NCERT Solutions for Class 11 Business Studies Chapter 1 Business, Trade and Commerce

Short Answers Questions

1. Why is business considered as economic activity?

Ans: Businesses are economic activity because:

1. Resource Allocation: They use resources to create what people want and need.

2. Profit Motive: They strive for profit, which drives efficiency and growth in the economy.

2. How does business contribute to the economic development of a country?

Ans: Businesses grow economies by:

• Jobs & Income: They create jobs and put money in people's pockets, boosting spending and growth.

• Goods & Services: They produce what people need and want, raising living standards.

• Innovation: They constantly improve, leading to new technologies and advancements.

3. State the different types of economic activities.

Ans: Economic activities are those that allow us to earn a living. A worker at a factory, a doctor in his clinic, a manager in an office, and a teacher teaching in a school, for example, are all involved in economic activities to support their families. Economic activities are further split into three categories: business, profession, and employment.

4. State the meaning of business. 

Ans: The word 'business' comes from the word 'busy.' As a result, doing business entails being busy. In a more precise meaning, business refers to an occupation in which people routinely engage in activities linked to the purchase, manufacture, and/or selling of goods and services to make money. The activity could include the production or purchase of items for resale, as well as the exchange of goods or the provision of services to meet the needs of others.                                                                   

5. How would you classify business activities?

Ans: Business activities can be divided into two categories: economic and non-economic.

Economic activities are those that allow us to earn a living, whereas non-economic activities are those that are done out of love, sympathy, feeling, patriotism, and other emotions. A factory worker, a doctor working in a clinic, a manager working in an office, and a teacher teaching in a school, for example, are all performing their jobs to make a living and are thus involved in economic activity. Business, professions, and employment are the three types of economic activity that can be classified. A woman preparing meals for her family or a boy assisting an elderly man in crossing the street, on the other hand, are engaging in non-economic tasks since they are doing it out of love or sympathy.

6. What are the various types of industries?

Ans: The various types of industries are given below:

• Primary

This category includes all activities involving the extraction and production of natural resources, as well as the reproduction and growth of living beings, plants, and other living things. 

• Secondary

These are concerned with the use of materials that have previously been extracted in their raw form. These businesses process such materials to create goods for end users or further processing by other businesses. 

• Tertiary

These are responsible for providing support services to main and secondary industries, as well as trade-related operations.

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

Ans: The following are two business activities that are related to trade:

1. Transport and Communication: Most items are produced in specific locations. For example, tea is primarily produced in Assam; cotton is primarily produced in Gujarat and Maharashtra; jute is primarily produced in West Bengal and Odisha; sugar is primarily produced in Uttar Pradesh, Bihar, and Maharashtra, and so on. These items, on the other hand, are required for consumption in various sections of the country. Transport, whether by road, rail, or coastal ships, removes the geographical barrier. Transport supports the movement of raw materials to manufacturing facilities and completed goods from manufacturers to consumer locations. Along with transportation, communication facilities are required so that producers, traders, and consumers may share information. As a result, mail services and telephone services can be considered auxiliaries to commercial activity.

2. Banking and Finance: Business activities cannot be carried out without finances available for the acquisition of assets, the purchase of raw materials, and other costs. Businessmen can receive necessary funds from a bank. As a result, banking assists businesses in overcoming their financial challenges. Overdraft and cash credit facilities, loans, and advances are common ways for commercial banks to lend money. Banks also handle cheque collection, transmission of payments to other locations, and bill discounting on behalf of traders. Commercial banks assist exporters in collecting money from importers in international trade. Commercial Banks also assist company promoters in raising funds from the public.

8. What is the role of profit in business?

Ans: A business's starting point is an objective. Every firm has a set of goals that it strives to attain. The things that businesspeople seek in return for what they do are referred to as objectives. The widespread perception is that business is conducted solely for profit. Every business is stated to be an attempt by businesspeople to make more money than they have spent or invested, or, in other words, to make a profit, which is the difference between revenue and cost. Although profit cannot be the sole goal of a firm, its significance cannot be overlooked. 

Every firm is an endeavour to earn more money than it has invested, and profit is the difference between revenue and cost. Profit may be a critical corporate goal for a variety of reasons:

• It is a source of revenue for entrepreneurs.

• It can provide a source of funding for a company's expansion needs.

• It denotes the smooth operation of a business

• It might be interpreted as society's endorsement of business's utility.

• It helps to establish a company's reputation.

9. What is meant by business risk? 

Ans: The term "business risks" refers to the probability of low profits or even losses because of unknowns or unforeseeable events. Demand for a particular product, for example, may fall due to changes in consumer tastes and preferences or more competition from other providers. Longer sales and profits derive from lower demand. In another scenario, a scarcity of raw materials on the market could drive up the price. The company that uses these raw materials will have to pay extra for them. As a result, production costs may rise, thereby lowering earnings. Speculative and pure risk are two forms of risk that businesses confront regularly. Speculative hazards include both the potential for profit and the potential for loss. Speculative risks develop because of changes in market conditions, such as fluctuations in demand and supply, price adjustments, or changes in client fashion and tastes. Favourable market conditions are more likely to result in gains, while those that are unfavourable are more likely to result in losses. Pure risks only have two outcomes: loss or no loss. Pure dangers include the possibility of fire, theft, or strike. Its occurrence may cause loss, whereas its absence may explain the absence of loss rather than gain. The following are the types of business risks:

1. Uncertainty creates business risks.

2. Risk is a necessary component of any business.

3. The degree of risk is mostly determined by the nature and size of the firm.

4. Profit is the payoff for taking risks.

10. State the causes of risks involved in business?

Business risks can arise from various internal and external factors. Here are some of the main causes:

• Internal Causes: These stem from decisions or shortcomings within the business itself, such as:

• Poor management choices

• Inefficient operations

• Lack of innovation

• Financial mismanagement

• External Causes: These are beyond the direct control of the business and can be more difficult to predict, such as:

• Economic downturns

• Changes in government regulations

• Fluctuations in the price of raw materials

• Shifts in consumer preferences

• Technological advancements by competitors

• Natural disasters or unexpected events

Long Answers Questions

1. Discuss the development of indigenous banking system in Indian subcontinent.

Ans: In ancient times, trade and commerce played a critical part in establishing India as a prominent economic player. In the third millennium B.C., commercial centres such as Harappa and Mohenjodaro were created. The civilisation established trade relations with Mesopotamia, trading gold, silver, copper, colourful gemstones, beads, pearls, seashells, terracotta pots, and other items. Metals thus began to supplement other commodities as money as economic life advanced due to their durability and divisibility. The advent of metallic money and its use stimulated economic activities because money acted as a means of exchange. Hundi and Chitti documents were used to carry out transactions in which money was transmitted from one person to another. The hundi was a popular form of currency in the Indian subcontinent. There was a contract involved which

(i) guarantee the unconditional payment of money, commitment, or order

(ii) People began to deposit precious metals with lending individuals acting as bankers or Seths as banking developed, and money became a vehicle for providing producers with a way of manufacturing more things. Credit transactions and the availability of loans and advances made business operations easier. The Indian subcontinent reaped the benefits of a favourable trade balance, with exports outnumbering imports by huge margins, and the indigenous banking system providing additional capital funding for expansion and development to manufacturers, traders, and merchants. Agricultural banks provide both short- and long-term loans to finance agriculturists. Commercial and industrial banks later arose to finance trade and commerce.

2. Define business. Describe its important characteristics.

Ans: The word 'business' comes from the word 'busy.' As a result, doing business entails being busy. In a more precise meaning, business refers to an occupation in which people routinely engage in activities linked to the purchase, manufacture, and/or selling of goods and services with the goal of making money. The activity could include the production or purchase of items for resale, as well as the exchange of goods or the provision of services to meet the needs of others.

• Production or procurement of goods and services: Business enterprises must either manufacture or buy commodities before they can be provided to the public for consumption. As a result, every commercial company either manufactures or purchases the goods it sells from producers to resell to consumers or users. Consumable commodities, such as sugar, ghee, pen, notebook, and so on, or capital goods, such as machinery, furniture, and so on, are examples of goods. Transportation, banking, energy, and other services are examples of services provided to consumers, businesses, and organizations.

• Sale or exchange of goods and services: Business involves the transfer or exchange of commodities and services for a monetary value, whether directly or indirectly. It cannot be deemed a business activity if things are created for personal consumption rather than for sale. Cooking food for the family at home is not a business but cooking meals at a restaurant and selling it to others is. As a result, one of the most important characteristics of a business is the sale or exchange of goods or services between the seller and the customer.

• Dealings in goods and services on a regular basis: Dealings in commodities or services on a regular basis are a part of business. As a result, a single sale or buy does not constitute a commercial transaction. It will not be deemed a business activity if a person sells his or her household radio set for a profit. However, if someone sells radio sets on a regular basis, whether through a shop or from his home, it will be considered a business activity.

• Profit earning: One of the primary goals of a business is to generate profit. Without profit, no company can last long. As a result, businesspeople make every attempt to maximize earnings, whether by boosting sales volume or cutting costs.

• Uncertainty of return: The lack of knowledge about the amount of money that the business will generate in a certain period is referred to as uncertainty of return. Every firm invests money to conduct its operations to make a profit. It's not possible to predict how much money will be made. Furthermore, despite the best efforts put into the firm, there is always the chance of losses.

• Element of risk: The uncertainty associated with a loss exposure is known as risk. It is brought on by a negative or unfavourable occurrence. Changes in consumer taste as well as fashion, changes in production methods, workplace strikes or lockouts, increasing market competition, fire, theft, accidents, natural calamities, and so on are all risk factors. Risks are generally considered as an unavoidable part of doing business.

3. Compare business with profession and employment.

Ans: The difference between business, profession and employment is given below:

4. Define Industry. Explain various types of industries giving examples.

Ans: The term "industry" refers to economic operations that involve the conversion of raw materials into usable items.

In general, the term "industry" refers to tasks using mechanical devices and technical expertise. These include activities such as manufacturing and processing items, as well as animal breeding and raising. The term "industry" can also refer to groups of businesses that produce comparable or related commodities. Cotton textile industry, for example, refers to all production units that produce cotton textile goods.

Primary

This category includes all activities involving the extraction and production of natural resources, as well as the reproduction and growth of living beings, plants, and other living things. They are split into the following categories:

• Extractive Industries: These businesses take items from natural sources and extract them. Extractive industries provide some essential raw materials, which are primarily geographical or natural environment goods. Manufacturing industries frequently transform these industries' products into a variety of other valuable commodities. Farming, mining, lumbering, hunting, and fishing are all important extractive industries.

• Genetic Industries: These businesses are in the business of raising plants and animals for use in reproduction. Genetic industries include seed and nursery enterprises, for example. Furthermore, the activities of cattle breeding farms, poultry farms, and fish hatcheries are all subject to genetic regulation.

Secondary

These are concerned with the use of materials that have previously been extracted in their raw form. These businesses process such materials to create goods for end users or for further processing by other businesses. Secondary industries can be further classified into the following categories:

• Manufacturing Industries: These businesses produce things by processing raw materials and converting them into finished goods. Through the conversion of raw materials or partially finished materials in their manufacturing activities, they produce a variety of finished products that we consume or use.

• Construction Industries: These businesses are involved in the construction of structures such as buildings, dams, bridges, roads, tunnels, and canals. In construction, engineering and architectural skills are crucial.

Tertiary

• These are responsible for providing support services to main and secondary industries, as well as trade-related operations.

• Service facilities are provided by these industries.

• As business operations, these could be regarded part of commerce because they support trade as auxiliaries. Transportation, banking, insurance, warehousing, communication, packaging, and advertising are all included in this area.

5. Describe the activities relating to commerce.

Ans: There are two sorts of commerce activities: (i) trade and (ii) trade auxiliaries. Trade is defined as the buying and selling of products. However, several activities are required to make the buying and sale of commodities easier.

• Trade

Trade is an important aspect of business. It is the act of selling, transferring, or exchanging goods. It aids in the distribution of items generated to consumers or users.

Trade can be divided into two categories: internal and external.

Internal, domestic, or home trade refers to the purchasing and selling of goods and services within a country's geographical borders.

The exchange of products as well as services between individuals or organisations operating in two or more countries is known as external or foreign trade.

• Auxiliaries to Trade

Auxiliaries to trade are activities that are designed to help with trade. Auxiliaries are an important aspect of business in general and trade.

These actions aid in the removal of numerous roadblocks that develop in the manufacture and distribution of goods. Auxiliaries to trade are explored briefly below:

1. Transport and Communication:

Most items are produced in specific locations. Transport supports the movement of raw materials to manufacturing facilities and completed goods from manufacturers to consumer locations. Producers, traders, and consumers can communicate with one another through communication facilities.

2. Banking and Finance: Business activities cannot be carried out without finances available for the acquisition of assets, the purchase of raw materials, and other costs. Businessmen can receive necessary funds from a bank. As a result, banking assists businesses in overcoming their financial challenges. Overdraft and cash credit facilities, loans, and advances are common ways for commercial banks to lend money. Banks also handle cheque collection, transmission of payments to other locations, and bill discounting on behalf of traders.

3. Insurance: Business entails a variety of hazards. The factory structure, machinery, and furnishings, among other things, must be safeguarded from fire, theft, and other threats. Material and goods in storage or in transportation are at danger of being lost or damaged.

Employees must also be protected from the dangers of accidents and occupational hazards. All these situations are covered by insurance.

4. Warehousing: Typically, things are not sold or consumed just after they are manufactured. They are kept in stock so that they can be used as needed. To avoid loss or damage, certain arrangements must be established for the storage of items. Warehousing aids businesses in overcoming storage issues and ensuring that items are available when needed.

5. Advertising: Advertising is one of the most effective ways to promote the sale of things, especially consumer goods such as electronics and automobiles, as well as soaps and detergents. Producers and traders are essentially unable to contact each customer. As a result, information about the goods and services available, their features, price, and so on must reach potential purchasers to promote sales.

6. Explain any five objectives of business.

Ans: The following are the business objectives:

1. Position on the market: The position of a company in the market in respect to its competitors is referred to as market standing. A company's goal should be to establish a better position in terms of providing competitive products to customers and satisfying their needs.

2. Innovation: The introduction of new ideas or procedures into the way something is done or created is known as innovation. In any firm, there are two types of innovation.

(i) product or service innovation

(ii) product and service supply chain innovation in a variety of skills and activities. In a competitive environment, no firm can survive without innovation.

As a result, innovation becomes a critical goal.

3. Productivity: The value of output is compared to the value of inputs to determine productivity. It's a metric for determining efficiency. To ensure long-term survival and success, every business must strive for increased productivity by making the best use of existing resources.

4. Physical and financial resources: Physical resources, such as plants, machinery, and offices, as well as financial resources, such as capital, are required for any firm to manufacture and sell goods and services to its consumers. The goal for the commercial enterprise should be to acquire these resources in accordance with their needs and to put them to good use.

5. Earning profits: Businesses run with a motive to earn profits on the capital which has been employed. If we talk about profitability, it refers to profit in relation to capital which is invested. A reasonable amount of profit for every business is must to earn so that its survival and growth can be ensured.

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

Ans: The term "business risks" refers to the probability of low profits or even losses because of unknowns or unforeseeable events. Demand for a particular product, for example, may fall due to changes in consumer tastes and preferences or more competition from other providers. Longer sales and profits derive from lower demand. In another scenario, a scarcity of raw materials on the market could drive up the price. The company that uses these raw materials will have to pay extra for them. As a result, production costs may rise, thereby lowering earnings.

Speculative and pure risk are two forms of risk that businesses confront on a regular basis. Speculative risks develop because of changes in market conditions, such as fluctuations in demand and supply, price adjustments, or changes in client fashion and tastes. Market conditions that are favourable are more likely to result in gains, while those that are unfavourable are more likely to result in losses. Pure risks only have two outcomes: loss or no loss. Pure dangers include the possibility of fire, theft, or strike. Its occurrence may cause loss, whereas their absence may explain the absence of loss rather than gain. A multitude of factors contribute to business hazards, which are characterised as follows:

1. Natural causes: Natural disasters such as floods, earthquakes, lightning, torrential rainfall, starvation, and other natural calamities are beyond human control.

2. Human causes: Unexpected events such as employee dishonesty, carelessness or neglect, work halt due to power outages, strikes, riots, management ineptitude, and so on are examples of human causes.

3. Economic causes: These include concerns about demand for goods, competition, price, customer debt collection, changes in technology or production methods, and so on.

Financial issues, such as an increase in borrowing interest rates or the imposition of higher taxes, are also examples of these types of causes since they result in greater unanticipated operating or company costs.

4. Other causes: Unforeseen occurrences, such as political upheavals, technical problems, such as a boiler exploding, variations in exchange rates, and so on, can all result in business hazards.

8. What factors are to be considered while starting a business? Explain.

Ans: The following are some things to think about while beginning a business:

1. Line-of-business selection: The nature and sort of business to be undertaken are the first decisions that an entrepreneur must make. He or she will undoubtedly want to pursue that field of industry and commerce that offers the greatest potential for profit. The decision will be impacted by market customer requirements as well as the entrepreneur's technical competence and enthusiasm in developing a specific product.

2. Size of the firm: Another crucial decision to make at the outset of a business is the size of the company or the scope of its operations.

Some elements favour a broad scale of activity, while others tend to limit it. If the entrepreneur is certain that demand for the planned product will be strong over time and that he or she can secure the necessary financing, the firm will be launched on a large scale. A small firm would be a better alternative if market circumstances are unpredictable, and risks are high.

3. Choice of ownership structure: The business organisation can be a sole proprietorship, a partnership, or a joint stock corporation in terms of ownership. Each kind has its own set of advantages and disadvantages. The appropriate form of ownership will be determined by considerations such as the line of business, capital requirements, owner liability, profit split, legal formalities, company continuity, and interest transferability, among others.

4. Business enterprise location: The location of the company's headquarters is an important issue to consider while starting a firm. Any blunder in this area might result in expensive production costs, inconvenient access to the proper kind of production inputs, or a failure to provide the best possible service to clients. The availability of raw materials and labour, as well as power and services such as banking, transportation, communication, and warehousing, are all key considerations when choosing a location.

5. Obtaining funding for the proposal: Financing is concerned with supplying the necessary funds for the prospective business's start-up and continuation. Capital is needed to invest in fixed assets such as land, buildings, machinery, and equipment, as well as current assets such as raw materials, books, debts, finished goods stock, and so on. Day-to-day expenses necessitate the use of capital. 

(a) the capital requirement, 

(b) the source from which the money will be raised, and 

(c) the best strategies to use the capital in the company.

6. Physical facilities: The availability of physical facilities, such as machines and equipment, as well as a building and associated services, is a critical issue to consider when starting a firm. The nature and scale of the business, the availability of cash, and the manufacturing process will all influence this selection.

7. Plant layout: The entrepreneur should design a layout plan outlining the organisation of physical facilities once the need for them has been determined. The physical arrangement of machines and equipment required to make a product is referred to as layout.

8. A capable and dedicated workforce: Every business requires a skilled and dedicated personnel to carry out numerous tasks to convert physical and financial resources into desired outcomes.

Because no single entrepreneur can accomplish everything, he or she must determine the need for qualified and unskilled workers, as well as administrative personnel. Plans should also be created for how staff will be trained and motivated to perform at their highest levels.

9. Tax preparation: Tax planning has been vital in recent years due to the country's numerous tax rules, which affect practically every facet of modern business operation. The tax liabilities under various tax regulations, as well as its impact on business actions, must be considered in advance by the business's creator.

10. Starting the business: Following the above-mentioned decisions, the entrepreneur can proceed with the actual launching of the business, which includes mobilizing various resources, completing essential legal formalities, commencing the production process, and launching a sales promotion campaign.

Topics Covered In Ch 1 Business Studies Class 11 - Business, Trade and Commerce

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