Important Questions for CBSE Class 11 Business Studies Chapter 1 - Business, Trade and Commerce

Very Short Answer Questions (1 Mark)

1. Give an example of activity which is economic in one side and non-economic on other side. 

Ans: Profession requires specialized knowledge and it is economic on one side and non economic on the other side. 

OR

State different types of economic activities? 

Ans: Economic activities can be categorised as:

• Business

• Employment

• Profession

OR

Name the economic activity in which specialized knowledge is required.

Ans: Profession requires specialized knowledge.

2. A person sells his domestic furniture at a profit, will it be considered a business? Explain the characteristics of business which is being stressed upon.

OR

Mr Sonu sold his washing machine & refrigerator on Quikr as he was shifting base to London. Is this a business activity?

Ans: No, for an activity to be business it must have ‘regularity’ characteristic of business. This characteristic means that there must be regular dealing of such goods and services.

3. Why is insurance known as a tertiary industry? 

Ans: Insurance is known as a tertiary industry because it provides supporting services finance and mitigation of risk to primary and secondary industries.

OR

Which industries provide support services to other industries?

Ans: Tertiary industries provide supporting services to other industries. Such as telecommunication, banking, insurance, advertising etc.

4. What type of industry is fishing? 

OR

What type of industry are poultry farms and plant nurseries? 

OR

Which one of the broad categories of industries covers oil refinery and sugar mills?

Ans: Primary Industry

5. Categorise the following into business, profession and employment?

(i) A farmer

Ans: Business

(ii) An advocate

Ans: Profession

(iii) A clerk

Ans: Employment

(iv) A hawker selling toys for children

Ans: Business

(v) A doctor

Ans: Profession

(vi) A person working in scooter repair shop on roadside

Ans: Employment

6. ABC Ltd. inventing new machinery to curb its production problem. Which objective it is trying to achieve?

Ans: Innovation under economic objective.

7. What reward does the businessman get for bearing risks?

Ans: Profit

8. Name the occupation in which people work for others and get remunerated in return.

a. Business

b. Profession

c. Employment

d. None of the above

Ans: (c) Employment

Employment is an occupation in which people work for others as per agreed terms and conditions and receive salary in return.

Short answer Questions (3 or 4 Marks)

1. What are the causes for the possibility of inadequate profits due to uncertainties or unexpected events?

OR

No business is risk free in the light of this statement, explain the concept of business risk and it’s any three causes.

Ans: No business can function without taking risk as there is always a possibility of inadequate profits or even losses. The uncertainty of profits puts business at risk, like change in demand, change in technology, change in government policies etc.

Business risks are the uncertainties or unexpected events which may result in inadequate profits or losses.

The three causes of business risk are:

• Natural causes: These are due to natural causes such as floods, earthquakes, etc. Every person has little control or no control over these causes.

• Human causes: These causes include unexpected events caused by man, such as negligence of employees, power failure, employee’s or customer’s dishonest practices etc.

• Economic causes: The economic causes involve the changes and variations taking place in the economy such as uncertainties due change of technology and method of production,political disturbances, change in prices, tax rates etc.

2. Compare between Business, profession & Employment on the basis of the following:

a) Capital Investment

b) Risk

c) Transfer of interest

Ans: The difference between Business, profession & Employment are:

3. What is business risk?

Ans: Business is the possibility of earning inadequate profits or losses due to uncertainties and unexpected changes in the market conditions. Business risk may be due to natural causes, human causes, economic causes and external causes.   

Nature of Business Risks

• Risk is an essential part of every business. It can only be reduced but not eliminated in full.

• It arises due to uncertainties like natural calamities such as earthquakes, floods etc., which are unavoidable.

• The extent of risk depends upon the nature and size of business.

• ’No risk, no gain’ is applicable to every business. Hence, profit is the reward for risk taking.

4. Explain any four objectives of business?

Ans: Objectives are the purpose for which activity is performed. The four objectives of business are as follows:

• Profit earning: Profit earning is necessary for successful survival and continuous growth of the organisation. Profits can be maximised by reducing cost and minimum wastage. Profits are the rewards for taking risks.

• Productivity: Productivity can be calculated by comparing the value of output and value of input. Productivity can be increased by optimum utilisation of the physical and human resources.

• Innovation: For surviving in the market, the business should take opportunities and become the first one to bring a new change in product, technology etc. A business should take first mover advantage against its competitors.

• Market Standing: The business must convert its potential customer to actual customer and must maintain its actual customers as permanent customers. This will maintain the position of business in the market.

5. Define commerce, why is it of great importance in modern life?

Ans: Commerce acts as a link between the producer and consumers to enhance efficient distribution of goods and services. 

Importance of Commerce:

• It helps in free and smooth flow of goods and services between the producer and customer. 

• It creates employment opportunities.

• It helps in the growth of industrial development. 

• It helps in increasing the standard of living of the society.

6. Distinguish between primary and secondary industry Give examples.

Ans:  The difference between primary and secondary industry is given below:

7. “Business is an institution organized to provide goods and services under the incentive of private gain.” Discuss.

OR

Define business. Explain the characteristics of business (any three)

Ans: Business is an economic activity which is regularly engaged in production or purchase and sale of goods and services to satisfy human needs and wants with an aim to earn profit.

The characteristics of business are as follows:

• Production and/or procurement: Business is related to conversion of raw material into finished goods or sale and purchase of goods and services in the market. As a result, a business either manufactures the goods on its own or purchases them from producers, and then sells them to end customers.

• Economic Activity: Business is an economic activity as it is done to earn money for livelihood. It satisfies human needs by providing goods and services for earning profits.

• Regular Activity: To constitute a business there should be dealings in goods and services on regular intervals. Doing one single transaction does not constitute business. For example selling your old books, or furniture and purchasing a new one is not termed as business.

• Element of Risk: Business is associated with a certain amount of risk as there is possibility of inadequate profits or losses due to change in tastes and preferences of customers, change in technology, fire theft, natural calamities, etc

8. Write differences among industry, commerce and trade on any five bases.

Ans: The difference between Industry, Commerce, and Trade

9. “Commerce comprises trade and all the services that make trade possible.” Discuss.

Ans: Commerce includes all the activities which are required for the exchange of goods and services. Commerce maintains smooth flow of goods and services from producer to customers by removing all the hindrances related to people, place, time, finance and information. It includes two types of activities: 

• Trade: The buying and selling of goods and services with an aim to earn profit is termed as trade. The people who are involved in trade are referred to as traders

• Auxiliaries to trade: Auxiliaries to trade assists the buying and selling of the goods and services by removing the hindrances of place, people, time, finance, risk and information. 

Long Answer Questions (5 or 6 Marks)

1. What provides the necessary link between producers & consumers with all those activities which are necessary for maintaining a free flow of goods & services? Discuss all those activities.

OR

In business activities, there are some activities that are involved in the removal of hindrances in process of exchange i.e. from the producer to the consumer. Identify them. Also classify the activities which help in removing the following hindrances:

(i)Hindrance of place (ii) Hindrance of risk (iii) Hindrance of time (iv) Hindrance of finance (v) Hindrance of information

OR

Tea is mainly produced in Assam, while cotton in Gujarat & Maharashtra but they are required for consumption in different parts of the country. How can this hindrance of place be removed? Also under what business activity will it be categorised.

OR

Commerce is the sum total of activities that remove hindrances in the free flow of goods from producers to consumers. Explain.

OR

How do traders remove the hindrance of person?

Ans: Commerce maintains smooth flow of goods and services from producer to customers by removing all the hindrances related to people, place, time, finance and information. 

Auxiliaries to Trade

Auxiliaries to trade assists the buying and selling of the goods and services by removing the hindrances of place, people, time, finance, risk and information. 

• Transportation: It facilitates smooth flow of goods and services from the place of production to the place of consumption. Hence, it removes the hindrance of place. Example- Selling of mobile in Lucknow which is manufactured in Bangalore, tea produced in Assam, while cotton in Gujarat & Maharashtra but they are transported for consumption in different parts of the country. 

• Communication: Effective and timely communication between the supplier, producer and consumers leads to successful trading. Thus, it removes the hindrance of information. 

• Banking: Banks and financial institutions help producers or traders in providing finance required them in the form of loans, trade credit, overdraft, etc and hence, removing the hindrance of finance.

• Warehousing: Producers and traders cannot sell the entire goods produced and thus stock of goods is always maintained by the producers or traders. Warehousing provides the facility to store unsold goods and hence removing the hindrance of time.

• Insurance: Insurance removes the hindrance of risk. It facilitates business to reduce the risk of damages due to fire, theft, natural calamities, etc.

• Advertising: Advertising acts as a link between producers, traders and consumers. It brings awareness among consumers about the goods and services available. Hence, removing the hindrance of information.

2. Starters of a new business are largely responsible for the success of the business they undertake various functions. Discuss the basic factors which influence the starter functions.

OR

Explain any six factors that are important to be considered while starting a business.

Ans: The factors that are important to be considered while starting a business are as follows:

• Size of business: The decision regarding the size of the business largely depends on the demand of the product and services in the market, the amount of risk and investment involved.

• Choice of form of ownership: The choice of suitable form of business depends on the factors like legal formalities, line of business, capital requirement, liability of the business, profit etc. The entrepreneur can decide the form of business as:

• Sole proprietorship

• Partnership

• Joint stock company

• Cooperative society

• Location of business enterprise: Location of a business directly affects the availability of raw material and labour, cost of production, and services like banking, transportation, warehousing etc.

• Financing proposition: Finance is required not only to start a business but also for surviving in the market in the long run. Financial planning includes the amount of finance required for the capital and its source.

• Physical facilities: While starting a business, the availability of physical facilities like land and building, plant and machinery and others services required for commencing business.

• Competent workforce: Human resource is the greatest asset of any business. Competent and skilled workforce helps the business in reaching the height of the success. Thus, every business should wisely do the recruitment of personnel and must have training and development plans to increase the potential level of the workforce.

3. Profit maximization cannot be the sole objective of a business. Explain.

OR

“Overemphasis on objective to earn profit may exploit the business”. What does a business should do to enable itself to bring the balance?

Ans: Business is established for earning livelihood and for this maximisation of profit is the main objective. But it is not the sole objective of business as it operates in the society and uses the resources of the society. 

So, it also has some social objectives that could is undertaken to maintain balance, these are as follows:

Social Objectives

• Supply of desired goods and services: Business must supply goods and services of proper quality and with all required certifications. It must aim for customer satisfaction. 

• Social and Fair Trade Practices: Business must not indulge into malpractices like black marketing, hoarding, compromising on quality or safety of products. Business must work for society.

• Employment Opportunities: Business must create employment opportunities for the society especially for less advantaged sections of society.

• Welfare of Employees: Businesses must work for growth and development of employees like training social and personal skills, and a good working environment. As employees directly contribute to productivity and profitability.

• Social Welfare: Businesses must utilize their profits towards society like setting up schools, charitable hospitals, etc that are necessary for the development of society.

Or

“Profit is not an objective but a requirement of business.” Do you agree with the statement? Support your answers with reasons

Ans: I agree that profit is a requirement of a business. The reasons are:

• Long term survival: A business can survive in the market in the long run, only when it earns profit. This is because finance is needed by business in all the activities, and in all the areas. From day to day expenses, to expansion of business, finance is needed. Hence if a firm will not earn any profit, it won’t be able to pay expenses, or grow or survive in the market, leading to its closure.

• Growth: Profits are needed for the growth, diversification and expansion of business. A business with no or less profit cannot implement such growth policies.

• Efficient performance: Profits act as a motivating factor to the owners as well as the employees. Higher profits leads to higher efficiency and productivity on the part of people in the organization, thus leading to quality performance.

• Reputation: Decent profit making enables the firm to pay out its expenses on time, in terms of salaries, wages, dividends, rents, etc. Hence all the stakeholders, and shareholders remain happy and content with the firm, thus leading to a high reputation and goodwill of the business in the market.

• Fulfil social objectives: All other objectives of the business could be achieved only if the business earns sufficient profit. A business cannot fulfil the societal needs, and contribute towards the society if it does not earn satisfactory profits.

• Innovation: Change is the law of nature. Hence, an organisation needs to keep changing and innovating to match with the changing and challenging environment. However, innovation requires skilled manpower, intense research, and high end technology, which is only possible when the business is able to generate suitable profits.

• Reward for risk-bearing: A business undertakes multiple risks to keep the operations going, hence profits act as the reward of risk bearing.

4. ‘Kodak Pics’ is an advertisement agency initiated by Rahul, Sushmita & Prema. They have called a meeting to discuss the below given points

(i) Increase the profit margin by 20% in july.

(ii) Aiming bigger share in the market.

(ii) Making use of better lenses & improved techniques.

(iv) Making best use of cameramen, finance etc. employed by the business

(v) Improve efficiency in functioning of business.

(a) Which aspects of business objectives are being referred to here?

Ans: Economic Objectives are reflected here.

(b) Also develop each point to be discussed in the meeting by classifying the objective.

Ans: The objective are:

• Increase the profit margin by 20% in july: Profit earning: Profit earning is reflected in this point. Profits can be maximised by reducing cost and minimum wastage. Profits are the rewards for efforts and investment put in by the owner.

• Aiming bigger share in the market: Market Standing:  Market standing is reflected in this point. The business must convert its potential customers to actual customers and must maintain its actual customers as permanent customers. This will maintain the position of business in the market.

• Making use of better lenses & improved techniques: Innovation: Innovation objective is highlighted here. It means developing new products or modification in existing products. Every business in order to survive in a competitive environment should  innovate its products or  develop new ideas to tackle competition.

• Making best use of cameramen, finance etc. employed by the business: Physical and financial resources: This objective is reflected in this point. Business must use its resources according to the requirement and with minimum wastage.

• Improve efficiency in functioning of business: Productivity: This objective is reflected in this point. Productivity t is a measure of efficiency. Every business must aim at increasing its productivity through the efficient use of resources. Productivity can be increased by optimum utilisation of the physical and human resources.

5. Jawaharlal prepares ‘Ghujiya’ for customers during Holi season every year. He prepared more ‘Ghujiya’ than he could sell this year. He employed women and children also and paid them less salary manufacturing on the packages. This way he generated profit for himself.

(a) Do you think he is fulfilling all the objectives of business?

Ans: No, he is not fulfilling all the objectives of business.

(b) If not which aspects of this objective is not being fulfilled? 

Ans: Social Objectives are not fulfilled as Jawaharlal is paying less salary to the women and children, and keeping all the profits to himself.

(c) Write any two values lacking in Jawaharlal.

Ans: 

• Wastage of time and resources by preparing excess ghujia.

• Fair and just behaviour by paying less salary to women and childre.

6. Different situations in different business are being elaborated below:

(i) Raghunath Gorkha had a match stick factory in Nepal which got destructed by the recent earthquake.

(ii) Mr Arya, a senior manager in a telecom company shared confidential information about the company with a competitor which led to huge losses for the company.

(iii) Vodafone Co. was charged with evasion of tax and asked to pay fine in cross which would lead to heavy losses for the company.

(iv) Type writers becoming redundant.

(a) Which characteristic of business is being referred to in all the above cases? 

Ans: ‘Business Risk’ is reflected in the above cases.

(b) How can you classify the different cases based on this characteristic?

Ans:  The classification is given below:

1. Raghunath Gorkha had a match stick factory in Nepal which got destructed by the recent earthquake.

Natural Causes: These are due to natural causes such as floods, earthquakes, etc. Every person has little control or no control over these causes.

2. Mr Arya, a senior manager in a telecom company shared confidential information about the company with a competitor which led to huge losses for the company.

Human Causes: These causes include unexpected events caused by man, such as negligence of employees, power failure, employee’s or customer’s dishonest practices etc.

3. Vodafone Co. was charged with evasion of tax and asked to pay fine in cross which would lead to heavy losses for the company.

Human Causes: These causes include unexpected events caused by man, such as negligence of employees, power failure, employee’s or customer’s dishonest practices etc.

4. Type writers becoming redundant.

Economic Causes: he economic causes involve the changes and variations taking place in the economy such as uncertainties due change of technology and method of production,political disturbances, change in prices, tax rates etc.

7. Dr. Sanvi is an orthopedic surgeon in AIIMS Hospital and Dr Maruti, her friend is a Pediatrician who has set his own clinic. Dr Maruti’s wife, Ms. Aditi operates her Cosmetic store. Compare & differentiate the nature of tasks undertaken by them.

Ans: Dr. Sanvi is involved in employment, Dr Maruti is involved in Profession and Ms. Aditi is involved in business.

The differences between business, profession and employment are:

8. Zainab, Shelly & Ravina are friends. They have just completed a fashion designing course. They wish to start a business together. They have Rs.10,00,000 savings put together and are planning to take a bank loan of additional Rs.10 lakhs. They have found a prime location in KarolBagh where they can set their boutique. They decide that they will initially not take very big orders. Based on this information, quote the lines associated with factors affecting the decision to start a business and classify them.

Ans: The Factors are:

• Selection of type of business:  A person can enter primary, secondary or tertiary industry, based on the possibility of profit, demand, customer preference etc. In the case above they selected the business to be a boutique.

Quotation: “They have just completed a fashion designing course. They wish to start a business together.”

• Financing proposition:  For every business, availability of capital or funds is an important factor while starting a business. Because capital is needed in each activity and aspect of business, such as in investment in fixed assets, stocks, meeting day to day expenses, etc.

Quotation: “They have Rs.10,00,000 savings put together and are planning to take a bank loan of additional Rs.10 lakhs.”

• Location of business enterprise: It's an important factor while starting a business. The location of business is dependent on the easy availability of raw materials and labour, banking services, transportation services nearby etc. Any mistake in this can result in high losses to business.

Quotation: “They have found a prime location in KarolBagh where they can set up their boutique.”                                                                                                                                   

• Size of Business: Every person has to decide whether it wants to operate on a large scale or at a medium scale.  It depends upon demand for the product and the necessary capital that person has. If a person is optimistic about all the factors, he can open up his business on a large scale, and vice versa.

Quotation: “They decide that they will initially not take very big orders.”

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1. Insurance is a tertiary industry. Give an explanation.

2. How can a trader get rid of the hindrance of a person?

3. Provide a few differences between a primary and secondary industry.

4. Define commerce. What is the significance of commerce in modern times?

5. State the different objectives of a business.

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