Business, Trade and CommerceClass 11 Business Studies NCERT Solutions
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Q1Activities
Which objective of business is discussed in the above case?
Solution
The primary objective of business discussed in the case study is Innovation. Dipak Bharali did not just follow the traditional method of expanding his business by purchasing more looms. Instead, he thought 'outside the box' and pushed himself to create a machine, 'Chaneki', that would automate the process of weft insertion. This introduction of a new method to make the weaving process faster and more efficient is a clear example of innovation.
Q2Activities
How has the identified objective of business contributed to the growth of business unit? Give reasons.
Solution
The objective of innovation has significantly contributed to the growth of the business unit in the following ways:
- Increased Productivity: The case states that the 'Chaneki' device made the machine run 40 times faster than manual weft insertion. This drastic increase in speed led to a major rise in output and productivity.
- Improved Quality: The increased efficiency also allowed for an improvement in the quality of the weaving, which would please customers and enhance the reputation of the business.
- Competitive Edge: By creating this unique device, Dipak Bharali's business gained a significant competitive advantage over others who were still using slower, manual methods. This allows the business to scale up and capture a larger market share.
- Increased Profitability: Higher productivity and output, likely with reduced labor time per unit, would lead to lower costs and higher profits for the business, enabling further growth and expansion.
Q3Activities
Why does business require multiple objectives for its sustainable growth?
Solution
A business requires multiple objectives for its sustainable growth because it has to balance a number of needs and goals to survive and prosper in the long run. Focusing on a single objective, such as profit maximization, can be detrimental.
- Balancing Stakeholder Interests: A business interacts with various stakeholders like customers, employees, investors, and society. It needs objectives that cater to all these groups, such as providing quality products to customers (market standing), fair wages to employees, and fulfilling social responsibilities, not just earning profits for investors.
- Long-Term Survival: Over-emphasis on short-term profit can lead to unethical practices that may harm the business's reputation and lead to its downfall. Objectives like innovation, improving productivity, and maintaining a strong market standing are crucial for long-term survival and growth.
- Holistic Management: Multiple objectives enable a business to analyze its performance across different areas. For instance, a business needs objectives related to acquiring physical and financial resources, ensuring productivity, and fostering innovation. This allows for a more comprehensive and balanced approach to management, ensuring that no critical area is neglected, which is essential for sustainable growth.
Q1Long Answer Questions
Discuss the development of indigenous banking system in Indian subcontinent.
Solution
The indigenous banking system in the Indian subcontinent developed primarily to support the extensive trading activities that were the mainstay of the ancient economy. As trade flourished, both internally and with foreign lands, it generated surplus income, creating a need for financial institutions to manage this wealth and finance further commercial ventures.
Key features of this development include:
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Financing Trading Activities: The wealth generated from trade was channelized into further investment. This led to the dominant growth of an indigenous banking system that provided capital funds to manufacturers, traders, and merchants for expansion and development.
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Development of Financial Instruments: To overcome the risks of carrying large sums of money over long distances, instruments like Hundi and Chitties were developed.
- A Hundi was a financial instrument written in vernacular language that facilitated the safe transfer of money. It was a contract that warranted the payment of money, was unconditional, and could be transferred through negotiation. This reduced the risk of theft and robbery during long journeys by land or sea.
- Different types of Hundis existed, such as 'Darshani' (payable on sight) and 'Muddati' (payable after a fixed period), catering to various commercial needs.
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Enhancement of Commercial Operations: The emergence of credit transactions and the availability of loans and advances through this banking system enhanced commercial operations significantly. It allowed for a favorable balance of trade, where exports exceeded imports, leading to great prosperity.
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Evolution into Modern Banks: Over time, these indigenous systems evolved. Commercial and industrial banks were later established to finance trade and commerce on a larger scale, and agricultural banks were set up to provide loans to agriculturists. This historical system laid the foundation for the modern banking infrastructure in India.
Q2Long Answer Questions
Define business. Describe its important characteristics.
Solution
Definition of Business:
Business is defined as an economic activity involving the regular production or procurement of goods and services with the objective of earning profit by satisfying human needs in society.
Important Characteristics of Business Activities:
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An Economic Activity: Business is fundamentally an economic activity because it is undertaken with the aim of earning money or a livelihood, not for emotional reasons like love or sympathy.
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Production or Procurement of Goods and Services: A business enterprise either manufactures the goods it sells (like machinery or furniture) or procures them from producers to sell to consumers. Services such as transportation, banking, and electricity are also offered.
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Sale or Exchange of Goods and Services: Business involves the transfer or exchange of goods and services for value. If goods are produced for personal consumption and not for sale, it is not considered a business activity. For example, cooking food at home is not business, but selling it in a restaurant is.
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Dealings in Goods and Services on a Regular Basis: A business must involve dealings in goods or services on a regular basis. A single transaction of sale or purchase does not constitute a business. For instance, selling one's old radio set is not a business, but regularly selling radio sets from a shop is.
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Profit Earning: The main purpose of business is to earn profit. Profit is the excess of income over expenses and is essential for the survival and growth of the business. Businesspersons make efforts to maximize profits by increasing sales or reducing costs.
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Uncertainty of Return: There is always uncertainty regarding the amount of profit a business will earn. The return on investment is not fixed, and there is always a possibility of incurring losses, despite the best efforts.
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Element of Risk: Risk is the uncertainty associated with a potential loss. It is an essential element of every business and is caused by factors like changes in consumer tastes, competition, fire, theft, or natural calamities. Risk cannot be eliminated, only minimized.
Q3Long Answer Questions
Compare business with profession and employment.
Solution
Business, profession, and employment are the three main types of economic activities. They can be compared on the following bases:
| Basis | Business | Profession | Employment |
|---|---|---|---|
| Mode of Establishment | Starts with the entrepreneur's decision and legal formalities. | Requires membership of a professional body and a certificate of practice. | Begins after receiving an appointment letter and signing a service agreement. |
| Nature of Work | Provision of goods and services to the public. | Rendering of personalized, expert services. | Performing work as per the service contract or rules of service. |
| Qualification | No minimum qualification is necessary. | Specialized qualifications, expertise, and training are mandatory. | Qualification and training are as prescribed by the employer. |
| Reward or Return | Profit earned. | Professional fee. | Salary or wages. |
| Capital Investment | Requires capital investment depending on the size and nature. | Limited capital is needed for establishment. | No capital is required. |
| Risk | Profits are uncertain and irregular; risk is high. | The fee is generally regular and certain; some risk exists. | Pay is fixed and regular; there is no or very little risk. |
| Transfer of Interest | Transfer is possible with some formalities. | Not possible. | Not possible. |
| Code of Conduct | No prescribed code of conduct. | A professional code of conduct must be followed. | Norms of behavior laid down by the employer must be followed. |
| Example | A shop, a factory. | Legal, medical profession, chartered accountancy. | Jobs in banks, insurance companies, government departments. |
Q4Long Answer Questions
Define Industry. Explain various types of industries giving examples.
Solution
Definition of Industry:
Industry refers to economic activities that are connected with the conversion of resources into useful goods. It generally involves activities where mechanical appliances and technical skills are used, such as producing, processing, breeding, and raising of animals.
Types of Industries:
Industries can be broadly classified into three categories: primary, secondary, and tertiary.
1. Primary Industries:
These industries are concerned with the extraction and production of natural resources and the reproduction and development of living organisms. They are further divided into:
- Extractive Industries: These industries extract or draw products from natural sources like the earth, sea, or air. They supply basic raw materials.
- Examples: Farming, mining, lumbering, hunting, and fishing.
- Genetic Industries: These industries are engaged in breeding plants and animals for their use in further reproduction.
- Examples: Cattle breeding farms, poultry farms, fish hatcheries, and plant nurseries.
2. Secondary Industries:
These industries use the materials that have been extracted at the primary stage to produce goods for final consumption or for further processing.
- Manufacturing Industries: These industries produce goods by processing raw materials. They are further divided into:
- Analytical Industry: Separates different elements from the same material (e.g., oil refinery).
- Synthetical Industry: Combines various ingredients to make a new product (e.g., cement industry).
- Processing Industry: Involves successive stages for manufacturing (e.g., sugar and paper industry).
- Assembling Industry: Assembles different component parts to make a new product (e.g., television, car, computer manufacturing).
- Construction Industries: These industries are involved in the construction of buildings, dams, bridges, roads, tunnels, and canals. Engineering and architectural skills are crucial.
3. Tertiary Industries:
These industries provide support services to primary and secondary industries and also facilitate trade. They are also known as service industries.
- Examples: Transport, banking, insurance, warehousing, communication, packaging, and advertising.
Q5Long Answer Questions
Describe the activities relating to commerce.
Solution
Commerce includes all those activities which are necessary for facilitating the free flow and exchange of goods and services from producers to consumers. It acts as a link between producers and consumers. The activities relating to commerce can be classified into two broad categories:
1. Trade:
Trade is the core of commerce and refers to the buying and selling of goods and services. It involves the transfer or exchange of goods for a price. Trade removes the hindrance of persons by making goods available to consumers from producers. It can be internal (within a country) or external (between countries).
2. Auxiliaries to Trade (Aids to Trade):
These are activities that assist trade and remove various hindrances in the process of exchange. They support not only trade but the entire business activity.
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Transport and Communication: Removes the hindrance of place by moving goods from the place of production to the markets for sale. Communication facilitates the exchange of information between producers, traders, and consumers.
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Banking and Finance: Removes the hindrance of finance by providing the necessary funds for business operations through loans, overdrafts, and other financial services.
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Insurance: Removes the hindrance of risk by providing protection against loss or damage to goods due to fire, theft, accidents, etc. Businesses can recover their losses by paying a nominal premium.
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Warehousing: Removes the hindrance of time by providing storage facilities for goods. This ensures a continuous supply of goods in the market as and when they are required, which helps in stabilizing prices.
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Advertising and Public Relations: Removes the hindrance of information by making consumers aware of the goods and services available in the market. It persuades potential customers to buy products by informing them about their features, price, and utility.
Q6Long Answer Questions
Explain any five objectives of business.
Solution
While profit is a primary objective, a business needs to pursue multiple objectives to survive and prosper in the long run. Five important objectives of business are:
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Market Standing: This refers to the position of an enterprise in relation to its competitors. A business must aim to build a strong market standing by offering competitive products at reasonable prices and providing excellent customer service. A good reputation and goodwill are essential for success.
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Innovation: Innovation is the introduction of new ideas or methods. It is crucial for growth and for gaining a competitive edge. This can involve innovation in products or services (e.g., developing a new product) or innovation in the skills and activities needed to supply them (e.g., adopting a new production method). No business can thrive in a competitive world without innovation.
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Productivity: Productivity is a measure of efficiency, calculated by comparing the value of output with the value of inputs. Every business must aim for greater productivity by making the best possible use of its available resources (manpower, materials, machinery, and money). Higher productivity leads to lower costs and higher profits.
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Earning Profits: Profit is essential for the survival and growth of any business. It is the reward for risk-taking. A business must earn a reasonable profit to cover its costs, finance its expansion, and build its reputation. Profitability, which refers to profit in relation to the capital invested, is a key measure of business performance.
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Social Responsibility: This refers to the obligation of a business to contribute resources for solving social problems and to operate in a socially desirable manner. Since businesses are a part of society and use its resources, they have a responsibility towards various sections of society, including customers, employees, investors, and the community at large. Fulfilling social responsibilities helps in building a positive public image and ensures long-term success.
Q7Long Answer Questions
Explain the concept of business risk and its causes.
Solution
Concept of Business Risk:
The term 'business risk' refers to the possibility of a business earning inadequate profits or even incurring losses due to uncertainties or unexpected events. It is an inherent part of every business. Risk arises because future events are unpredictable. There are two main types of business risks:
- Speculative Risks: These involve both the possibility of gain as well as the possibility of loss. They arise from market fluctuations, such as changes in demand, supply, or prices.
- Pure Risks: These involve only the possibility of loss or no loss, but never a gain. Examples include the risk of fire, theft, or strikes.
Causes of Business Risk:
Business risks arise from a variety of causes, which can be classified as follows:
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Natural Causes: These are causes over which humans have very little control. They result from natural calamities that can cause heavy losses of life, property, and income.
- Examples: Floods, earthquakes, lightning, heavy rains, famine.
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Human Causes: These risks are associated with human actions, negligence, or dishonesty. They can lead to financial losses for the business.
- Examples: Dishonesty or carelessness of employees, strikes, riots, stoppage of work due to power failure, management inefficiency.
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Economic Causes: These are related to uncertainties in the market and economy. They can affect the profitability of the business.
- Examples: Changes in demand for goods, increased competition, price fluctuations, changes in technology or methods of production, rise in interest rates, or levy of higher taxes.
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Other Causes: This category includes unforeseen events that do not fall into the above categories.
- Examples: Political disturbances, mechanical failures like the bursting of a boiler, and fluctuations in foreign exchange rates.
Q8Long Answer Questions
What factors are to be considered while starting a business? Explain.
Solution
Starting a business requires careful planning and consideration of several basic factors to ensure its success. The key factors to be considered are:
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Selection of Type of Business: The first decision is about the nature and type of business to undertake. This choice is influenced by customer requirements, market demand, potential for profit, and the entrepreneur's own technical knowledge and interest.
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Size of Business: The entrepreneur must decide on the scale of operations. This decision depends on factors like the expected demand for the product and the amount of capital the entrepreneur can arrange. One can start on a large scale if confident about the market, or begin on a small scale and expand later.
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Location of Business Enterprise: The choice of location is critical as it can affect the cost of production and the ability to serve customers effectively. Factors to consider include the availability of raw materials and labor, power supply, and proximity to services like banking, transportation, and warehousing.
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Financing the Proposition: Finance is the lifeblood of a business. The entrepreneur must determine the total capital required for fixed assets (like machinery, buildings) and current assets (like raw materials, stock). A proper financial plan must be made to identify the sources from where capital will be raised and how it will be utilized.
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Physical Facilities: This involves acquiring the necessary physical resources like machines, equipment, buildings, and other supportive services. The requirement for these facilities depends on the nature and size of the business and the production process.
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Competent and Committed Workforce: No business can be run single-handedly. The entrepreneur needs to identify the requirement for skilled and unskilled workers and managerial staff. It is essential to have a plan for recruiting, training, and motivating this workforce to perform effectively.
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Tax Planning: An entrepreneur must consider the tax liability under various tax laws. Tax planning is essential because taxes can significantly impact business decisions and profitability. Understanding tax laws helps in managing the financial aspects of the business efficiently.
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Launching the Enterprise: After all the above decisions have been made, the entrepreneur can proceed with the actual launch. This involves mobilizing resources, fulfilling legal formalities, starting the production process, and initiating a sales promotion campaign.
Q1Short Answer Questions
Why is business considered as economic activity?
Solution
Business is considered an economic activity because it is undertaken with the primary objective of earning money or a livelihood. Unlike non-economic activities, which are performed out of love, sympathy, or patriotism, business activities such as the production, purchase, and sale of goods and services are carried out with the motive of earning a profit. This fundamental purpose of generating income aligns directly with the definition of an economic activity.
Q2Short Answer Questions
How does business contribute to the economic development of a country?
Solution
Business contributes significantly to the economic development of a country in several ways:
- Growth and Development: Business activities lead to the overall growth and development of the economy by producing goods and services that satisfy human needs.
- Income Generation: Trading and commerce, both internal and external, generate surplus income, which increases the country's wealth.
- Investment and Capital Formation: Profits from business are channelized into further investment, leading to the expansion of industries and the growth of banking systems to finance trading activities.
- Development of Infrastructure: Business fosters the growth of aids to trade, such as transportation, banking, communication, and insurance, which are essential components of a nation's infrastructure.
- Employment Generation: Businesses create jobs for people, helping to reduce unemployment and improve the standard of living.
Q3Short Answer Questions
State the different types of economic activities.
Solution
Economic activities are those undertaken to earn a livelihood. They can be broadly divided into three main categories:
- Business: Activities involving the production, procurement, and sale of goods and services with the objective of earning profit.
- Profession: Occupations that require specialized knowledge, skill, and training, governed by a code of conduct. The primary motive is to render services for a professional fee. Examples include doctors, lawyers, and chartered accountants.
- Employment: An occupation in which an individual works for another person or organization (the employer) and receives salary or wages in return. The employee performs work as per the service contract.
Q4Short Answer Questions
State the meaning of business.
Solution
Business refers to an occupation in which people regularly engage in economic activities related to the purchase, production, and/or sale of goods and services with the main objective of earning profits by satisfying human needs in society. It is a broad term that encompasses industry, trade, and commerce.
Q5Short Answer Questions
How would you classify business activities?
Solution
Business activities can be classified into two broad categories:
- Industry: This category is concerned with the production or processing of goods and materials. It involves the conversion of resources into useful goods. Industry can be further divided into primary, secondary, and tertiary industries.
- Commerce: This category includes all activities that are necessary for facilitating the exchange of goods and services. It includes trade (buying and selling of goods) and auxiliaries to trade (services like transport, banking, insurance, warehousing, and advertising).
Q6Short Answer Questions
What are the various types of industries?
Solution
Industries can be divided into three broad categories:
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Primary Industries: These are concerned with the extraction and production of natural resources and the reproduction of living organisms. They are further divided into:
- Extractive Industries: (e.g., farming, mining, fishing)
- Genetic Industries: (e.g., cattle breeding, poultry farms, nurseries)
-
Secondary Industries: These industries use materials extracted by primary industries to produce goods for final consumption or further processing. They are further divided into:
- Manufacturing Industries: (e.g., oil refinery, cement, car assembly)
- Construction Industries: (e.g., construction of buildings, dams, roads)
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Tertiary Industries: These industries provide support services to primary and secondary industries and facilitate trade. Examples include transport, banking, insurance, warehousing, and advertising.
Q7Short Answer Questions
Explain any two business activities which are auxiliaries to trade.
Solution
Two business activities which are auxiliaries to trade are:
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Transport and Communication: Transport removes the hindrance of place by facilitating the movement of raw materials to the place of production and finished goods from factories to the markets for consumption. It connects producers and consumers who are geographically separated. Communication services, like postal services and telephone, are also essential for producers, traders, and consumers to exchange information with one another, thereby assisting trade.
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Banking and Finance: Banking removes the hindrance of finance. Business activities require funds for acquiring assets, purchasing raw materials, and meeting other expenses. Banks provide these necessary funds through loans, overdrafts, and cash credit facilities. They also facilitate trade by helping in the collection of payments, remittance of funds, and financing foreign trade, thus helping businesses overcome financial problems.
Q8Short Answer Questions
What is the role of profit in business?
Solution
Profit plays a crucial role in business and is considered an essential objective for several reasons:
- Source of Income: It is a primary source of income for business owners.
- Source of Finance: Profits can be reinvested in the business for expansion and growth requirements.
- Indicator of Efficiency: Earning profit indicates that the business is operating efficiently.
- Society's Approval: It can be seen as society's approval of the business's utility, as customers are willing to pay a price that exceeds the cost.
- Builds Reputation: A profitable business builds a good reputation and goodwill in the market, which helps in its long-term success.
Q9Short Answer Questions
What is meant by business risk?
Solution
Business risk refers to the possibility of a business incurring inadequate profits or even losses due to uncertainties or unexpected events. These risks arise from factors like changes in consumer tastes, increased competition, changes in government policies, natural calamities, or human errors. Since the future is uncertain, no business can completely eliminate risk, though it can be minimized.
Q10Short Answer Questions
State the causes of risks involved in business?
Solution
The causes of risks involved in business can be classified into the following categories:
- Natural Causes: These are risks arising from natural calamities over which humans have little control, such as floods, earthquakes, heavy rains, and famine.
- Human Causes: These risks are due to human actions or negligence, such as employee dishonesty, carelessness, strikes, riots, or management inefficiency.
- Economic Causes: These include uncertainties related to market conditions, such as changes in demand, competition, price fluctuations, collection of dues from customers, or changes in technology.
- Other Causes: This category includes unforeseen events like political disturbances, mechanical failures (e.g., bursting of a boiler), and fluctuations in currency exchange rates.