Chapter 1 Nature, Purpose and Scope of Business
Chapter 1 Nature, Purpose and Scope of Business
1. Select the correct alternative and write answers to the following questions :
1. What is the objective of economic activity?
(A) Service
(B) Financial return
(C) Love
(D) Emotion
2. What is necessary to continue the business?
(A) Non-economic activity
(B) Service to country
(C) Profit
(D) Re-export
3. Which is the yard stick for the efficiency of business?
(A) Profit
(B) Management
(C) Production
(D) Sales
4. Which utility is created when finished goods are manufactured from the raw-materials?
(A) Place
(B) Time
(C) Economic
(D) Form
5. With what Is the objective of maximization of wealth of business connected?
(A) Manager
(B) Employee
(C) Owner
(D) Customer
6. What is the reward of employment?
(A) Salary
(B) Fees
(C) Profit
(D) Capital
7. What type of activity is trade?
(A) Economic
(B) Non-economic
(C) Religious
(D) Social
8. What is meant to produce by adding utility to the natural wealth?
(A) Trade
(B) Auxiliary services
(C) Commerce
(D) Industry
9. Which types of Industries are agriculture, animal husbandry, fisheries?
(A) Primary
(B) Secondary
(C) Tertiary
(D)Capital intensive
10. Which type of economic activity is performed by a government servant getting salary in return of his labour?
(A) Business
(B) Professions
(C) Employment
(D) Commerce
2. Answer the following questions in one sentence each :
1. What is an economic activity?
Answer:
An action done by a person to earn income or financial gain is known as an economic activity.
2.Which utility is created when goods are carried out from the place of production to consumer?
Answer:
When goods move from the production site to the user or buyer, it creates ‘place utility’. For instance, transporting food from farms to shops creates place utility.
3. What is profession?
Answer:
When a person has expert knowledge, specific training, and qualifications to offer specialized services to society, it is known as a profession, and such a person is called a professional.
4. What is employment?
Answer:
A job done for another person or firm in exchange for a regular wage or salary is termed as employment.
5. What is required to be a professional?
Answer:
Professionals are people like doctors, advocates, or chartered accountants who need proper training and qualifications in their specific fields.
6. What is trade?
Answer:
Trade means the buying and selling of goods or services between people in exchange for other goods or money, mainly to earn profit or gain.
7. With what is primary industry connected?
Answer:
Primary industry deals with natural resources like land, water, and air. Examples include agriculture, fishing, and mining.
8. Which industry is helpful to primary industry and secondary industry?
Answer:
Tertiary industry supports both primary and secondary sectors by offering necessary services.
3. Answer the following questions in short :
1. Why business be called an economic activity?
Answer:
A business is carried out with the aim of earning profit and increasing wealth. According to the definition, any work done with such aims is considered an economic activity. Therefore, business is an economic activity.
2. State any two characteristics of employment.
Answer:
(a) An employee receives a fixed income at regular intervals.
(b) Additional benefits like travel allowance, medical allowance, etc., may also be given.
3. What is the objective of social responsibility of business?
Answer:
Since society plays a key role in the survival of a business, the business must recognize this and aim to meet certain social goals along with making profit. These goals include fair business practices, creating jobs, offering good quality products and services, etc.
4. Answer the following questions in brief :
1. What is economic and non-economic activity? Explain with illustration.
Answer:
In the field of commerce, activities are categorized into two types:
(I) Economic activities
(II) Non-economic activities
(I) Economic activity:
Any activity performed with the goal of earning money or financial benefit is known as an economic activity.
Explanation:
To fulfill daily needs, people require money.
To earn money, they engage in work that provides goods or services to others and receive income in return.
This process of fulfilling the needs of others while earning a livelihood is an economic activity.
Example:
A farmer earns by growing crops, a weaver by making fabric, and a blacksmith by creating tools.
All of them meet societal needs while earning a living.
Similarly, doctors, engineers, and lawyers offer services and earn fees.
Such economic activities form the base of today’s modern society.
(II) Non-economic activity:
When a person performs an activity not for financial gain but out of love, duty, service, or compassion, it is known as a non-economic activity.
Examples:
A mother caring for her sick child.
Volunteers helping during disasters like floods or earthquakes.
Social workers doing welfare activities.
Individuals working towards social harmony or national service.
2. Explain the meaning of profession and state its characteristics.
Answer:
Profession:
When a person acquires expert knowledge, formal education, training, and professional qualifications, they are capable of offering specialized services to the public. This kind of work is called a profession, and such individuals are known as professionals.
Examples include doctors, chartered accountants, and lawyers.
In addition to education, professionals must register with their respective regulatory bodies.
For instance, a Chartered Accountant (CA) must enroll with the Institute of Chartered Accountants of India (ICAI) and follow its ethical code.
Professionals provide expert services to clients in return for a fee.
Alternatively, they may also work for institutions or companies and earn a salary—for example, a doctor employed in a hospital or a lawyer in a firm.
Key features of a profession:
Professionals require in-depth knowledge, practical training, and a formal qualification.
Those who work independently charge service fees. These fees vary based on expertise and type of profession.
The main aim is to offer skilled services to clients.
A profession is an independent form of economic activity.
Unlike businesses that produce goods, professionals deliver services (e.g., fighting a legal case or treating a patient).
Professionals must follow a code of conduct laid down by their governing body.
Like business, earnings are not fixed in a profession; it depends on how many clients seek their service.
3. Explain the difference between trade and commerce.
Answer :-
| Points of Difference | Trade | Commerce |
|---|---|---|
| Meaning | Involves buying and selling of goods or services for money. | Encompasses trade along with services that aid in trading. |
| Scope | Trade has a narrow scope. | Commerce has a broader scope, including trade and supporting services. |
| Parties | Usually, both buyer and seller know each other and are locally based. | Buyers and sellers may be far apart and unfamiliar, yet commerce facilitates transactions through auxiliary services. |
5. Answer the following questions in detail :
1: What is business? State the objective of business.
Answer
Business:
A business is an economic activity carried out with the aim of earning profits and generating wealth.
Objectives of Business:
The objectives are categorized as:
(A) Economic Objectives
(B) Social Objectives
(A) Economic Objectives:
Profit Earning:
Making a profit is the main goal of every business. It ensures sustainability and growth. Profit acts as a source of motivation and reflects efficiency. In today’s context, the idea of earning a fair and justified profit is more widely accepted than mere profit maximization.
Wealth Creation:
In the short term, a business targets profit, but in the long term, the goal shifts to accumulating and growing wealth. Businesses must take a broader approach beyond profits, especially during economic downturns.
Other Economic Goals:
Other economic motives include business expansion, increasing productivity, resource optimization, adopting modern technology, and contributing to economic progress.
(B) Social Objectives:
Since businesses operate within society, they also bear certain responsibilities towards it. Beyond making money, a business must aim to serve society through ethical practices, offering employment, and providing good quality products and services.
Some key social objectives are:
Fulfilling Social Responsibilities:
Businesses deal with various societal groups like employees, consumers, suppliers, and the government. They must uphold laws such as the Consumer Protection Act and Factory Act to protect these stakeholders.
Generating Employment:
To counter unemployment, businesses (especially those supported by government bodies like KVIC) aim to provide jobs, especially in rural or less developed regions.
Supplying Quality Products and Services:
Businesses strive to offer high-standard goods and support services such as installation and maintenance to ensure customer satisfaction.
Practicing Ethical Trading:
Unfair methods like black marketing or misleading advertisements should be avoided. Businesses must follow ethical trade practices that benefit both customers and society.
Other Social Aims:
These include building a positive reputation, conducting research, contributing to national economic growth, supporting government initiatives, and offering employee welfare benefits.
2: Explain the characteristics of business.
Answer:
The key features of a business are:
(a) Profit-Oriented:
The central motive of a business is to earn profit. Profit sustains the business and indicates its performance. Without profit, a business cannot continue.
(b) Exchange of Goods and Services:
Business involves selling goods and services for profit. Manufacturers produce goods and sell them, often offering after-sales services. Service providers, on the other hand, sell non-physical services. For example, Samsung sells phones (goods), while Vodafone sells mobile network services.
(c) Uncertainty and Risk:
Every business is exposed to risks. These can be man-made, like fire or theft, or natural, like floods or earthquakes. Market changes, strikes, or new competitors also pose risks.
(d) Creating Utility:
Businesses increase the usefulness (utility) of products in three ways:
Form Utility: Changing the product’s form, like making ice cream from milk.
Place Utility: Transporting goods to where they are needed.
Time Utility: Storing goods for future sale, like selling raincoats during the monsoon.
(e) Continuity of Activity:
Business activities must be ongoing. A one-time sale, like selling personal property for profit, does not count as business unless it’s continuous.
(f) Capital Requirement:
Money is essential in business for buying materials, paying employees, and running operations.
(g) Economic Nature:
Business is an economic pursuit aimed at earning profit and building wealth.
3: “Existence of business is not possible without society.” Explain the statement with reference to social objectives of business.
Answer :
Explanation:
Businesses don’t operate in isolation; they interact with various sections of society—owners, workers, customers, suppliers, and authorities. To maintain this relationship, businesses must honor social obligations by obeying laws like the Employee Welfare Act and Consumer Protection Act. Rising public awareness and strict legal frameworks encourage businesses to fulfill these responsibilities and contribute positively to society.
4: What is business risk? State the causes of business risk.
Answer :-
Business Risk:
The possibility of gaining less profit or incurring a loss due to uncertainties in business is called business risk.
Causes of Business Risk:
Technological Advancements:
New inventions force businesses to update machinery and processes. For instance, mobile phone makers had to switch from basic phones to smartphones.
Availability of Substitutes:
If alternatives enter the market due to better technology or pricing, customers may switch. For example, ball pens replaced ink pens.
Market Competition:
When new companies enter the market, existing ones must spend more on marketing or reduce prices, affecting profits.
Government Regulations:
Businesses must follow various laws (e.g., Pollution Control, Labour Laws). Non-compliance can lead to penalties or shutdowns.
Unpredictable Demand:
Factors like customer preferences, income changes, inflation, and fashion trends can affect product demand, impacting profits.
Physical Risks:
These include damage to goods, machinery breakdowns, or transport losses—all of which may affect business operations and lead to financial losses.
5. Distinguish between business, profession and employment.
Answer:
| No. | Points of Difference | Business | Profession | Employment |
|---|---|---|---|---|
| 1. | Nature of Work | Goods and services are sold to customers in exchange of money | Personal and business service is provided to customers in exchange of fees | Person works as an employee, does the designated work as per the rule and contract and earns a salary |
| 2. | Qualification | A businessman does not need any specific qualification | A professional needs to have professional qualification and training | Qualification may or may not be necessary. It depends on the nature of job |
| 3. | Reward or Return | Return is called profit | Return is called fees | Return is called salary or wages |
| 4. | Capital | Every business needs capital. However, the amount of capital depends on the type of business | Limited capital is needed, that too mainly at the time of establishment | Capital is not needed |
| 5. | Risk | There lies risk of uncertainty of profit and loss | Risk of uncertainty is less. Moreover, risk of not receiving fees exists | Risk of uncertainty is limited to not getting a regular job |
| 6. | Code of Conduct | Rules and laws set by the government are to be followed | Code of conduct is to be followed as established by the respective professional bodies | Rules specified by the employer in agreement are to be followed |
| 7. | Transfer of Ownership | Possible | Not possible | Not possible |