry – Industry may be defined as growing, extracting, processing, fabricating, and constructing useful products.
Industry includes those economic activities which are concerned with the extraction, production, conversion, processing, or fabrication of products. Industrial products may be classified as follows :
(a) Consumer goods – Goods used by ultimate consumers are called consumer goods. Edible oils, Cloth, Rice, Sugar, Television, Radio, Scooter, Refrigerator, etc. come under this category.
(b) Producers’ goods – Goods used for the production of other goods are described as producers’ goods. Machine tools and machinery used for manufacturing other products come under this heading. These are also called capital goods.
(c) Intermediate goods: There are certain materials which are the finished products of one industry and become the inputs of other industries. An example of this kind is the copper industry. Copper is used as a material in preparing electrical gadgets, electricity cables, utensils, etc.
Types of Industries – Broadly speaking, industrial activities may be classified into primary, secondary and tertiary industries. Primary- industries include extractive or genetic, and secondary industries consist of manufacturing and construction industries. Tertiary- industries provide support service to other industries.
Question 6.
Explain any two business activities which are auxiliaries to trade.
Answer:
Transport and communication:
Production of goods generally takes place in particular locations. For instance, Tea is mainly produced in Assam: Cotton in Gujarat and Maharashtra: Jute in West Bengal and Orissa: Sugar in U.P. Bihar and Maharashtra, and so on. But the goods are required for consumption in different parts of the country.
The obstacle of the place is removed by transport through road, rail, or coastal shipping. Transport facilitates the movement of raw material to the place of production and the finished products from factories to the place of consumption.
Along with the transport facility, there is also a need for communication facilities so that producers, traders, and consumers may exchange information with one another. Thus, postal services and telephone facilities may also be regarded as auxiliaries to business activities.
Banking and Finance:
Business activities cannot be undertaken unless funds are available for acquiring assets, purchasing raw materials, and meeting other expenses. Necessary funds can be obtained by businessmen from a bank. Thus, banking helps business activities to overcome the problem of finance.
Commercial banks generally lend money by providing overdraft and cash credit facilities, loans, and advances. Banks also undertake the collection of cheques, remittance of funds to different places, and discounting of bills on behalf of traders. In foreign trade, commercial banks help exporters in collecting money from importers. Commercial banks also help promoters of companies to raise capital from the public.
Question 7.
What is the role of profit in business?
Answer:
Role Of Profit In Business
Reasons – Profit is the motive or force essential in business due to the following reasons:
(1) Incentive – Profit is the chief motivating factor in business. It provides the necessary incentive for hard work and also serves as a reward for risk-bearing. It is the hope of earning profits which inspires people to go into business. Risk-taking becomes worthwhile in business due to profits.
(2) Survival – A business cannot survive for long without earning profits. Profits are essential to cover the risks and costs of staying in business. In the words of Drucker, “Unless we provide for risk, we are going to destroy the capacity to produce. Therefore, minimum profitability adequate to the risk which we, by necessity, assume and create, is an absolute condition of survival not only for the enterprise but society.
Profit is the ‘risk premium’ that enables a business to replace obsolete assets and to maintain intact the wealth-producing capacity of its resources.’’ A business unit which incurs losses continuously a number of years becomes a sick unit and may be closed down.
(3) Growth and Expansion – Profit ensures the supply of capital for future innovation and expansion. It serves as a means of self-financing or ploughing back of profits. In addition, profit enables a business to attract new capital from shareholders and debenture holders. Reinvestment of profits as an internal source of funds is more reliable than external sources like financial institutions and banks. The profitability of a business will ensure its growth, diversification, modernization, and expansion.
(4) Prestige – The success or goodwill of a business can be judged by its ability to earn profits. Only a profit-making concern enjoys goodwill in society. A loss-making business is harmful to all concerned.
A business earning handsome profits can offer higher wages and salaries and other amenities to its employees.
(5) Measure of Efficiency – Profit is considered to be an index of success in business, ft measures the efficiency and effectiveness of the business effort. It serves as a means of evaluating business performance. Thus, it is an absolute necessity for the business enterprise to generate at least that much profit which is required to cover its own future risks arising out of uncertainties inherent in the business, to enable it to stay in business and to maintain the earning capacity of the resources. In addition, profits as a source of income provide the means of livelihood to businessmen.
(6) Return to Investors – The people who invest money in the business expect a fair return on their capital. This is possible if adequate profits are earned by the business.
Question 8.
What is business risk? State its nature?
Answer:
The term business risk refers to the possibility of inadequate profits or even losses due to uncertainties of unexpected events. 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.
Nature of business risks:
The nature of business risks can be understood in terms of their peculiar characteristics:
1. Business risks arise due to uncertainties:
Uncertainty refers to the lack of knowledge about what is going to happen in the future. Natural calamities, change in demand and prices, changes in government policy, improvement in technology, etc., are some of the examples of uncertainty which create risks for business because the outcome of these future events is not known in advance.
2. Risk is an essential part of every business:
Every business has some risk. No business can avoid risk, although the amount of risk may vary from business to business. Risk can be minimized but cannot be eliminated.
3. Degree of risk depends mainly upon the nature and size of the business:
Nature of business and size of business are the main factors which determine the amount of risk in a business. For example, a business dealing in fashionable items has a high degree of risk. Similarly, a large-scale business generally has a higher risk than what a small scale has.
4. Profit is the reward for risk-taking:
No risk, no gain is an age-old principle which applies to all types of business. The greater the risk involved in a business, the higher is the change of profit. An entrepreneur undertakes risks under the expectation of higher profit. Profit is thus the reward for risk-taking.
Long Answer Questions
Question 1.
Explain the characteristics of the business.
Answer:
Characteristics of Business – The nature of the business can be understood clearly by studying its characteristics or features. The basic characteristics of business activity are discussed below:
(a) Dealing in goods and services-All business activities involve the sale or exchange of goods and services. Goods produced and sold may be:
- consumer goods such as bread cold drinks and sugar, or
- capital goods such as tools and machines. Services include the supply of water, electricity and gas, insurance, transportation, etc.
(b) Production and Distribution – Business includes all those activities concerned with the production and/or distribution of goods and services for the value. Production is concerned with the conversion of raw materials and other inputs into certain goods and services.
Distribution or exchange is concerned with all those activities which facilitate the transfer of goods and services from the producers to the consumers. Thus, the business includes the production and exchange of goods and services. In other words, industrial undertakings, trading firms, and service organisations such as banking, transport, warehousing, and insurance companies are all engaged in business activities.
(c) Creation of Utility – A business makes goods more useful for satisfying human needs. All business activities create certain utilities for society. Form utility is created when raw materials are converted into finished goods and services. Place utility is created when goods are transported from the place of production to the place of consumption. Storage of goods creates time utility. This helps in storing the goods when not required and making them available when demanded by the customers.
(d) Satisfaction of Customers’ Wants – Production and distribution of goods and services are carried on for the satisfaction of the wants of the consumers. If production is carried on to produce goods for personal consumption, it can’t be called a business activity. For example, a person prepares food items for personal consumption, it is not a business activity. But if he prepares food items for others in his restaurant and receives payment in exchange, it would be called his business.
(e) Regular Dealings – Business involves services of dealings. There should be the regularity of dealings or exchange of goods and services for money. A single transaction cannot be strictly called business. For instance, if a person sells his motorbike and earns some profit, it is not a business activity. But if he engages in buying and selling motor vehicles to earn his livelihood would be called his business.
(f) Profit Motive – Primary objective of business to earn profits. The survival of a business depends upon its ability to earn a profit. Profit is necessary to pay a return on capita! and reward for the services of the entrepreneur. Thus, the profit motive is an important element of the business. Any activity undertaken without a profit motive can’t be called a business.
(g) Risk and Uncertainty – Risk implies the uncertainty of profit. All business activities carry some element of risk and uncertainty. The risk relates to the breakdown of machinery, change of fashion or taste of customers, non-availability of raw materials, etc. In addition, there are other types of risks which may cause loss to the business. These include fire, theft, natural calamities, etc. In short, business is exposed to several risks such as :
- Changing technology requiring change of plant and machinery.
- Changing consumers’ tastes and fashion resulting in fall in demand the existing products.
- Increased competition in the market.
- Shortage of raw materials, power, fuel, etc.
- Bad labour management relations.
- Changes in Government policies.
- Faulty management decisions concerning the use of capital and other resources.
- Economic Activity – Business is essentially an economic activity because it involves the production and distribution of goods and services for earning profits.
Question 2.
Compare business with profession and employment.
Answer:
Question 3.
Explain with examples the various types of industries.
Answer:
Meaning & Types of Industries – The term industry includes the production of goods through the utilisation of various resources. Production is a generic term embracing the entire chain of human efforts leading to the creation of want-satisfying products. It /includes all those processes through which goods are produced by the
application of human or mechanical power.
The purpose of industry is to applied factors of production in order to make them suitable for consumption or use. Growing of crops, processing of materials, fabrication of parts, breeding of animals and building of a flyover and bridges are some examples of industry’. Industry provides a wide series of products to meet the needs of people. Farms, mines and factories are all centres of industrial activity. In a broad sense, the term industry is also used to refer to a group of firms producing similar or related goods.
For example, cement industry refers to all the firms manufacturing cement. Any business undertaking which is engaged in extracting, growing, reproducing or manufacturing of material goods is called an industrial enterprise. Goods produced by industry may be “consumers’ goods” or “producers’ goods”. Consumers’ goods e.g. bread, cloth, radio, television set, car, etc. are used directly by consumers. On the other hand, producers’ goods or capital goods e.g. machines, factory buildings, raw materials, etc. are used for the production of other goods.
Thus, industry may be defined as growing, extracting, multiplying, converting processing, fabricating and constructing useful products. On the basis of the kinds of goods produced, the industry is of four types.
(1) Genetic Industries – The term ‘genetic’ has been derived from the word ‘genetics’ which refers to the study of heredity. Genetic industries are, therefore-, engaged in the reproduction or multiplication of certain species of plants and animals. Examples of genetic industries are:
- nurseries where plants are grown for sale
- poultry farms where birds are raised for meat and egg
- animal husbandry, e.g. rearing of cattle for milk, grazing of sheep for wool and other cattle breeding farms
- pisciculture or growing fish in ponds, canals and rivers
- orchards to grow different kinds of fruits
- commercial kernels; and
- agriculture or farming for growing crops.
(2) Extractive Industries – These industries extract or draw out . products from natural sources such as earth, sea & air etc. These – industries are engaged in the extraction of useful materials from beneath the surface of the earth and sea. In these industries, the products gifted by nature are extracted and collected for the benefit of human beings. Mining, fishing, quarrying, afforestation (procuring timber and wood products from forests), and hunting are the main examples of extractive industries. These industries are characterised by four distinctive features.
First, these are some of the oldest occupations and provide raw materials for other industries. Secondly, human beings simply collect the natural resources from the “earth or sea and, therefore, their role is less ,important than that of nature. Thirdly, only the location of materials keeps changing over a period of time. Fourthly, materials once extracted cannot be replaced. Extractive industries are different from genetic industries. In extractive industries man cannot add to the wealth which he withdraws from the earth, sea or air. But in genetic industries, man not only adds to the growth but also initiates the reproduction of natural ‘ goods.
(3) Manufacturing Industries – These industries produce goods through the creation of firm utility. These industries are concerned with the processing or transformation of raw materials and semi-finished products into finished products. Such industries change the shape and form of materials produced by genetic and extractive industries. They create form utility. The product from these industries became the raw- material for manufacturing industries. For instance, the iron ore extracted through mining is converted into steel. Engineering, cement, sugar, textiles, jute, etc. are the main examples of manufacturing industries. Manufacturing industries are of the following types:
(a) Analytical – In an analytical manufacturing industry, a basic raw-material is analysed into several useful materials. For example, in an oil refinery, crude oil is analyzed and separated into several products such as petrol, diesel, kerosene and lubricating oil.
(b) Synthetical – In this type of manufacturing industry two or more materials are mixed to form a new product. For example, concrete, gypsum, coal, etc. are mixed to produce cement. Paints, cosmetics are also examples of this category.
(c) Processing – In the processing industry, a raw material is processed through various stages to make the final product. For example, in the cotton textile industry, cotton is passed through the spinning, weaving, dyeing, bleaching and printing processes to convert it into cloth.
(d) Assembling-In this type of industry, manufactured components or parts are combined together mechanically or chemically to produce a new product. For example, the manufacture of radios, TV sets, watches and railway wagons etc. are assembling industries.
4. Construction Industries – These Industries are concerned with the construction of buildings, bridges, roads, dams, etc. They use the products of manufacturing industries such as bricks, steel, lime cement, etc. These industries create the basic infrastructure through the process of fabrication. The distinctive feature of these industries is that their products remain fixed at one place and cannot be taken physically to the market for sale. Products of construction industries are very durable.
Sometimes, genetic and extractive industries are called primary industries’whWg. manufacturing and construction industries are known as secondary industries.- On the basis of size and scale of operations, industries may be classified into large-scale and small-scale industries. Large-scale industries employ more capital-intensive techniques of production than small-scale industries.
On the basis of the volume of capital investment, industries may be heavy of light. Heavy industries involve huge investment and they are engaged in the production of capital goods such as steel, machinery, ships, aircraft, etc. On the other hand, light industries require little capital investment and produce consumer products such as stationery, cosmetics, jewellery, food products, etc.
Territory or Service Industry – These industries include those services which facilitate the smooth flow of goods and services in the economy. They serve as the backbone of the modern industrial system.
Territory industry includes transport, banking insurance, warehousing and advertising which provide the infrastructure for industry’ and trade. Tertiary units bridge the gap between the producers of goods and services to the consumers. They help in removing the various problems that arise during the production and distribution of goods and services.
Question 4.
Describe the activities relating to commerce.
Answer:
Commerce is concerned with the distribution of goods and services. Commerce includes two types of activities viz.,
- Trade
- Auxiliaries to trade.
Trade:
Trade is an essential part of commerce. It refers to sale, transfer or exchange of goods. It helps in making the goods produced available to ultimate consumers or users. These days goods are produced on a large scale and it is difficult for producers to themselves reach individual buyers for sale of their products.
Businessmen are engaged in trading activities as middlemen to make the goods available to consumers in different markets. In the absence of trade, it would not be possible to undertake production activities on a large scale. 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.
This may further be divided into wholesale and retail trade. When goods arc purchased and sold in bulk, it is known as wholesale trade. When goods are purchased and sole in comparatively smaller quantities, for final consumption it is referred to as retail trade. External or foreign trade consists of the exchange of goods and services between persons or organizations operating in two or more countries.
If goods are purchased from another country, it is called import trade. If they are sold to other countries, it is known as export trade. When goods are imported for export to other countries, it is known as entrepot trade.
Auxiliaries to Trade or aids to Trade:
Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are generally referred to as service because these are in the nature of facilitating the activities relating to industry and trade. Transport, banking, insurance, warehousing and advertising and regarded as auxiliaries to trade, i.e., activates playing a supportive role.
In fact, these activities support not only trade, but also industry and hence, the entire business activity. Auxiliaries are an integral part of commerce in particular and business activity in general. These activities help in removing various hindrances which arise in connection with the production and distribution of goods. Transport facilities movement of goods from one place to another.
Banking provides financial assistance to the manufacturer and trade. Insurance covers various kinds of business risks. Warehousing creates time utility by way of storage facilities. Advertising provides information to the consumers. In other words, these activities facilities movement, storage, financing, risk coverage and sales promotion of goods.
Question 5.
Why does a business need multiple objectives? Explain any five Economic and social objectives of Business.
Answer:
Objectives are needed in every area that influences the survival and prosperity of business. Since a business has to balance a number of needs and goals, it requires multiple objectives. It cannot follow only one objective and expect to achieve excellence. Objectives have to be specific in every area and sphere of business.
For example, sales targets have to be set, the amount of capital to be raised has to be estimated and the target number of units to be produced needs to be defined. The objectives define in concrete terms what the business is going to do.
Objectives also enable the business to analyze their own performance and take steps as necessary to improve their performance in future. Since business is a part and parcel of the society, it cannot ignore the society in which it operates.
Economic objectives:
1. Market standing:
Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise must aim at standing on stranger footing in terms of offering competitive products to its customers and serving them to their satisfaction.
2. Innovation:
Innovation is the introduction of new ideas or methods in the way something is done or made. There are two kinds of innovation in every business i.e.,
- Innovation in products or service
- Innovation in various skills and activities needed to supply products and services.
No business enterprise can flourish in a competitive world without innovation. Therefore, innovation becomes an important objective.
3. Productivity:
Productivity 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.
4. Physical and financial resources:
Any business requires physical resources like plants, machines, offices, etc., and financial resources i.e., funds to be able to produce and supply goods and service to its customers. The business enterprise must aim at acquiring these resources according to their requirements and use the efficiently.
5. 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.
Social Objectives:
1. Manager performance and development:
Business enterprises need managers to conduct and coordinate business activity. Various programmes for motivating managers need to be implemented. Manager performance and development, therefore is an important objective. The enterprises must actively work for this purpose.
2. Worker performance and attitude:
Worker’s performance and attitudes determine their contribution towards productivity and profitability of any enterprise. Therefore, every enterprise must aim at improving its workers performance. It should also try to ensure a positive attitude on the part of workers.
3. Social responsibility:
Social responsibility refers to the obligation of business firms to contribute resources for solving social problems and work in a socially desirable manner. Business has to built on the basis of service. This is true when business operates in the society, it has to contribute to the welfare of the society.
4. Providing employment:
Business may be interested in cutting down costs and increasing profits through mechanization and automation. But in a country like India where is high degree of unemployment, mechanization and automation is very difficult to implement. Thus business creates job opportunities and improves the status of people.
5. Prevention of pollution:
With the growth of industries, pollution has become serious matter. Pollution affects the hygiene and the health of human being and even animals. So, one of the social objective of the business is to make efforts to prevent pollution.
Type of business to be undertaken. He will obviously like to enter that branch of industry and commerce, which has the possibility of greater amount of roots. The decision will be influenced by the customer requirements in the market and also the kind of technical knowledge and interest the entrepreneur has for producing a particular product.
(i) Size of the firm:
Size of the Armor scale of its operation is another important decision to be taken at the start of the business. Some factors favour a large size whereas others tend to restrict the scale of operation. If the entrepreneur is confldent that the demand for the proposed product is likely to be good over time and he can arrange the necessary capital for business, he will start the operation at a large scale. If the market conditions are uncertain and risks are high, a small size business would be better choice.
(ii) Choice of form of ownership:
With respect to ownership, the business organisation may take the form of a sale proprietorship, partnership, or a joint stock company. Each form has its own merits and demerits. The choice of the suitable form of ownership will depend on such factors as the line of business, capital requirements, liability of owners, division of pro At, legal formalities, continuity of business, transferability of interest and so on.
(iii) Location of business enterprise:
An important factor to be considered at the start of the business is the place where the enterprise will be located. Any mistake in this regard can result in high cost of production, inconvenience in getting right kind of production inputs or serving the customers in the best possible way. Availability of raw materials and labour; power supply and services like banking, transportation, communication, warehousing, etc., are important factors while making a choice of location.
(iv) Financing the proposition:
Financing is concerned with providing the necessary capital for starting as well as for continuing the proposed business. Capital is required for investment in Axed assets like land, building, machinery and equipment and in current assets like raw materials, book debts, stock of Anished goods, etc. Capital is also required for meeting day-to-day expenses. Proper Financial planning must be done to determine (a) the requirement of capital,
(b) source from which capital will be raised and (c) the best ways of utilising the capital in the Arm.
(v) Physical facilities:
Availability of physical facilities including machines and equipment, building and supportive services is a very important factor to be considered at the start of the business. The decision relating to this factor will depend on the nature and size of business, availability of funds and the process of production.
(vi) Plant layout:
Once the requirement of physical facilities has been determined, the entrepreneur should draw a layout plan showing the arrangement of these facilities. Layout means the physical arrangement of machines and equipment needed to manufacture a product.
(vii) Competent and committed worked force:
Every enterprise needs a competent and committed work force to perform various activities so that physical and financial resources are converted into desired outputs. Since no individual entrepreneur can do everything himself, he must identify the requirement of skilled and unskilled workers and managerial staff. Plans should also be made about how the employees will be trained and motivated to give their best performance.
(viii) Tax planning:
Tax planning has become necessary these days because there are a number of tax laws in the country and they influence almost every aspect of the functioning of modem business. The founder of the business has to consider in advance the tax liability under various tax laws and its impact on business decisions.
(ix) Launching the enterprise:
After the decisions relating to the above-mentioned factors have been taken, the entrepreneur can go ahead with actual launching of the enterprise which would mean mobilising various resources, fulfilling necessary legal formalities, starting the production process, and initiating the sales promotion campaign.
Question 6.
Explain the concept of business risk and its causes.
Answer:
Business Risks – Meaning
Business activities are not very safe. Business units are surrounded by innumerable risks generated by economic, natural, physical, and human aspects.
“Business risks may be defined as uncertainty in regard to cost, loss or damage.” – C.O.Hardy
“Risk is the chance of loss. It is the possibility of some unfavourable occurrence.” – Wheeler
Causes of Business Risks:
Business risks arise due to a variety of causes which may be classified into the following categories:
(1) Natural Causes – Nature is an important cause of business risks. Human beings have no control over nature. Natural calamities such as flood, drought, famine, earthquake, volcanic eruption, lightning, snowfall, hailstorm, tide, epidemic, etc. result in heavy loss of life, property, and income.
Even the death of the owner or a partner may cause the business to be shut down. Human beings have little control over nature. Therefore, natural causes of business risks are beyond the control of a businessman.
(2) Human Causes – Human causes are very important causes of business risks. Negligence or carelessness on the part of an employee may lead to serious fire or accidents involving loss of life and property. There may be lost due to spoilage, breakage, etc. Ignorance may result in grave errors in estimating demand for products. A feeling of false pride or prejudice may lead to a strike or lockout. Inefficient management is often the cause of loss in business.
The irrational approach of the management or the owners of the business is also a type of human failure that causes business risk. A business like Enron Corporation in the U.S.A. incurs heavy losses which lead to bankruptcy mainly due to unplanned decisions of the management at the top.
(3) Economic Causes – Economic causes relate to changes in market conditions. Fluctuations in demand and prices are well-known. Availability of cheaper substitutes may affect the sale of relatively costly products. Excessive competition may bring down the prices of products.
Competing businesses may employ more effective techniques of sales promotion. For example, Colour T.V. has replaced Black & White T.V. from the market.
(4) Physical and Technical Causes – Technical changes and mechanical defects also result in business risks. Changes in technology may make the machines obsolete before their expected life. Mechanical failures such as the explosion a boiler, leakage of gas, etc. may lead to heavy loss of life and property. Assets used in business may depreciate in value due to shrinkage, loss in weight, vaporisation etc. Stoppage of work due to power failure may cause loss. There be loss or damage to goods in transit.
(5) Political and Legal Causes – Such causes of risk include changes in government policies, policies relating to foreign trade, a collaboration of MNC’s licensing and taxation policies, and changes in the law. A businessman may suffer a loss due to restrictions on imports and exports and fluctuations in exchange rates. Government control on the production and distribution of certain products may deprive businessmen of profits. Changes in government policies and laws are, thus, an important cause of business risks.
1st PUC Business Studies Nature and Purpose of Business Additional Questions and Answers
One Mark Questions
Question 1.
What is Economic activity?
Answer:
Human activities which are performed in exchange for money or money’s worth are called economic activities
Question 2.
Name any one type of economic activity.
Answer:
Business
Question 3.
What is business?
Answer:
Business refers to an occupation in which people regularly engage in activities related to the purchase, production, and/or sale of goods and services with a view to earning profits.
Question 4.
Write anyone characteristics of business activity.
Answer:
Economic activity
Question 5.
Mention the two broad categories of business activity.
Answer:
Industry and Commerce
Question 6.
Name any one type of Primary industry.
Answer:
Extractive industry
Question 7.
Name any one type of Secondary industry.
Answer:
Manufacturing
Question 8.
Give an example for Extractive Industries.
Answer:
Mining
Question 9.
Give an example for Genetic Industries.
Answer:
Poultry farming
Question 10.
Give an example for Manufacturing Industries.
Answer:
Sugar Industry
Question 11.
Give an example for Construction Industries.
Answer:
Construction of dams
Question 12.
What is trade?
Answer:
Buying and selling of goods is termed as trade.
Question 13.
What do mean by Auxiliary to trade?
Answer:
Activities which are meant for assisting trade are known as auxiliaries to trade.
Question 14.
Mention any one objective of the business.
Answer:
It is a source of income for a business person.
Question 15.
Give an example for the Service industry.
Answer:
Transport
Question 16.
What do you mean by the hindrance of trade?
Answer:
All those obstacles that businessman faces for conducting business activities or trade activities termed as a hindrance of trade.
Question 17.
State any one type of hindrance of trade?
Answer:
Hindrance of Place
Question 18.
State any one type of business risk.
Answer:
Operational risk
Question 19.
What is meant by non-economic activity?
Answer:
Non-economic activities are those performed out of love, sympathy, sentiments, patriotism, etc.
Question 20.
Give an example for non-economic activity?
Answer:
A Worker working in a factory
Question 21.
Give an example for the profession.
Answer:
Lawyer
Question 22.
Give an example for analytical industry.
Answer:
Crude oil processed and separated into petrol, diesel, kerosene, etc.
Question 23.
Give an example for the synthetic industry.
Answer:
Cement is produced by mixing concrete, gypsum, coal, etc.
Question 24.
Give an example for the processing industry.
Answer:
Textile industry
Question 25.
Give an example for the assembly-line industry.
Answer:
Manufacturing vehicles
Two Marks Questions
Question 1.
Define Business.
Answer:
According to L.H.Haney, “Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling of goods.
Question 2.
What is a profession?
Answer:
Occupation, practice, or vocation requiring mastery of a complex set of knowledge and skills through formal education and/or practical experience.
Question 3.
What is Employment?
Answer:
Employment may refer to work or an activity in which a person receives valuable consideration.
Question 4.
What is Industry?
Answer:
Industry refers to economic activities, which are connected with the conversion of resources into useful goods.
Question 5.
What is Commerce?
Answer:
Commerce includes all those activities which are necessary for facilitating the exchange of goods and services.
Question 6.
What do you mean by Extractive industries?
Answer:
Any processes that involve the extraction of raw materials from the earth to be used by consumers. The extractive industry consists of any operations that remove metals, minerals, and aggregates from the earth.
Question 7.
What do you mean by Genetic industries?
Answer:
Genetic industries are engaged in the re-production and multiplication of certain species of plants and animals with the object of sale.
Question 8.
What do you mean by manufacturing industries?
Answer:
Manufacturing industries are engaged in transforming raw material into a finished product with the help of machines and manpower.
Question 9.
What do you mean by Constructive industries?
Answer:
Construction industries take up the work of construction of buildings, bridges, roads, dams, canals, etc. This industry is different from all other types of the industry because in the case of other industries goods can be produced at one place and sold at another place.
Question 10.
What do you mean by Tertiary/Service industries?
Answer:
In modem times service sector plays an important role in the development of the nation and therefore it is named a service industry.
Question 11.
Write the meaning of business Risks?
Answer:
The term business risks refer to the possibility of inadequate profits or even losses due to uncertainties or unexpected events.
Question 12.
State any two causes of Business Risks.
Answer:
- Natural Causes
- Human Causes
Question 13.
What are analytical industries?
Answer:
Analytical Industry analyses and separates different elements from the same materials, as in the case of oil refinery.
Question 14.
What are synthetic industries?
Answer:
Synthetic industries are those industries which combine various ingredients and make a new product.
Question 15.
What are Processing industries?
Answer:
The movement of data or material towards a known goal or end result, bypassing it through a series of stages or a sequence of actions is known as the processing industries.
Question 16.
What are assembly-line industries?
Answer:
Assembling industry which assembles different component parts to make anew product.
Question 17.
State any two types of business risks.
Answer:
- Financial Risk
- Operational Risk
Question 18.
Name any two Auxiliary to trade.
Answer:
- Transport and communication
- Banking and Finance
Question 19.
How do you overcome the hindrance of person and finance?
Answer:
Banking helps to overcome the hindrance of finance, transport and communication helps to overcome the hindrance of person
Question 20.
How do you overcome the hindrance of place and trade?
Answer:
Advertising, transport, and communication help to overcome the hindrance of place and trade.
Question 21.
How do you overcome the hindrance of risk and knowledge?
Answer:
Warehousing helps to overcome the hindrance of risk Advertising helps to overcome the hindrance of knowledge
Question 22.
Give any two examples for service industries.
Answer:
- Hotel
- Hospital
Question 23.
What is meant by entrepot trade?
Answer:
Entrepot Trade refers to a trade in which imported goods are re-exported with or without any additional processing or repackaging.
Question 24.
State any two economic objectives of the business.
Answer:
- Market Standing
- Innovation
Question 25.
State any two social objectives of the business.
Answer:
- Social responsibility
- Prevention of Pollution
Five Marks Questions
Question 1.
Briefly explain the classification of business activities?
Answer:
“Human activities which are performed in exchange for money or money’s worth are called economic activities.”
1. Profession:
The profession is an occupation carried on by professional people like Doctors, Lawyers, Engineers, etc. They provide specialized services in return for fees. To become a professional, a man requires specialized knowledge and professional qualification.
2. Employment:
Employment is a type of occupation under which one person provides his services, to someone else in return for which he gets salary or wage. The person who employs is called an employer and the person who is employed is called an employee or worker.
3. Business:
Business is an economic activity concerned with the production and distribution of goods and services with the aim to earn a profit. It includes all those activities which are directly or indirectly concerned with the production, purchase, and sale of goods and services.
Question 2.
Briefly explain the Economic Objectives of business.
Answer:
- Profit earning: Profit making is the primary objective for which a business unit is brought into existence. Profits must be earned to ensure the survival of the business.
- Creation of customers: A business unit cannot survive unless there are customers to buy the products and services. Again a businessman can earn profits only when he/she provides quality goods and services at a reasonable price.
- Innovations: Innovation means changes, which bring about improvement in products, processes of production, and distribution of goods. Business units, through innovation, are able to reduce costs by adopting better methods of production and also increase their sales by attracting more customers.
- Optimum usage of resources: Business activities require various resources like men, materials, money, and machines. The availability of these resources is usually limited.
As you know, to run any business you must have sufficient capital or funds. The amount of capital may be used to buy machinery, raw materials, employ men, and have the cash to meet day-to-day expenses.
Question 3.
Briefly explain the Types of Industries
Answer:
There are various types of industries. These are mentioned as follows:
1. Primary Industry:
It is a nature-oriented industry. Primary industry is concerned with the production of goods with the help of nature. E.g. Agriculture, farming, forestry, fishing, horticulture, etc.
(a) Genetic Industry:
Genetic industries are engaged in the re-production and multiplication of certain spices of plants and animals with the object of sale.. E.g. plant nurseries, poultry farming, cattle breeding, etc.
(b) Extractive Industry:
The extractive industry is concerned with extraction or drawing out goods from the soil, air, or water. Generally, products of extractive industries come in raw form and they are used by manufacturing and construction industries for producing finished products. E.g. mining industry, coal mineral, oil industry, iron ore, extraction of timber and rubber from forests, etc.
2. Secondary industry:
An industry that converts the raw materials provided by the primary industry into commodities and products for the consumers.
(a) Manufacturing Industry:
Manufacturing industries are engaged in transforming raw material into finished products with the help of machines and manpower. The finished goods can be either consumer goods or producer goods. E.g. textiles, chemicals, sugar industry, paper industry, etc.
(b) Construction Industry:
Construction industries take up the work of construction of buildings, bridges, roads, dams, canals, etc. This industry is different from all other types of industry because in the case of other industries goods can be produced at one place and sold at another place. But goods produced and sold by constructive industry are erected in one place.
3. Tertiary or Service Industry:
It is concerned with the provision of services.. The main industries, which fell under this category, include the hotel industry, tourism industry, entertainment industry, etc.
Question 4.
Briefly explain the Types of Manufacturing Industry
Answer:
Manufacturing: Engaged in the conversion of raw materials into semi-finished or finished products. E.g.: Paper Industry, steel industry. Manufacturing Industry is classified into:
- Analytical: Different products are produced using same raw materials. E.g: Crude Oil refining
- Synthetic: Various raw materials are used to make one new product. E.g: Cement is made by mixing limestone, gypsum, coke etc
- Processing: Raw materials go through many stages of processing to get final product. E.g: Sugar, paper manufacturing
- Assembly: Various components already produced are assembled to get a new product. E.g: Automobile Industry, PC manufacturing
Ten Marks Questions
Question 1.
What do you mean by trade explain its Types?
Answer:
Trade refers to buying and selling of goods and services for money or money’s worth. It involves the transfer or exchange of goods and services for money or money’s worth. Trade can be divided into the following two types,
A. Internal Trade:
Internal trade is also known as Home trade. It is conducted within the geographical boundaries of a country. Internal trade can be further sub-divided into two groups,
- Wholesale Trade: It involves buying in large quantities from producers or manufacturers and selling in lots to retailers for resale to consumers.
- Retail Trade: It involves buying in smaller lots from the wholesalers and selling in very small quantities to the consumers for personal use.
B. External Trade:
External trade also called as Foreign trade. It refers to buying and selling between two or more countries.
- Export Trade: When a trader from home country sells his goods to a trader located in another country, it is called export trade. For e.g. a trader from India sells his goods to a trader located in China.
- Import Trade: When a trader in home country obtains or purchase goods from a trader located in another country, it is called import trade. For e.g. a trader from India purchase goods from a trader located in China.
- Entrepot Trade: When goods are imported from one country and then re-exported after doing some processing, it is called Entrepot trade.
Question 2.
Briefly explain the type of business risks.
Answer:
Business Risks:
Business risks implies uncertainty in profits or danger of loss and the events that could pose a risk due to some unforeseen events in future, which causes business to fail.
The Business risk is classified into different types
- Strategic Risk: These are the risks associated with the operations of that particular industry. These kinds of risks arising from:
- Business Environment
- Transaction
- Investor Relations
- Financial Risk: These are the risks associated with the financial structure and transactions of the particular industry.
- Operational Risk: These are the risks associated with the operational and administrative procedures of the particular industry.
- Compliance Risk (Legal Risk): These are risks associated with the need to comply with the rules and regulations of the government.
- Other risks: There would be different risks like a natural disaster(floods) and others depend upon the nature and scale of the industry
Question 3.
Briefly explain the aids or auxiliaries to trade
Answer:
All activities that facilitate the smooth flow of goods from manufacturing centres to the consumption centres are called aids or auxiliaries to trade. Aids to trade may be classified into five categories:
- Transportation
- Warehousing
- Insurance
- Advertising
- Banking.
These are briefly explained below.
1. Transportation:
Selling all the goods produced at or near the production centres is not possible. Hence, goods are to be sent to different places where they are demanded. The medium which moves men and materials from one place to another is called transport.
2. Warehousing:
Storage is indispensable in these days of mass production. The goods should be stored carefully from the time they are produced till the time they are sold, hence, the need for warehousing. Warehouses are also called go-downs.
3. Insurance:
The goods may be destroyed while in the production process or in transit due to accidents, or in storage due to fire or theft, etc. The businessmen would like to cover these risks. Insurance companies undertake to compensate the loss suffered due to such risks. For this purpose, the business has to take an ‘insurance policy’ and pay a certain amount regularly, called ‘premium’.
4. Advertising:
Advertising is an effective aid in selling goods. The producer, through advertisement, communicates all information about his goods, to the prospective consumers and creates in them a strong desire to buy the product. Advertising can be carried in different ways. It can be indoor or outdoor.
5. Banking:
A bank is an organization which accepts deposits of money from the public, withdrawable on demand or otherwise, and lends the same to those who need it. Banks also provide many services required for business activity.