CHAPTER 1

Nature and Purpose of Business

Business, more than any other occupation, is a continual dealing with the future; It is
a continual calculation, an instinctive exercise in foresight.

SYLLABUS
Business - Concept
Concept includes meaning and features
Business, profession and employment-Concept
Objectives of business
Classification of business activities - Industry and Commerce
Industry-types: primary, secondary, tertiary-Meaning and subgroups
Commerce-trade: (types-internal, external; wholesale and retail) and auxiliaries to
trade; (banking, insurance, transportation, warehousing, communication, and
advertising) - meaning
Business risk-Concept
22 Periods

LEARNING OBJECTIVES
After going through this unit, the student/ learner would be able to:
 Understand the concept of business with special reference to economic and
non economic activities.
 Discuss the characteristics of business.
 Understand the concept of business, profession and employment.
 Differentiate between business, profession and employment.
 Appreciate the economic and social objectives of business.
 Examine the role of profit in business.
 Understand the broad categories of business activities-industry and
commerce.
 Describe the various types of industries.
 State the meaning of commerce, trade and auxiliaries to trade.
 Discuss the meaning of different types of trade and auxiliaries to trade.
 Examine the role of commerce- trade and auxiliaries to trade.
 Understand the concept of risk as a special characteristic of business.
 Examine the nature and causes of business risks.

INTRODUCTION
After their Class X exams were over, Aakanksha, Shelly, Shilpa and Chhavi
happened to meet at Shruti’s house on her birthday. I reached there just when they
were sharing their experiences of examination days. After asking about their well-
being, I enquired from each one of them about their career plans. But none of them
had definite reply. I suggested them to opt for business as a promising and
challenging career. Shelly got excited by the idea and said, "Yes, my father is a
businessman." She added that a businessman can earn more money even than an
engineer or a doctor. I said, "Shelly, there is a lot more to business than mere
money." The five classmates began raising many questions: what exactly business is
all about? what is the purpose of business? What else is there in business besides
money? How is business different from non-business activities? And so on.
The conversation among the five classmates is obviously focused on the
nature and purpose of business. Business is all around us and it is the mainspring of
modern life. But very few people understand its true nature and its role in society.
The study of business is essential for training oneself fora career.
All human beings require different types of goods and services to satisfy their
needs and wants. Business is a major economic activity concerned with the
production and sale of goods and services required by people. The purpose behind
most business activities is to earn money by meeting people’s demands for goods
and services. Thus, modern concept of buSiness is founded on the goal of ‘profits
through service’.

1.1 Economic and Non-economic Activities

Every human being is busy in one activity or the other to satisfy his/her needs,
Human activities may broadly be classified as economic and non-economic
activities.
Human Activities

Economic Activities Non-economic Activities

- Business - Religious
- Profession - Social
- Employment - Parental
- Patriotic
 A teacher teaching in a school —An economic activity

Basis Economic Activities Non-economic Activities

1. Meaning Economic activities are those Non-economic activities are
by which we can earn our those performed out of love,
livelihood. sympathy, sentiments,
patriotism, etc.
2. Purpose/Motive/ These activities are These activities are
Expectation undertaken to earn money undertaken to satisfy social,
and to create wealth. psychological and emotional
needs.
3. Examples  A worker working in a  A housewife cooking food
factory for her family.
 A doctor operating in his  A boy helping an old man
clinic cross the road.
 A teacher teaching in a  A person going to temple
school to offer his/her prayers
4. Outcome Production, distribution and Mental/Psychological
consumption of goods and satisfaction.
services.
5. Types Business, profession and Religious, social, parental
employment. and patriotic activities.
 A boy helping an old man cross the road. —A non-economic activity

The main distinction between economic and non-economic activities depends

on the basic motives with which they are performed. The same activity can be
economic if it results in earning money and can be non-economic if the motive is to
serve others, not a monetary gain. For example, when a lady cooks food for
monetary gain, it is an economic activity. But if the same lady cooks food for her
family, it is a non-economic activity. Similarly, if a teacher is teaching in a school and
gets salary, it is an economic activity. But when he/she is teaching his/her son or
daughter at home, then it is a non-economic activity.

1.2 Concept and Characteristics of Business

Meaning and Definitions of Business

Literally, the term ‘business’ implies ‘busyness’ or ‘being busy’. But this is not
the proper concept of business as it covers every human activity.
Business may be defined as an economic activity involving the purchase,
production and/or sale of goods and services with a motive of earning profits by
satisfying human needs in society.
The purpose behind most business activities is to earn money by meeting
people’s demands for goods and services.
The organisations pursuing these activities are called business enterprises or
firms, who perform a wide variety of functions like financing, production, marketing
and human resource management.

Definitions
1. "Business is an institution organised and operated to provide goods and
services to society under the incentive of private gain."
—B.O. Wheeler
2. "Business may be defined as a human activity directed towards producing or
acquiring wealth through buying and selling of goods."
 —Lewis H. Haney
3. "Business is any enterprise engaged in the production and distribution of
goods for sale in market or rendering services for a price."
—R.N. Ownes
4. "Business may be defined as an activity in which different persons exchange
something of value, whether goods or services, for mutual gain or benefit."
—Peterson and Plowman

Characteristics/Features of Business
The nature of business can be understood clearly by studying its main
characteristics, discussed below:
1. An economic activity: Business is considered to be an economic activity
because of the following reasons:
(i) It is undertaken with the object of earning money or livelihood. There is
no place for love, affection, sympathy or patriotism.
(ii) It involves sale, exchange, purchase of goods and services for mutual
profit through the satisfaction of human wants.
(iii) Business requires use of scarce economic resources like land, labour,
capital and machinery.
2. Production or procurement of goods and services: Business enterprise
either manufactures goods (sugar, pen, textbook, machinery, furniture, etc.) or
acquires them from producers. Services include transportation, banking, insurance,
communication, etc.
3. Sale or exchange of goods and services for the satisfaction of human
needs: One of the essential characteristics of business is that there should be sale
or exchange of goods and services between the seller and the buyer. For example, if
a housemaid cooks food for her family at home, it is not a business. But cooking food
and selling it to customers in a restaurant is business.
4. Dealings in goods and services on a regular basis: Business involves
dealings in goods or services on a regular or daily basis. One single transaction of
sale or purchase does not constitute business. For example, sale of old newspaper
by a housewife or the sale of one’s old scooter (even at a profit) is not business
though the seller gets money in exchange.
 5. Profit earning: One of the main purposes of business is to earn money by
way of profits. Profit is essential to cover costs and risks of the business. Every
business must earn a reasonable profit to survive and grow. A business cannot
survive without making profits. Indeed, profit is a measure of the success in
business. So, every businessman makes all efforts to maximise profits. However,
profit is not the sole criterion of business. The modern concept of business is
founded on the goal of ‘profits through service’.
6. Uncertainty of return: There is always uncertainty of return and possibility
of loss. Every businessman invests money in his/her business with the objective of
earning profit. However, there is always a possibility of loss.
7. Element of risk: Risk implies the uncertainty of reward or the possibility of
loss. There is always some element of risk involved in business because the future is
uncertain and business has practically no control over several factors affecting
profits. The risks are related to changes in consumer taste and fashions, strikes or
lock-outs in the work place, increased competition, fire, theft, accidents, etc. No
business can altogether eliminate risks, but can minimise it through insurance.

1.3 Comparison Between Business, Profession and Employment

Economic activities may be divided into three major categories, viz.,
(i) Business, (ii) Profession and (iii) Employment.

Economic Activities
Business Profession Employment
• Farming • Medical (Doctor) • Workers (Wages)
• Manufacturing goods • Legal (Lawyer) • Employees (Salary)
• Construction • Teaching (Teacher)
(roads, buildings)
• Banking • Accounting (C.A.)

1. Business: Business refers to an occupation in which people regularly

engage in activities related to purchase, production and/or sale of goods and
services with a view to earning profits by satisfying the needs of other people,
People engage in business to earn income in the form of profit.
2. Profession: Profession includes those economic activities which require
application of special knowledge and skills in the occupation. In every profession,
guidelines or codes of conduct laid down by professional bodies have to be followed.
Those engaged in professions are known as professionals.

Professions Professionals Professional Bodies

Medical Doctors Medical Council of India
Legal Lawyers Bar Council of India
Accounting Chartered Accountants (CA) Institute of Chartered Accountants of
India (ICAI)

3. Employment: Employment refers to the occupation in which people work

for others and get remuneration (wages/salaries) in return. Those who are employed
by others are known as employees.
Examples: (i) People who work in factories receive wages, (ii) Bank
employees get salaries, etc.

Comparison of Characteristics of Business, Profession and Employment

Basis Business Profession Employment
1. Mode of Entrepreneur’s Membership of a Appointment letter
establishment decision and other professional body and service
legal formalities, if and certificate of agreement
necessary practice
2. Nature of work Provision of goods Rendering Performing work as
and services to the personalised, per service contract
public expert services or rules of service
3. Qualification No minimum Expertise and Qualification and
qualification is training in a training as prescri-
necessary specific field is a bed by the
must employer
4. Reward/return Profit earned Professional fee Salary or wages
5. Capital Capital investment Limited capital No capital required
investment required as per needed for
size and nature of establishment
business
6. Risk Profits are Fee is generally Fixed and regular
uncertain and regular and certain; pay; no risk
irregular; risk is some risk
present
7. Transfer of Transfer possible Not possible Not possible
interest with some
formalities
8. Code a conduct No code of conduct Professional code Norms of behaviour
is prescribed of conduct is to be laid down by the
followed employer are to be
followed
9. Main objective/ Profit-making To provide service To earn income by
Motive satisfying the
employer

In spite of these differences, the three economic activities are inter-dependent

and inter-related. Business employs a large number of persons to perform business
operations successfully. Business firms also need the services of professional
experts like CAs, lawyers, engineers, etc. for tackling various business problems.
The success of modern business depends upon the combined efforts of
businessmen, professionals and employees.

1.4 Objectives of Business

Every business is directed to the achievement of certain objectives.
Objectives are defined as ends which a business firm seeks to achieve by its
operations, e.g., increasing sales by 10 per cent, earning 20 per cent return on
investment (ROI), etc.
Objectives provide directions for all decisions and actions.
The objectives of a business should be well defined and must leave no scope
for ambiguity. Since a business has to balance a number of needs and goals, and
has to satisfy different individuals and groups, it requires multiple objectives. If a
business firm follows only one objective, say profit maximisation, it cannot achieve
excellence. Objectives have to be specific in every area and sphere of business.
This is essential for its own survival and prosperity.

Objectives of Business

Economic Objectives Social Objectives

• Profit earning • Production and supply of
• Survival quality goods and services
• Growth • Avoidance of anti-social and
unfair trade practices
• Generation of employment
• Welfare of employees

Economic objectives
Since business is an economic activity, its main objectives are economic
objectives.
Economic objectives of business are centred around the personal profit of the
business and are based on one slogan ‘to earn maximum profits’.
 (a) Profit earning: Business activities are undertaken primarily to earn profit,
which is the excess of income over expenses. Every business must earn a
reasonable profit to survive and grow. A business cannot survive without making
profits. Indeed, profit is a measure of the success in business. Profit is essential for
covering costs and risks of the business.
(b) Survival: It is the basic objective of any business. Manage-ment must
ensure the survival of the organisation. In order to survive, an organisation must earn
enough revenues to cover costs.
(c) Growth: Every business needs to add to its prospects in the long run. For
this it is important for business to grow. Management must exploit fully the growth
potential of the organisation. Indicators of growth of a business are — (a) increase in
sales turnover, (b) increase s in the number of products and employees, etc.

Social objectives
Social objectives of business are centred around the interests of society and
based on the slogan of ‘social welfare’.
It is necessary that business should also pursue certain objectives desired by
the people of the society because business is an integral part of society.
Social responsibility refers to the obligation of business firms to contribute
resources for solving social problems and work in a socially desirable manner.
The social objectives of business should include the following:
(a) Production and supply of quality goods and services: Business should
produce and supply products of proper quality to satisfy customer expectations.
Quality may mean durability as in the case of radio, TV, refrigerator, etc. or purity as
in the case of medicine, or safety as in the case of pressure cooker, electric
appliances, etc. Modern consumers prefer to buy quality products. He looks for ISI
mark on electrical goods, FPO mark on food products, Hallmark on jewellery, etc.

(b) Avoidance of anti-social and unfair trade practices: A businessman

should avoid hoarding, black-marketing, over-charging, misleading advertisements,
etc. to mint money. Such unfair practices destroy the goodwill and image of the
business and may be punishable also.
(c) Generation of employment: Business should generate employment
opportunities to the disadvantaged sections of the society (e.g., physically
handicapped people).
(d) Welfare of employees: Business should provide good working conditions
and pay satisfactory wages/ salaries to its employees.
(e) Community service: Large business units should undertake community
services like setting up charitable dispensaries, schools, etc. For example, Steel
Authority of India contributes regularly for agriculture, industry, education, health
care, dairy, poultry, fisheries and drinking water supply to the people living nearby to
their steel plants.

1.5 Role of Profit in Business

The basic objective of every business is profit maximisation. Profit may be regarded
as an Source of funds for essential objective of business meeting
expansionrequirements because of the following reasons:

1. Source of income for business persons: As a source of income for the

businessmen, profits provide the means of livelihood for them.
2. Source of funds for meeting expansion requirements: Profits can be a
source of finance for meeting growth and expansion requirements of business.
3. Indication of efficient working of business: Profits indicate whether a
business is being managed efficiently or not. It is a measure of performance and
success of a business.
4. Reward for risk taking: It is in the hope of earning sufficient profits that a
businessman invests money in business and undertakes risks. Profit is essential for
covering costs and risks of the business.
5. Builds up reputation of business: With increasing profits over time, a
business earns reputation. It is able to raise loans and obtain credit more easily. It is
in a better position to pay higher wages and salaries to its employees.
However, profit maximisation cannot be the sole objective of business.
According to Urwick, "Profit can no more be the objective of a business than eating
is the objective ofliving."
Profit maximisation ignores the interests of various stakeholders especially
consumers. Unfair trade practices such as hoarding, black-marketing or adulteration
may be followed to maximise profits. However , no business can be successful in the
long-run if such practices are adopted because the affected people will oppose and
raise voice against the exploitation; and the business enterprises then might lose
business and may be unable to earn profit.
Conclusion: Profit is not the sole criterion of business. The early concept of
business was based on the goal of profit maximisation as reflected in the slogan ‘the
business of business is to do business’. However, the modern concept of business is
founded on the goal of ‘profits through service’.

1.6 Business Risks

The term ‘business risks’ refers to the possibility of inadequate profits or even losses
due to uncertainties or unexpected events. For example, demand for a firm’s product
may decline due to change in taste and fashion of customers or due to increased
competition. Decrease in demand will result in low sales and hence low profits or
even losses.

Nature of Business Risks

1. Business risks arise due to uncertainties. Natural calamities, change in
demand and prices, change in government policy, improvement in technology, etc.
are some of the examples of uncertainty which create risks for business.
2. Risk is an essential part of every business. No business can avoid risk.
Risk can be minimised (through insurance) but cannot be eliminated.
3. Degree of risk depends mainly upon the nature and size of business.
For example, a business dealing in fashionable items has a high degree of risk.
Similarly, a large-scale business has a higher risk than a small-scale business.
4. Profit is the reward for risk taking. ‘No risk, no gain’ is an age-old
principle, which applies to all types of business. Greater the risk, higher is the
chance of profit.

Causes of Business Risks

Business risks arise due to a variety of causes, which are classified as
follows:
1. Natural causes: Natural causes of business risks (e.g., flood, earthquake,
lightning, heavy rains, famine, etc.) are beyond human control. They result in heavy
loss of life, property and income.
2. Human causes: Human causes of business include carelessness or
negligence of employees, theft, strikes, riots, misappropriation of cash and goods,
etc.
3. Economic causes: Economic causes such as fluctuations in demand and
prices, competition, change in technology or method of production, etc. may also
result in losses.
4. Other causes: These include unforeseen events like political disturbances,
fluctuations in exchange rates, mechanical failures such as the bursting of boiler, etc.

Types of Business Risks

1. Speculative risks: Speculative risks involve both the possibility of gain as
well as the possibility of loss. They arise due to fluctuations in demand and supply,
changes in price, changes in fashion, etc.
 2. Pure risks: Pure risks involve only the possibility of loss or no loss. The
chance of fire, theft or strike are examples of pure risk. Their occurrence may result
in loss; non-occurrence means no loss.
3. Insurable risks: Insurable risks are those which can be insured, e.g.,
fire/theft of goods. They can be insured because it is possible to determine the
probability of such risks.
4. Uninsurable risks: Uninsurable risks are those which cannot be insured
because their probability cannot be determined. Fluctuations in demand and price,
change in Government policies, etc. are examples of uninsurable risks.

BUSINESS ACTIVITIES
Industry
Industry refers to economic activities which are connected with conversion of
resources into useful goods.

Primary Industry
Extractive
• Farming
• Mining
• Fishing
• Hunting
• Lumbering
• Oil extraction
Genetic
• Cattle breeding farms
• Poultry farms
• Pisciculture
• Nursery
Secondary lndustry
Manufacturing
• Analytical Industry
• Synthetical Industry
• Processing Industry
• Assembling industry
Construction
• Buildings
• Dams and Bridges
• Roads
• Tunnels and Canals
Tertiary Industry
• Transport
• Communication
• Banking
• Insurance
• Warehousing
• Advertising
Commerce
Commerce includes all those activities which are necessary for facilitating the
exchange of goods and services.
Trade
Internal Trade
• Wholesale Trade
• Retail Trade
External Trade
• Import Trade
• Export Trade
• Entrepot Trade
Auxiliaries to Trade (services)
• Banking
• Insurance Transportation
• Warehousing
• Communication
• Advertising

1.7 Classification of Business Activities

Various business activities may be classified into two broad categories — Industry
and Commerce.

INDUSTRY
Meaning
Industry is concerned with the production or processing of goods and
materials (using mechanical appliances and technical skills). For example, cotton
textile industry produces textile goods from cotton, electronic industry produces
electronic goods like TV, video camera, etc. as well as breeding and raising of
animals.
Thus, industry refers to economic activities which are concerned with
conversion of resources into useful goods.

Types of Industries
1. Primary industries: These industries are connected with:
• the extraction and production of natural resources, and
• reproduction and development of living organisms, plants, etc.
Primary industries may be of following types:
(i) Extractive industries: These industries extract or draw out various products
from natural resources such as earth, soil, water, etc. Farming, mining,
fishing, hunting, lumbering, oil extraction, etc. are examples of extractive
industries. The products of such industries are either directly consumed (e.g.,
 fish as food) or used as raw materials for manufacturing and construction
industries (e.g., iron ore is used in steel industry).
(ii) Genetic industries: Genetic means heredity or parentage. These industries
involve breeding or reproduction of plants and animals, e.g., cattle breeding
farms, poultry farms, pisciculture, nursery, etc.

2. Secondary industries: These industries are concerned with using the

materials extracted at the primary stage to produce goods for final consumption or
for further processing by other industrial units.
Secondary industries may be of following types:
(i) Manufacturing industries: These industries convert raw materials or semi-
finished products into finished products, e.g., timber into furniture.
Manufacturing industries may be subdivided into four categories:
 Analytical industry — a basic raw material is analysed or separated into a
number of products (e.g., an oil refinery separates crude oil into kerosene,
diesel, lubricating oil, gasoline and petrol).
 Synthetical industry — two or more materials are combined or mixed
together to manufacture a new product (e.g., cement, soaps, plastics,
paints, fertilizers, etc.).
 Processing industry — involves successive stages for manufacturing
finished products. (e.g., sugar and paper). Nature and Purpose of
Business
 Assembling industry—various components or parts are brought together to
produce a finished product (e.g., TV, car, computer, watches, etc.).
(ii) Construction industries: These industries are engaged in construction of
buildings, bridges, roads, dams, canals, etc. using the products of extractive
and manufacturing industries like bricks, sand, cement, iron and steel, wires,
etc.
3. Tertiary industries: These industries provide services facilities. It includes
transport, communication, banking, insurance, warehousing, advertising, etc.

COMMERCE
Meaning
Commerce includes two types of activities — (i) trade and (ii) auxiliaries to trade.
 Trade refers to buying and selling of goods and services with the objective of
earning profit.
 Activities which are meant for assisting trade are known as auxiliaries to trade
(or services), e.g., transport, communication, banking, insurance,
warehousing, advertising, etc.
Thus, commerce includes all those activities which are necessary for
facilitating the exchange of goods and services.

Types of Trade
 On the basis of geographical location of buyers and sellers, trade can broadly
be classified into two categories:
1. Internal trade; and 2. External trade.

1. Internal Trade: Trade which takes place within a country.

Internal trade can be classified into two broad categories:
(i) Wholesale trade: Wholesale trade refers to buying and selling of goods and
services in large quantities for the purpose of resale or intermediate use.
Traders dealing in wholesale trade are called wholesalers.
(ii) Retail trade: Retail trade refers to buying of goods and services in relatively
small quantities; and selling them to the ultimate consumers. Traders dealing
in retail trade are called retailers.
2. External Trade: Trade between two or more countries.
External trade can be classified into three broad categories:
(i) Import Trade: If goods are purchased from another country, it is called import
trade.
(ii) Export Trade: If goods and services are sold to other countries, it is called
export trade.
(iii) Entrepot Trade: Where goods are imported for export to other countries, it is
called entrepot trade. For example, India may buy petrol from Iran and sell a
part of it to Sri Lanka.

Auxiliaries to Trade
Auxiliaries to trade (or services) are described below:
1. Banking : Business needs funds for acquiring assets, purchasing raw
materials and Meeting day-to-day expenses. Necessary funds (in the form of
overdraft and cash credit facilities, loan and advances, etc.) can be obtained
by businessmen from commercial banks. Thus, banking helps business
activities overcome the problem of finance.
2. Insurance: Business involves various types of risks, e.g., theft, fire,
accidents, etc. Insurance makes provision against such risks. By getting their
goods insured, producers can avoid the risk of loss of goods.
3. Transportation: Transport (road, rail or coastal shipping) facilitates
movement of
— raw materials to the place of production, and
— the finished goods from factories to the place of consumption.
— Transportation makes for speed and efficiency in exchange. It is
because of transportation that a producer can sell his goods in different
parts of the world. It creates place utility.
4. Warehousing: Warehousing refers to the holding and preservation of goods
until they are finally consumed. It helps business firms to overcome the
problem of storage of goods and facilitates the availability of goods when
needed. Warehousing creates time utility.
 5. Communication: Communication services like postal services and telephone
facilities are helpful to the business for:
— establishing links with the outside world, viz., suppliers, customers,
competitors, etc.
— for quick exchange of information.
— The electronic media is mainly responsible for this transformation.
6. Advertising: Advertising brings goods and services to the knowledge of
prospective buyers. With the help of such knowledge, consumers can obtain
better value for their money. Thus, advertising helps to promote the sale of
products like electronic goods, automobiles, soaps and detergents, etc. by
providing information about them.

Role of Commerce-Trade and Auxiliaries to Trade

The principal function of commerce is to remove all types of hindrances in the
process of exchange of goods and services. The hindrances may be in respect of
persons, place, time, risk, finance, information, etc.
1. Trade removes hindrance of persons by making the goods available to the
consumers from the producers.
2. Transportation removes hindrance of place by moving goods from the
places of production to the markets for sale.
3. Storage and warehousing activities remove the hindrance of time by
facilitating holding of stock of goods to be sold as and when required.
4. Insurance removes hindrance of risk of loss or damage of goods due to
theft, fire, accidents, etc.
5. Banking removes hindrance of finance by providing funds to a
businessman for acquiring assets, purchasing raw materials and meeting
other expenses.
6. Advertising removes hindrance of information by informing consumers
about the goods and services available in the market.
7. Conclusion: Commerce is the backbone of the industry and other business
activities.

Key Terms
Economic Activities—those activities by which we can earn our livelihood.
Non-economic Activities—those performed out of love, sympathy, sentiments,
patriotism, etc.
Business Enterprises or Firms—the organisations which perform a wide variety of
functions like financing, production, marketing, etc.
Professionals—those people who are engaged in professions, e.g., doctor, lawyer,
CA, etc.
Code of Conduct—the guidelines laid down by professional bodies like Institute of
Chartered Accountants of India (ICAI), Medical Council, etc. to be followed by
professionals.
Employees—those who are employed by others.
Wages—the remuneration received in return for an unskilled job.
Salaries—the remuneration received in return for a skilled job.
Capital—the amount invested in business by the owners.
Objectives—ends which a business firm seeks to achieve by its operations, e.g.,
increasing sales by 10%.
Market Standing—the position of an enterprise in relation to its competitors in the
market.
Innovation—introduction of new ideas or methods for producing goods and
services.
Physical Resources/Facilities—machines and equipment, buildings.
Financial Resources—money or funds used in business.
Optimum Use of Resources—best possible use of resources.
Productivity—a measure of efficiency.
Social Responsibility—the obligation of business firms towards society.
Profit—the excess of revenues over costs.
Commerce—all those activities which are necessary for facilitating the exchange of
goods and services.
Lumbering—cutting and preparing forest timber for transport.
Entrepot Trade—goods imported for export to other countries.
Warehousing—the holding and preservation of goods until they are finally
consumed.
Utility—satisfaction/benefit.

Chapter at a Glance
Economic and Non-economic Activities
Economic activities are those activities which are undertaken to earn money and to
create wealth, e.g. a teacher teaching in a school, etc.
Business, profession and employment are economic activities.
Non-economic activities are those activities which are undertaken to satisfy social,
psychological and emotional needs, e.g., a housewife cooking food for her family, a
boy helping an old man cross the road, etc.

Characteristics of Business
DPS PURE*
1. An economic activity 2. Profit earning
3. Uncertainty of return 4. Element of risk
5. Production or procurement of goods and services
6. Sale/ exchange of goods and services for satisfaction of human needs
7. Dealings in goods and services on a regular basis

Objectives of Business

*
The purpose of 'DPS PURE' type of short forms is to enable the students remind the points while
answering questions. Students are advised to make similar short forms of their own choice.
1. Economic objectives
(a) Profit earning (b) Survival
(c) Growth
2. Social objectives
(a) Supply of desired quality of products
(b) Avoidance of anti-social and unfair trade practices
(c) Generation of employment
(d) Welfare of employees
(e) Community service

Role of Profit in Business

1. Source of income for businessman
2. Source of funds for business growth
3. Index of performance
4. Reward for risk taking
5. Builds up reputation of business
However, profit maximisation cannot be the sole objective of business. Social
objectives should also form a part of business objectives.

Business Risks
Business risks refer to the possibility of inadequate profits or even losses due to
uncertainties or unexpected events, e.g., decline in demand for a firm’s product due
to change in taste and fashion of customers.
Nature of Business Risks
1. Business risks arise due to uncertainties
2. Risk is an essential part of every business
3. Degree of risk depends mainly upon the nature and size of business
4. Profit is the reward for risk taking

Causes of Business Risks

1. Natural causes e.g., flood, earthquake
2. Human causes e.g., theft, strikes.
3. Economic ca uses e.g., fluctuations in demand and prices, competition.
4. Other causes e.g., political disturbances.

Classification of Business Activities

Various business activities may be classified into two broad categories — Industry
and Commerce.
A. Industry refers to economic activities which are connected with conversion of
resources into useful goods.
Types of Industries
1. Primary industries
(i) Extractive industries e.g., farming, mining, fishing, oil extraction.
(ii) Genetic industries e.g., poultry farms, pisciculture.
2. Secondary industries
(i) Manufacturing industries
 Analytical industry e.g., an oil refinery separates crude oil into
kerosene, diesel, lubricating oil, gasoline and petrol.
 Synthetical industry e.g., cement, soaps, paints.
 Processing industry e.g., sugar and paper.
 Assembling industry e.g., car, computer.
(ii) Construction industries e.g., construction of buildings, bridges, roads.
3. Tertiary industries: These industries provide services facilities, e.g.,
transport, communication, banking, insurance, etc.

B. Commerce includes trade and auxiliaries to trade. Buying and selling of

goods is termed as trade. Activities which are meant for assisting trade are
known as auxiliaries to trade or services, e.g., transportation, communication,
banking, insurance, etc.

Types of Trade
1. Internal Trade: Trade which takes place within a country.
(i) Wholesale trade (ii) Retail trade
2. External Trade: Trade between two or more countries.
(i) Import Trade (ii) Export Trade
(iii) Entrepot Trade

Auxiliaries to Trade
1. Banking 2. Insurance
3. Transportation 4. Warehousing
5. Communication 6. Advertising

Multiple-Choice Questions (MCQs) with Answers

(Carrying 1 mark each)
1. Which of the following does not characterise business activity?
(a) Production of goods (b) Presence of risk and services
(c) Sale or exchange (d) Salary or wages
2. Which of the broad categories of industries covers oil refinery and sugar
mills?
(a) Primary (b) Secondary
(c) Tertiary (d) None of them
3. Which of the following cannot be classified as an auxiliary to trade?
(a) Mining (b) Insurance
(c) Warehousing (d) Transport
4. The occupation in which people work for others and get remunerated in return
is known as
(a) Business (b) Employment
(c) Profession (d) None of them
5. The industries which provide support services to other industries are known
as
(a) Primary industries (b) Secondary industries
(c) Commercial industries (d) Tertiary industries
6. Which of the following cannot be classified as an objective of business?
(a) Investment (b) Productivity
(c) Innovation (d) Profit earning
7. Business risk is not likely to arise due to
(a) Changes in government policy (b) Good management
(c) Employee’s dishonesty (d) Power failure
8. The economic activity in which specialised knowledge is required is
(a) Business (b) Employment
(c) Profession (d) None of them
9. The reward a businessman gets for bearing the risks is called
(a) Remuneration (b) Commission
(c) Bonus (d) Profit
10. ‘Fishing’ is what type of Industry?
(a) Primary industry (b) Secondary industry
(c) Commercial industry (d) Tertiary industry
11. Businessmen earn profit for
(a) Income (b) Growth
(c) Risk taking (d) All of them

Answers
1. (d) 2. (b) 3. (a) 4. (b) 5. (d) 6. (a)
7. (b) 8. (c) 9. (d) 10. (a) 11. (d)

Very Short Answer (VSA) Type Questions with Answers

(Carrying 1 mark each)
1. Mention the two types of human activities.
Ans. (i) Non-economic activities (ii) Economic activities
2. Give two examples of non-economic activities.
Ans. (i) A housewife cooking food for her family.
(ii) A boy helping an old man cross the road.
3. Give two examples of economic activities.
Ans. (i) A worker working in a factory.
(ii) A teacher teaching in a school.
4. Give an example of activity which is economic in one sense and non-
economic in other sense.
Ans. If a teacher is teaching in a school and gets salary, it is an economic activity.
But when he is teaching his son/daughter at home, then it is a non-economic
activity.
5. Mention the three categories of economic activities.
Ans. (i) Business (ii) Profession (iii) Employment
6. Name the type of human activity in which your mother cooks food for her
family.
Ans. Non-economic activity.
7. Why is business considered as an economic activity?
Ans. Business is considered to be an economic activity because it is undertaken
with the object of earning money or livelihood. There is no place for love,
affection, sympathy or patriotism.
8. Mention any two characteristics of business.
Ans. (i) Profit earning (ii) Element of risk
9. "Business activities are undertaken under conditions of uncertainty." Which
characteristic of business is highlighted in this statement?
Ans. Element of risk.
10. "Business is undertaken with the object of earning money." Which
characteristic of business is highlighted in this statement?
Ans. Business is an economic activity.
11. Ritika produces goods not for the purpose of sale but for personal
consumption. Will it be a business activity? Why?
Ans. No, because it does not involve sale or exchange of goods and services
between the seller and the buyer.
12. Chhavi cooks food at home for her family but Shelly cooks food and sells it to
others in a restaurant. Who is engaged in business activity?
Ans. Shelly is engaged in business activity.
13. What is the modern concept of business?
Ans. Profits through service.
14. What is the primary objective of business?
Ans. Profit earning.
15. Why is profit earning essential for a business?
Ans. Profit is essential for covering costs and risks of the business.
16. Why must every business earn a reasonable profit?
Ans. Every business must earn reasonable profit to survive and grow.
17. Give two examples of professionals.
Ans. (i) A lawyer (ii) A doctor
18. Nitin is a salesman and sells mobile phones on behalf of his employer. What
will be his remuneration?
Ans. Salary or wages.
19. Which economic activity requires minimum academic and other qualifications?
Ans. Profession.
20. A hawker sells toys for children. How will you describe this activity?
Ans. Business activity.
21. A person repairs scooters on roadside. How will you describe this activity?
Ans. Business activity.
22. Name the type of economic activity wherein a doctor operates his clinic.
Ans. Profession.
23. Name the economic activity which is conducted by a person having some
special knowledge and skills which is used to serve different sections of the
society.
Ans. Profession.
24. Why do people engage in business?
Ans. People engage in business to earn income in the form of profit.
25. Name any two professions and professionals.
Ans. (i) Medical profession — Doctors (ii) Accounting profession — C.A.
26. Name any two professional bodies which have laid down guidelines or code of
conduct to be followed by professionals.
Ans. (i) Medical Council of India
(ii) Institute of Chartered Accountants of India (ICAI).
27. Distinguish between business, profession and employment on the basis of
reward/return.
Ans. Business — Profit earned Profession — Fees
Employment — Wages or Salary
28. Distinguish between business, profession and employment on the basis of
capital investment.
Ans. Business — Capital investment required as per size and nature of business.
Profession — Limited capital required for establishment.
Employment — No capital required.
29. Mention any two economic objectives of the business other than profit
earning.
Ans. (i) Innovation (ii) Improving productivity
30. Why is innovation an important objective of business?
Ans. Because no business enterprise can flourish in a competitive market without
innovation.
31. Why should a business pursue social objectives?
Ans. It is necessary that business should also pursue certain objectives desired by
the people of the society because business is an integral part of society.
32. State two things which have to be taken into consideration to measure market
standing.
Ans. Market potential and competition.
33. What is social responsibility?
Ans. Social responsibility refers to the obligation of business firms to contribute
resources for solving social problems and work in a socially desirable manner.
34. Enumerate any two social objectives of business.
Ans. (i) Regular supply of desired quality of products at reasonable prices.
(ii) Avoidance of anti-social and unfair trade practices like hoarding, black
marketing, etc.
35. Mention two types of business risks.
Ans. (i) Speculative risks (ii) Pure risks
36. Give two causes of speculative risks.
Ans. (i) Fluctuations in demand and supply.
 (ii) Changes in fashion.
37. Give two examples of pure risks.
Ans. (i) Fire/Theft (ii) Strikes/Lockouts
38. Mention any two features of business risks.
Ans. (i) It arises due to uncertainties.
(ii) Profit is its reward.
39. Aakriti is planning to set up a factory for manufacturing ready-made garments.
Mention any two risks that she might face.
Ans. (i) Change in government policies.
(ii) Change in demand.
40. Enumerate two natural causes of business risk.
Ans. (a) Flood (b) Earthquake
41. Enumerate two human causes of business risk.
Ans. (a) Theft (b) Strikes
42. Enumerate two economic causes of business risk.
Ans. (a) Fall in prices (b) Change in fashion
43. Why do we insure goods?
Ans. We insure goods to minimise the risk of loss. Goods may be damaged or
destroyed by theft, fire and natural calamities in the process of transport and
storage. Insurance protects against such loss.
44. Which type of risks means chance of loss without any possibility of gain?
Ans. Pure risks.
45. Which type of risks means chance of loss with possibility of gain?
Ans. Speculative risks.
46. Mention two types of primary industries.
Ans. (i) Extractive industries
(ii) Genetic industries
47. Mention two types of secondary industries.
Ans. (i) Manufacturing industries
(ii) Construction industries
48. Give two examples of tertiary industry.
Ans. (i) Banking (ii) Transportation
49. What type of industry is warehousing?
Ans. Tertiary industry.
50. Name two broad categories into which various business activities can be
classified.
Ans. (a) Industry (b) Commerce
51. Name the business activity which is concerned with conversion of resources
into useful products.
Ans. Industry.
52. Name the category of industry which involves breeding or reproduction of
plants and animals.
Ans. Genetic industries.
53. Give two examples of extractive industries.
Ans. (a) Mining (b) Oil extraction
54. Give two examples of manufacturing industries.
Ans. (i) Sugar industry (ii) Cement industry
55. Mention any two categories of manufacturing industries.
Ans. (i) Processing industry (ii) Assembling industry
56. Give an example of analytical industry.
Ans. Oil refinery.
57. Give an example of synthetic industry.
Ans. Cement industry.
58. Mention two examples of processing industry.
Ans. (i) Sugar industry (ii) Paper industry
59. Name the type of manufacturing industry in which one material is separated
into several useful products.
Ans. Analytical industry.
60. Name the type of manufacturing industry wherein two or more ingredients are
combined into one product.
Ans. Synthetic industry.
61. Name the type of manufacturing industry wherein a finished product is
produced through successive stages.
Ans. Processing industry.
62. Name the manufacturing industry in which TV sets or computers are
produced.
Ans. Assembling industry.
63. Name the industries which provide support services to primary and secondary
industries.
Ans. Tertiary industries.
64. Why is mining called a primary industry?
Ans. Because it is connected with extraction of natural resources.
65. Why is construction industry called a secondary industry?
Ans. Because this industry is engaged in construction of buildings, bridges or roads
using bricks, sand, cement, iron and steel, wires, etc. which are natural
resources.
66. Why is insurance known as a tertiary industry?
Ans. Because insurance provides facility of removing hindrance of risk of loss or
damage of goods due to theft, fire, accidents, etc.
67. Mention any two hindrances removed by commerce.
Ans. (i) Hindrance of persons (ii) Hindrance of place
68. How does trade remove hindrance of persons?
Ans. By making goods available to consumers from producers.
69. What is meant by auxiliaries to trade?
Ans. Auxiliaries to trade means the activities which help in carrying on the trade.
70. Name the auxiliary to trade which removes the hindrance of time.
Ans. Warehousing or storage.
71. Name the auxiliary to trade which removes the hindrance of exchange.
Ans. Banking and finance.
72. Name the two branches of commerce.
Ans. (a) Trade (b) Auxiliaries to trade
73. Name the commercial activity that removes the hindrance of knowledge.
Ans. Advertising.
74. Name the activities which facilitate buying and selling of goods and services.
Ans. Auxiliaries to trade.
75. Why are manufacturing industries known as secondary industries?
Ans. Because manufacturing industries convert raw materials or semi-finished
products into finished products, e.g., timber into furniture.
76. Why is banking called tertiary industry?
Ans. Because banks provide service facility of providing funds to businessmen.
77. Name the business activity which is concerned with holding goods in stock for
sale in future.
Ans. Warehousing.
78. Name the business activity which involves movement of goods from one place
to another.
Ans. Transportation.
79. What is entrepot trade?
Ans. Where goods are imported for export to other countries, it is called entrepot
trade.

True/False Answer Type Questions with Answers

(Carrying 1-2 marks each)
Statements Answers Reasons
1. Certain activities are False All human activities are pursued with
pursued without any certain objectives. Economic activities are
objective. undertaken to earn money while non-
economic activities are undertaken to
satisfy social, psychological and emotional
needs.
2. Taking photographs of False It is a non-economic activity as it is
mountains as a hobby undertaken to satisfy psychological needs.
is an economic
activity.
3. Teaching in a school False It is an economic activity undertaken to
is a non-economic earn money and to create wealth.
activity.
4. Service or True The motive is to earn livelihood by getting
employment is an wages or salary.
economic activity.
5. Business is an True It is undertaken with the objective of
economic activity. earning money or livelihood. There is no
place for love, sympathy or patriotism.
6. Sale of one’s True Because business involves dealings in
ancestral house will goods and services on a regular or daily
not fit into the basis. One single transaction of sale does
description of a not constitute business.
business.
7. A business activity False A business activity involves sale or
can be carried out exchange of goods and services for the
without sale or satisfaction of human needs.
exchange.
8. A business activity False Profit earning is the main objective of every
may be without a business. Profit is essential to cover costs
profit motive. and risks of the business and to survive
and grow.
9. Profession involves False Business involves greater risks than
greater risk than profession because profits are uncertain
business. and irregular while fee is generally certain
and regular.
10. Risks arise in True Business risks arise due to uncertainties.
business due to Natural calamities, change in demand and
uncertain future. prices, etc. and create risks for business
because these future events are not known
in advance.
11. Profit is the reward for True Greater the risk in a business, higher is the
bearing risks. chance of profit.
12. Earning profits is the False Besides earning profits, the business
sole objective of should pursue social objectives also
business. because business is an integral part of the
society.
13. All business risks can False Some business risks like change in
be insured. demand and prices, change in government
policy, etc. cannot be insured because their
probability cannot be determined.
14. Risk is an essential True No business can avoid risk. However, risk
element of every can be minimised through insurance.
business activity.
15. Business comprises False Business comprises industry and
industry and trade. commerce.
16. Commerce includes True Commerce = Trade + Auxiliaries to Trade
trade and auxiliaries (Services). Buying and selling of goods is
to trade. called trade. Auxiliaries to trade are the
activities which assist trade, e.g., banking,
insurance, communication, etc.
17. ‘Industry’ may be False Industry is classified under three categories
classified under five —Primary, secondary and tertiary
 categories. industries.
18. Industry and False Industry refers to economic activities which
commerce are inter- are connected with conversion of
changeable terms. resources into useful goods while
commerce includes all those activities
which are necessary for facilitating the
exchange of goods and services.
19. Trade between two False Trade between two countries is called
countries is known as ‘External Trade’.
internal trade.
20. Conversion of cotton False It is a manufacturing industry.
into cloth is an
example of genetic
industry.

Application/HOTS/Evaluation Based Questions with Answers

1. How will you judge whether a particular activity is an economic or non-
economic activity? Classify the following activities into economic and non-
economic activities.
(3)
(i) A housewife cooking food for her family.
(ii) A person selling cold water on the pavement.
(iii) A young boy playing cycle-rickshaw in the city.
(iv) An old man offering prayers in a temple.
Ans. An activity is economic if it results in earning money and non-economic if the
motive is to serve others, not a monetary gain.
(i) Non-economic activity
(ii) Economic activity
(iii) Economic activity
(iv) Non-economic activity

2. Name and explain the two characteristics of business which involve possibility
of loss.
(4)
Ans. The two characteristics of business which involve possibility of loss are:
(i) Uncertainty of return: There is always uncertainty of return and
possibility of loss. Every businessman invests money in his/her
business with the objective of earning profit. However, there is always
a possibility of loss.
(ii) Element of risk: Risk implies the uncertainty of reward or the
possibility of loss. There is always some element of risk involved in
business because the future is uncertain. The risks are related to
changes in consumer taste and fashions, strikes or lock-outs at the
work place, increased competition, fire, theft, accidents, etc.
3. "Business is an institution organised and operated to provide goods and
services under the incentive of private gain." Discuss.
(4)
Ans. "Business is an institution organised and operated to provide goods and
services under the incentive of private gain." This statement is correct. The
following points justify the given statement:
(i) Business is an economic activity as it is undertaken with the main
objective of earning profits. Profit is essential to cover costs and risks
of the business. Every business must earn a reasonable profit to
survive and grow.
(ii) It involves sale, exchange, purchase of goods (sugar, pen, textbook,
machinery, furniture, etc.) and services (transportation, banking,
insurance, etc.) on a regular basis for mutual profit through the
satisfaction of human wants.

4. A housewife sells old newspapers every month. Is it a business activity?

(1)
Ans. No, it is not a business activity because business involves dealings in goods
or services on a regular or daily basis. Therefore, sale of old newspapers
every month does not constitute business.

5. If a person sells his/her domestic T.V. set at a profit, will it be considered as a

business? Also, explain the characteristic of business which is being stressed
upon in the above said example.
(3)
Ans. No, selling a domestic T.V. set at a profit will not be considered a business
activity because business involves dealings in goods or services on a regular
or daily basis. One single transaction of sale or purchase does not constitute
business.
The characteristic of business which is being stressed upon in this example
is—dealings in goods and services on a regular basis.
6. ‘Only sale or exchange of goods/services for profit is business.’ Do you agree
with the statement? Give reason in support of your answer.
(3)
Ans. No, we do not agree with the given statement because business involves
dealings in goods or services on a regular or daily basis. One single
transaction of sale or purchase does not constitute business. For example,
the sale of one’s old scooter even at a profit is not business.
7. Anshul is a farmer. His elder brother Ankur is an advocate while his sister
Priyanka is a clerk in a government office. Name the economic activities in
which they are engaged and distinguish among them on the basis of:
(6)
(i) Reward/Return
 (ii) Capital investment
(iii) Risk.
Ans. Anshul is engaged in business, Ankur is engaged in profession and Priyanka
is engaged in employment.
Basis Business Profession Employment
1. Reward/Return Profit earned Professional fee Salary or wages
2. Capital Capital investment Limited capital No capital
Investment required as per needed for required
size and nature of establishment
business
3. Risk Profits are Fee is generally Fixed and regular
uncertain and regular and pay; no risk
irregular; risk is certain; some risk
present

8. Categorise the following into business, profession and employment.

(3)
(i) A farmer (ii) An advocate (iii) A clerk (iv) A doctor
(v) A hawker selling toys for children
(vi) A person repairing scooters on roadside
Ans. (i) Business (ii) Profession (iii) Employment
(vi) Profession (v) Business (vi) Business
9. ABC Ltd. is planting trees on the road side. Which objective it is trying to
achieve?
(1)
Ans. It is trying to achieve ‘Social objectives’.

10. Why does every business enterprise aim at greater productivity? How can this
objective be achieved?
(3)
Ans. Every business enterprise aims at greater productivity to ensure continuous
survival and growth.
This objective can be achieved by:
(i) reducing wastages, and
(ii) making efficient use of machines and equipments, human resources,
money, etc.

11. Why does a businessman willingly undertake business risk?

(3)
Ans. A businessman willingly undertakes business risk involved in the business
activities because for bearing the risk businessman gets the reward of earning
profits, which is the main objective of every business. The higher the risk, the
more is the profit. Generally, the projects with more risks generate more
profits.
12. Is dairying a genetic or an extractive industry? Why?
(1)
Ans. Genetic industry, because it involves breeding or reproduction of animals.

13. Is furniture making a manufacturing industry? Why?

(1)
Ans. Yes, because manufacturing industries convert raw materials or semi-finished
products into finished products (timber into furniture).

14. Define service. Name the service which is related to the following cases:
(3)
(i) The service which helps in removing hindrance of knowledge.
(ii) The service which helps in removing hindrance of place.
(iii) The service which helps in removing hindrance of time.
(iv) The service which helps in removing hindrance of risk.
Ans. Activities which are meant for assisting trade are known as services (or
auxiliaries to trade).
(i) Advertising (ii) Transport
(iii) Warehousing (iv) Insurance

15. Name the following:

(3)
(i) The economic activity having a risk element and carried on to earn profits.
(ii) The trade in which goods are bought from other countries.
(iii) The economic activities concerned with extraction, production, processing
or fabrication of products.
(iv) The trade in which goods are imported and exported to some other
country.
(v) The branch of commerce which removes the hindrance of time.
(vi) The industries which involve breeding or reproduction of plants and
animals.
Ans. (i) Business (ii) Import trade
(iii) Industry (iv) Entrepot trade
(v) Warehousing (vi) Genetic industries

VALUE-BASED QUESTIONS

Values are the significant and fundamental dimensions of human life and indicate
how one adheres, attaches and reacts in life situations or circumstances. They are
the blue prints or action plan which orient and decide the thinking, action feelings
and behaviour itself.
  ‘Values’ does not mean going back to the superstitions but to bring in
harmony with the present social and cultural conditions, which are acceptable
to the society.
 Values cannot be scientifically investigated or proven.
 Values affect how we practice.

CORE VALUES OF A BUSINESS

 Accountability — Responsibility of our actions that influence the lives of our
customers and fellow workers.
 Balance — Maintaining healthy life and work balance for workers.
 Collaboration— Collaborating within and outside the company to give the best.
 Commitment— Commitment to roll great product, service and other initiatives
that impact lives both within and outside the organisation.
 Community — A sense of responsibility and contribution to society that define
our existence.
 Consistency — Be consistent in offering the best for wonderful experience.
 Diversity — Respecting the diversity and giving the best of the composition.
 Efficiency — Being efficient and effective in our approach to give best solution
each time.
 Empowerment — Empowering the employees to take initiative and give the
best.
 Fun — Having fun and celebrating small successes in our journey to achieve big.
 Innovation — To come out with new creative ideas that have the potential to
change the world.
 Integrity — To act with honesty and integrity without compromising the truth.
 Leadership — The courage to lead from front and shape future.
 Ownership — Taking ownership of the company and customer success.
 Passion — Putting the heart and mind in the work to get the best.
 Quality — Giving the best and unmatched results for all round satisfaction.
 Respect — Giving due respect to self and others and maintain the environment
of team work and growth.
 Risk Taking — Encouraging self and others to take risk for a bright future.
 Safety — Ensuring the safety of people and making sure to give them trouble
free experience.
 Service Excellence — Giving the best and world class service and achieving
excellence each passing day.
1. Kayco LTD. is manufacturing detergents. They decide to launch a new range
of herbal products. As they are in a hurry, they have tested products on
animals only. The necessary information is missing on the package. The
management also plans to launch a new factory in a tribal area where the
required products are easily available and the labour-men, women and
children are available for work at low wages in the absence of development
opportunities and schools.
Which values do you find disturbing in the above para? Will the decision to
install a new unit in a tribal area help society?

Values
 Testing on animals is banned.
 No information about the products on package is violation of Right to
Information Act.
 Upliftment and development of tribal society.
 Equal opportunity for men and women to grow.
 Child labour is banned; so schools should be opened for them.
 School and other supportive activities will help in community development.

2. Rajeev, the owner of Pathways constructions decided to start a campaign to

create awareness among people for developing clean surroundings in their
area. He formed a team of 10 members to list the different ways for cleaning
the surroundings. To achieve the desired goal various activities were
identified like:
(a) Purchase of necessary items like dustbins, garbage bags, brooms, etc.;
(b) Collection of garbage;
(c) Disposal of garbage, etc.
After identification of different activities the work was allocated to different
members.
Identify the values which the company wants to communicate to the society.
Values
 Respect for environment
  Team work
 Fulfilling social responsibility

3. Mr. Nath, a recently appointed production manager of Suntech Ltd. has

decided to produce jute bags instead of plastic bags as these are banned by
the government. He set a target of producing 1000 jute bags a day. Mr.
Math’s behaviour is good towards the employees. His attitude is always
positive. So he announced various incentive schemes for the employees like
installing award or certificate for best performance, rewarding an employee for
giving valuable suggestions, and congratulating the employees for good
performance.
State the values which the production manager wants to communicate to the
society by his work and behaviour.
Values
 Sensitivity to environment
 Good behaviour towards employees
 Team work with employees

4. The court passed an order to ban polythene bags as these bags are creating
many environmental problems which affect the life of people in general.
State any two values communicated to the society.
Values
 Sensitivity towards the environment
 Fulfilling responsibility towards nation

5. ABC Ltd. is engaged in producing electricity from domestic garbage. There is

almost equal division of work and responsibility between workers and
management. The management even takes workers into confidence before
taking important decisions. All the workers are satisfied as the behaviour of
the management is very good.
Identify any two values which the company wants to communicate to the
society.
Values
 Good behaviour in human interaction
 Concern for the environment

6. Voltech India Ltd. is manufacturing LED bulbs to save electricity and running
under heavy losses. To revive from the losses, the management thought of
shifting the unit to a backward area where labour is available at a low cost.
The management also asked the workers to work overtime without any
additional payment and promised to increase wages of the workers after
achieving its mission. Within a short period the company started earning
profits because both the management and the workers honoured their
commitments.
 Identify any two values that the company wants to communicate to the
society.
Values
 Concern for the environment
 Development of backward regions

7. Pawan is working as a ‘production manager’ in CFL Ltd. engaged in

manufacturing of CFL bulbs. There is no class conflict between the
management and workers. The working conditions are very good. The
company is earning huge profits. As a policy matter, management is sharing
the gains with the workers because they believe that prosperity of the
company cannot exist for a long time without the prosperity of the employees.
Identify any two values which the company wants to communicate to the
society.
Values
 Sensitivity towards the environment
 Good behaviour in human interaction

8. Telco Ltd. is manufacturing files and folders from old clothes to discourage
use of plastic files and folders. For this, they employ people from nearby
villages where very less job opportunities are available. An employee, Harish,
designed a plan for cost reduction but it was not welcomed by the production
manager. Another employee gave some suggestion for improvement in
design, but it was also not appreciated by the production manager.
Identify the values that the company wants to communicate to the society.
Values
 Sensitivity towards the environment
 Creation of job opportunities
 Development of backward regions

9. Ajay was appointed a marketing head of ‘Alfa Enterprise’ which manufactures

toothpastes and toothbrushes. His target sale was 2000 units a month. Apart
from thinking about various channels of distribution to achieve the target, he
himself started visiting schools in backward areas. He found that even after
taking various steps and counselling, some school children had not started
brushing their teeth. He investigated and found that they could not afford to
buy toothbrush and toothpaste. So, with due permission, he started donating
200 toothbrushes and toothpastes every month to the school.
State the values which Ajay wants to communicate to the society.
Values
 Charity
 Concern for the underprivileged
 Hygiene/Sensitivity towards health
10. Nikita and Salman completed their MBA and started working in a multinational
company at the same level. Salman had the habit of backbiting and wrong
reporting about his colleagues to impress his boss. All the employees in the
organisation knew about it. At the time of performance appraisal the
performance of Nikita was judged better than Salman. Even then their boss,
Mohammed Sharif decided to promote Salman stating that being a female
Nikita will not be able to handle the complications of a higher post.
Identify the values which are being ignored quoting the lines from the above
para.
Values ignored
 Good human behaviour
‘Salman had the habit of backbiting and wrong reporting about his colleagues
to impress his boss.’
 Gender equality
Their boss decided to promote Salman stating that being a female Nikita will
not be able to handle the complications of a higher post.’

11. Sahil, the director of garments company, is planning to manufacture bags for
the utilisation of waste material of one of his garments unit. He decided that
this manufacturing unit will be set up in a rural area of Orissa where people
have less job opportunities and labour is available at very low rate. He also
thought of giving equal opportunities to men and women.
For this he selected S. Chatterjee, Indrajeet Kaur, Aslam and Sarabjeet as
heads of Sales, Accounts, Purchase and Production departments.
Identify the values which Sahil wants to communicate to the society by setting
up this manufacturing unit.
Values
 Development of backward areas
 Providing job opportunities in rural areas
 Equality
 Optimum utilisation of resources
 Secularism

12. Harish, the Director of a company, is planning to manufacture stuffed toys for
utilising waste material of one of his garment factories. He decided that this
manufacturing unit will be set up in a rural area so that people of that area will
have more opportunities for jobs. For this he selected Rehman, Anita
Bannerjee, Harpreet Kaur and Umesh (a differently abled but very intelligent
and creative person in designing) as heads of Sales, Accounts, Purchase and
Production departments respectively.
Identify the values that Harish wants to communicate by setting up this
manufacturing unit. Justify your answer.
Values
  Optimum utilisation of resources (utilising waste material to manufacture
stuffed toys.)
 Generation of employment opportunity to people of rural areas.
 Secularism (Heads of Sales, Accounts, Purchase and Production
departments belong to different religions.)
 Socially responsible behaviour (selecting Umesh, a differently abled person
as head of production department.)

13. As a project work in Business Studies subject, the Commerce students of

‘Creative Public School’ thought of setting up a recycling plant to recycle all
the waste papers from the school and prepare registers and exercise books to
be used by the school students. They approached their principal who not only
appreciated the idea of the students but also gave her consent for the same.
The school also decided to donate 50% of the revenue generated from the
sale of registers and exercise books to a nearby blind school. Identify the
values communicated to the society. Justify.
Values
 Optimum use of resources (Recycling waste papers and preparing registers
and exercise books.)
 Fulfilling social responsibility (Donating 50% of the revenue generated from
the sale of registers and exercise books to a blind school.)

14. X, Y and Z are partners of a business of manufacturing shoes. The profit for
the year ending March 31, 2015 was Rs.7,20,000. Before distributing profits
they donated 10% of profits to a ‘Non-Govt. organization’ as charity for
welfare of educationally backward section of the society. They also decided to
allow a discount of 30% on shoes for school going children.
Identify the values involved by the partnership firm of X, Y and Z.
Values
 Social Responsibility
 Help to weaker section of the society
 Motivation to school going children
 Help to increase the literacy rate

15. Ramesh and 6trrmeet are two friends belonging to Hindu and Sikh religion
respectively. They started a business of wire manufacturing in the form of a
partnership firm. They know that the factory of wire manufacturing pollutes the
environment. Therefore, there are two options available before them. First
option is that the factory can be opened in rural area where local residents are
poor and illiterate. Second option is that an advanced pollution control plant
can be installed in their factory to control the pollution. They decided to
choose the second option which involves an additional cost of Rs.2,00,000.
Mention the values involved in this question.
Values
  Good relations between different religions
 National integration
 Development of minorities
 Awareness about pollution control
 Use of advanced technology

16. A, B and C are partners in a firm. C uses firm’s money to buy shares without
disclosing it other partners. Which value is C violating and what will be the
treatment of profit earned by C?
Values
C has violated the following values:
 Honesty
 Integrity
 Truth
 Breach of mutual trust
C will have to return firm’s money alongwith any profits earned.

17. What are the values involved in the formation of a partnership firm?
Values
 Unity
 Pooling of Resources
 Efficient use of resources

18. What are the values disclosed by a Partnership Deed?

Values
 Transparency
 Evidence
 Awareness

19. Jamshedji Tata conceived an idea of formation of company in 1908 when

East India Company was ruling Indian market. He selected hilly region
bordering three states Jharkhand (the part of Bihar), Orissa and West Bengal.
All states were thickly populated and poor. The area he chose was rich in Iron
ore, so he decided to develop Iron and Steel Industry. He wanted to tap
unproductive savings of public and issued capital of Rs.5,00,000. Area was
undeveloped, so he decided to spend 10% of profits every year for providing
infrastructure to employees. To begin with he provided them accommodation
and later he spent amount for schools, hospitals, development of playground
and gardens and also contributed in road construction. He also built temples,
mosques and churches. Employees were satisfied and worked hard. As a
result profit grew substantially 20% every year and more industries were
floated by him.
Which values lead him to this road of success?
Values
  Courage
 Entrepreneurship
 Sensitivity towards education

20. Cadbury India Ltd., a chocolate company launched a factory in Baddi, a small
town of Himachal Pradesh. The workers who enter in factory have to wash
their hands with sanitizer and wear overcoat, cap and shoes which are
sterilized every day for which company spends Rs.3,00,000 per month. All
employees working in factory wear gloves and are not allowed to touch
directly either raw material or final product.
All employees irrespective of post have to take food in mess at the same
place and same food for this company. Mention the values involved in this
question.
Values
 Equality — all employees treated equally
 Health consciousness — use of sanitizer and sterilised clothes
 Balanced regional development
Employment to people of hills, raising their standard of living

21. A Cloth manufacturer distributes its defective product at free of cost (after
getting them repaired from Nari Niketan at lower cost) to orphanage. Which
values are being attested in this solution?
Values
 Fulfilment of social responsibility
 Help to needy class of society
 Employment to members of Nari Niketan
 Full utilisation of defective product after improvement

22. A manufacturer of refrigerator uses new technology in place of using harmful

gases, which do not cause air pollution. Which value is being followed here?
Values
 Environment Protection
 Fulfilment of social responsibility

23. An industrial unit, working in a backward area opens schools for education at
nominal cost for the children of its employees and local people. By this act
which value is promoted here?
Values
 Increasing literacy rate
 Development of society
 More employment opportunities in backward areas
24. A factory established in a residential locality, uses machines creating heavy
noise while running. Due to noise pollution students can’t study properly and
residents can’t sleep/work properly. Which values are affected here?
Values
 Noise Pollution
 Bad effect on the health of employees
 Bad effect on the studies and health of children

25. An organisation proposes the use of CFLs and LEDs which consume less
electricity than normal bulbs for its lighting arrangements. Which value is
attained by the organization?
Values
 Save Electricity
 Reduction in Cost
 Protection of environment

26. An entrepreneur wants to start his business in backward area because govt.
gives many incentives & rebates in taxes, which results in low cost and he will
be able to sell the product at low prices. There he will be able to get large
area by deforestation. Which values are being affected here?
Values
 Environmental degradation (due to deforestation)
 Availability of goods at low cost
 Development of backward area
 Increasing employment opportunities in backward area.

27. An organisation manufacturing paints has been enjoying a prominent market

position since many years. It has been dumping its untreated poisonous
waste on the river bank which has created many health problems for the
nearby villages.
Which values have been overlooked by the manufacturer?
Values
 Environment protection
 Interest of society at large
 Concern for human life
 Respect for law and order

28. In recent times the Govt. has increased the prices of diesel and LPG. Which
value is being overlooked here?
Values
 Fall in Standard of living
 Increase in Domestic Expenditure
 Increase in the cost of agricultural products
29. In a visit to a restaurant, some youngsters were found, smoking in spite of
sign board indicating ‘No Smoking Zone’.
Suggest the values which will help the youth to become responsible citizens
of the nation.
Values
 Obedience
 Self discipline
 Concern for health of other people
 Respecting the law of the land

30. Removal of mobile towers from residential area is being planned by the
government to promote which value?
Values
 Environment protection
 Safety of birds
 Safety of Health of Society

31. Government is planning to construct a warehouse in remote area to store

necessary goods so as to make them available even at the time of bad
weather regularly. Which values are being considered here to be achieved by
the government?
Values
 Stability in prices
 Regular Supply of Goods
 Fulfilment of social responsibility
 Control on Hoarding and Black-Marketing

32. Tobacco manufacturer is planning to sell its products outside the Schools and
Colleges. Which values are violated here from your point of view?
Values
 Bad effect on students’ health
 Deprivation of Morality
 Social evil

33. An employee has been terminated due to a small mistake without hearing
him, while the other one was not terminated on the same mistake. Which
value has been neglected here?
Values
 Biasness
 Misuse of rights
 Insecurity and groupism in employees
34. In an organisation the good environment, refreshment Corner and
entertainment rooms have been made for all employees. Which values have
been considered here?
Values
 Good Working Conditions
 Improvement in efficiency and health
 Helpful in reducing the stress and tension

35. In an organisation the employees are being paid fair wages/remuneration.

Which values are highlighted here?
Values
 Increase in morale
 Increase in productivity
 Improvement in living standard of employees

36. A wholesaler of onion comes to know that due to less production the prices of
onion will increase heavily. He stores the onion and during rising prices, he
earns heavy profits by selling the stored onion. Here, which value is affected?
Values
 Promoting hoarding and black marketing of goods

37. A tea producer uses such packets/things for packing tea, which can be used
even after consuming the tea inside for other purposes. In this which values
are being affected by him?
Values
 Optimum utilisation of resources (re-use of the container)
38. A cosmetics manufacturing company claims in advertisement that its face
cream improves the face complexion. On using it was found incorrect. Here,
which values are being ignored?
Values
 Cheating the consumers by misleading advertisements
 Affect the health of public
 Environment protection
39. XYZ Ltd., a firecracker manufacturing firm had launched some new products
on Diwali which attracted many buyers. However, product package did not
have adequate ‘directions for use’, because of which many accidents took
place. Despite the accidents, the product was not withdrawn from the market
by the manufacturers.
List the values that have been overlooked by XYZ Ltd.
Values
 Concern for environment
 Concern for human life
 Social responsibility/responsible behaviour
 Sensitivity
40. Mayaram is a sweet maker (Halwai), who collects milk from village to village
and prepares sweet on Deepawali, due to increased demands, he purchased
khoya from other shopkeeper which was adulterated, because it was not
possible to meet the demand from collected milk. For meeting the demand
quickly he has not maintained cleanliness while preparation of sweets. He
kept two children for packing the sweet and one female at cash counter.
Which social values he is affecting and how?
Values
 Use of adulterated khoya will badly affect the health of consumer
 Child labour is a crime
 Spreading diseases due to non-consideration of cleanliness
 By employing females, equal opportunities to females

EXERCISE

Short Answer Type Questions (Carrying 3-4 marks)

1. Define economic activities. How do they differ from non-economic activities?
Give examples.
2. Distinguish between economic and non-economic activities.
3. Can the same activity be economic as well as non-economic? Explain giving
examples.
4. Define business. Explain the nature of business as an economic activity.
OR
What do you mean by business? Is business truly an economic activity? Give
reasons in support of your answer.
5. Explain briefly any four characteristics of business.
6. Explain briefly different types of economic activities.
7. What do you understand by ‘Business’? Distinguish between Business and
Profession on any three basis.
8. Distinguish between Business and Profession on the basis of:
(a) Mode of Establishment (b) Reward or Return
(c) Risk (d) Transfer of Interest
9. Distinguish between business and employment on any four basis.
10. What is the role of profit in business?
OR
"Earning profit is regarded as main objective of business." Explain by giving
any four reasons.
OR
Profit is the primary motivating force for economic activity." Do you agree?
Give any four reasons in support of your answer.
11. Is earning profits the only objective of business? Discuss.
OR
Why profit maximisation should not be the goal of business?
12. Discuss the economic objectives of business.
13. What are the social objectives of a business? (any three)
14. Explain the following objectives of business briefly:
(a) Market standing.
(b) Manager’s performance and development.
(c) Worker’s performance and attitude.
15. State any two economic objectives and two social objectives of business.
16. What do you understand by ‘business risks’? Mention its four features.
OR
What is business risk? Explain its nature. (any three points)
17. "Risk is an essential element of business." Explain. How can risks be
avoided?
18. "No business is risk free." In the light of this statement, explain the concept of
business risk and its any three causes.
19. Explain the concept of business. Briefly explain the categories of business
activities.
OR
"The structure of business is composed of both industry and commerce."
Explain this statement.
20. What do you mean by auxiliaries to trade? Explain any four auxiliaries to
trade.
21. Why is commerce considered as the backbone of industry and other business
activities?
OR
Define commerce. Why is it of great importance in modern life?
22. Explain primary, secondary and tertiary industries.
23. How does commerce remove the hindrances of exchange, time and place?
OR
Identify any three obstacles in the smooth flow of goods between producers
and consumers. How can they be removed?
24. Distinguish between internal trade and external trade.
25. How do banking and insurance facilitate trade and commerce?
26. What do you mean by the terms ‘industry’, ‘commerce’ and ‘trade’? Explain
with the help of suitable examples.
27. Explain with examples ‘Genetic’ and ‘Construction’ Industries.
28. What do you mean by Genetic Industries? Explain with examples.
29. Distinguish between industry and commerce on the basis of meaning, nature,
capital and risk.
30. What is trade? Distinguish between wholesale and retail trade.
31. Explain in brief various types.of foreign trade.
32. Distinguish between primary industry and secondary industry. Give examples.
33. Distinguish between extractive industries and genetic industries by giving
examples.
34. Distinguish between manufacturing industries and construction industries by
giving examples.
35. Give two examples of:
(i) Extractive industry
(ii) Genetic industry
(iii) Manufacturing industry.
36. Explain briefly various types of manufacturing industries, with examples.

Long Answer Type Questions (Carrying 5-6 marks)

1. Define Business. Explain the characteristics of business. (any five)
2. Compare business with profession and employment on the basis of:
(i) Mode of establishment (ii) Nature of work
(iii) Qualification (iv) Motive
(v) Transfer of interest (vi) Code of conduct
3. Distinguish Business from Employment on the basis of:
(a) Establishment (b) Qualifications
(c) Nature of Work (d) Element of Risk, and
(e) Object
4. Why does business need multiple objectives? Explain any five such
objectives.
5. ‘Besides pursuing economic objectives, it is necessary that business should
also pursue some social objectives.’ Why? Explain any five such objectives.
6. "Profit can no more be the objective of business than eating is the objective of
living." Explain.
OR
"Profit is not the object of business, it is the result of business." Discuss.
7. What is the difference between economic objectives and social objectives of
business? Briefly explain the economic objectives of business.
8. Explain the concept of business risk and its causes.
9. Explain the nature of business risks. Distinguish between speculative and
pure risks.
10. Explain with examples the various types of industries.
11. Describe the activities relating to commerce.
OR
"Conunerce is the sum total of activities that remove hindrances in the free
flow goods from producers to consumers." Explain.
12. Explain the following:
(a) Extractive industries.
(b) Assembling industries.
(c) Importance of warehousing.
(d) Insurance as an auxiliary to business activities.
13. Define auxiliaries to trade. Explain any five activities which are auxiliaries to
trade.
14. Explain the meaning of trade. What are the various types of trade?