Important Questions for 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.

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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

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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:

Basis Business Profession Employment

Capital Owner needs to Limited capital No investment
Investment organise investment needed to establish. required.
through personal or
other sources

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 depending on the
size and nature of
the business.
Risk Risk arises due to A professional Salaries are
uncertainty of usually receives a fixed, they do
profits. pre-determined or not depend on
agreed fee thus the company's
moderate risk. performance
therefore no risk
at all.
Transfer Interest can be Not possible Not possible
of interest transferred for
consideration or
otherwise after
following legal
formalities.

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.

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● 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:

Basis Primary Industry Secondary Industry

Meaning It involves production and It processes raw material by
extraction of natural primary industry to produce
resources. goods for final consumption.
Scope It includes extractive and It includes manufacturing
genetic industries. and construction industries.
Examples Farming, Fishing, Mining, Automobile industry,
etc. petroleum, kerosene oil, etc.

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

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 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

Basis Industry Commerce Trade

Meaning It involves the It refers to smooth It refers to
production and flow of goods and exchange of
manufacture of services from goods and
goods and services. producer to services.
consumers.
Scope It includes primary, It includes trade and It includes
secondary and auxiliaries to trade. internal and
tertiary industry. external trade.
Utility It creates form utility It creates time and It creates place
place utility. utility.
Capital Large amount of Comparatively lesser Less capital
Requireme capital investment capital investment requirement
nt required required
Risk Maximum risk Lesser risk involved Least risk
involved than industry involved

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

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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

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 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

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 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

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“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.

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(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.

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● 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:
a. 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.
b. 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.
c. 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.
d. 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

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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:

Basis Business Profession Employment

Meaning Business is an Any economic Employment is an
economic activity activity which is occupation in
which is regularly carried out by a which people work
engaged in person with for others as per
production or specialised agreed terms and
purchase and sale knowledge and conditions and
of goods and skills in order to receive salary in
services with an serve society is return.
aim to earn profit. called profession.
Mode of Established after A certificate of Starts after
establishme fulfilling some practice required. receiving an
nt required legal appointment letter.
formalities.
Nature of Selling and buying Rendering Work is as per the
work of goods and specialized services contract and the
services. rules of service.
Qualificatio No minimum Formal qualification Qualification
n qualification and training from a requirements differ
required. professional body is with job type.
a must.
Reward or Profit Professional fee Wages or salary
return earned
Capital It is dependent Limited capital No capital.
investment upon the type and needed.
size of business.
Risk High uncertainty Little or limited risk No risk
and risk.
Transfer of Possible Not possible Not possible
interest
Code of No code of conduct Professional code of Rules set by the
conduct is prescribed. conduct is there. employer are to be
followed.

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 Example A person having Chartered Jobs in banks,
his shop, factory Accountants, companies etc.
etc. Lawyers, Doctors
are all professionals.

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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