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NIOS Class 12 Business Studies Chapter 1 Nature and Scope of Business
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Nature and Scope of Business
Chapter: 1
Module – 1 Introduction to Business
INTEXT QUESTIONS 1.1
Q. 1. Define ‘Economic Activities’.
Ans. All such activities that are performed with an object of earning money or livelihood are called economic activities.
Q. 2. Below are given certain non-economic activities. Convert them into economic activities.
Example: A nurse attending her ailing son. (Non-economic activity)
A nurse attending patients in her hospital. (Economic activity)
(a) A person working in his own garden.
Ans: A person working in a school garden.
(b) A lady preparing food for her husband.
Ans: A lady preparing food in a restaurant.
(c) A man white-washing his own house.
Ans: A man white-washing the building of a trade center.
(d) A teacher teaching his son at home.
Ans: A teacher teaching students in a school.
(e) A Chartered Accountant preparing his own accounts.
Ans: A chartered Accountant preparing accounts of a firm.
INTEXT QUESTIONS 1.2
Q. 1. Define the term ‘Profession’ in your own words.
Ans: All those economic activities which involves the rendering of personal service of specialised and expert nature based on professional training and skill and require the observance of certain rules and regulations (code of conduct) are termed as Professions.
Q. 2. Following is a list of activities. Classify these activities as Business, Profession or Employment by putting their number in the circles provided at the end of the question.
(a) Policeman on duty at your local police station.
(b) Teacher working in an educational institution.
(c) A driver driving a bus of a State Road Transport Corporation.
(d) A taxi-driver who runs his own taxi.
(e) A fisherman selling fish in a village.
(f) Gopal stitching cloth of the customers regularly at home.
(g) A daily-wager working in a factory.
(h) A gardener maintaining the lawns in a college.
(i) A lawyer practising in a court.
(j) An engineer running his consultancy firm.
Ans:
INTEXT QUESTIONS 1.3
Q. 1. Mohan has recently completed his MBBS course. He finds difficulty in choosing his occupation. Guide him by filling up the following table:
| If he chooses | What should he do? | What will he get as return? |
| (a) Business | ||
| (b) Profession | ||
| (c) Employment |
Ans:
| If he chooses | What should he do? | What will he get as return? |
| (a) Business | May open a chemist shop or Start a company to manufacture medicines | Profit |
| (b) Profession | Start his own clinic | Fee |
| (c) Employment | Get the job in a hospital | Salary |
Q. 2. Correct the following sentences, if necessary:
(a) Business minimizes opportunities to work and, thus, generates employment in the country.
Ans: Business maximises opportunities to work and thus, generates employment in the country.
(b) By producing and exporting quality goods and services, the national image of a country goes down.
Ans: By producing and exporting quality goods and services, the national image of a country improves.
(c) Business objectives should concentrate on profit earning only.
Ans: Business objectives should not concentrate only on profit earning.
(d) Creation of employment opportunities and paying taxes and other dues honestly to the government are the national objectives of a business.
Ans: No correction required.
(e) A businessman should prepare a false statement of accounts in order to save taxes.
Ans: The businessmen should prepare the true statement of accounts and the pay the taxes honestly.
(f) Profit plays no role in business.
Ans: Profit plays an important role in business.
Q. 3. Identify the causes of business risk in the following causes:
(i) X Ltd. suffered a loss due to bursting of boiler:
(a) Natural Cause.
(b) Political Cause.
(c) Physical Cause.
(d) Economic Cause.
Ans:(c) Physical Cause.
(ii) Auditor identified misappropriation of cash by a group of workers in Y Ltd:
(a) Natural Cause.
(b) Human Cause.
(c) Physical Cause.
(d) Political Cause.
Ans: (b) Human Cause.
(iii) Suzuki Ltd. suffered a loss due to tsunami:
(a) Natural Cause.
(b) Human Cause.
(c) Economic Cause.
(d) Political Cause.
Ans: (a) Natural Cause.
INTEXT QUESTIONS 1.4
Q. 1. Below are given certain groups of industries. In each group, one industry does not match with the group. Find out that industry and underline it. The first one has been done for you. In this all industries except textile belong to extractive industries.
(a) Agriculture, forestry, textile, fishery.
Ans: textile.
(b) Dams, roads, canals, cement.
Ans: Cement.
(c) Poultry farming, hunting, mining, forestry.
Ans: Poultry farming.
(d) Iron & steel, textile, chemical works, pisciculture.
Ans: Pisciculture.
(e) Oil exploration, agriculture, dairy farming, hunting.
Ans: Dairy farming.
(f) Floriculture, films, transport, banking.
Ans: Floriculture.
Q. 2.Complete the following Chart:
Ans: (a) Business.
(b) Commerce.
(c) Primary.
(d) Tertiary.
(e) Genetic.
INTEXT QUESTIONS 1.5
Q. 1. Give one word substitute for the following sentences:
(a) The process of exchange and distribution of goods and services.
Ans: Commerce.
(b) Buying and selling of goods and services.
Ans: Trade.
(c) Buying and selling of goods in large quantities.
Ans: Wholesale trade.
(d) Import of goods for exporting.
Ans: Entrepot.
(e) Buying and selling of goods between different countries.
Ans: External trade.
Q. 2. Complete the following incomplete words by taking clues from the statements given for each. Every blank represents one letter only. First one has been done for you.
(a) ___ ___ MM ___ ___ C ___. (COMMERCE)
(b) ___ ___ A ___ E.
(c) W ___ ___ ___ H ___ ___ ___ IN ___.
(d) ___ X ___ ___ ___T.
(e) E ___ ___ ___ E___ ___ T.
(f) ___ H ___ ___ E ___ ___ ___ E.
(g) ___ ___ T ___ ___ L.
Clues:
(a) All activities that facilitate availability of goods and services for consumption.
Ans: Commerce.
(b) Buying and selling of goods.
Ans: Trade.
(c) Storage of goods whether raw material or finished goods.
Ans: Warehousing.
(d) Selling of goods to foreign countries.
Ans: Export.
(e) A company of one country buys goods from a company of another country to be sold to a company of some third country.
Ans: Entrepot.
(f) Goods are bought and sold in bulk quantities.
Ans: Wholesale.
(g) Goods are sold in small quantities to consumer.
Ans: Retail.
TERMINAL EXERCISE
Short Answer Type Questions:
Q. 1. What is meant by ‘human activity’?
Ans: Human beings undertake various activities to satisfy their needs and wants. These activities are known as Human Activities.
Q. 2. Define the term ‘occupation’.
Ans: The activities in which individuals engage themselves on a regular basis and earn their livelihood are known as their ‘occupations’.In fact everyone is engaged in one occupation or the other, and these can be broadly categorized as-
(a) Profession.
(b) Employment. and
(c) Business.
Q. 3. State the meaning of ‘Genetic industry’.
Ans: Have you seen poultry farms, or apple orchards or nurseries? All these are industries engaged in rearing and breeding animals and birds and growing plants or flowers for sale and are known as genetic industries. Now-a-days genetic industries are growing in number which include Horticulture (growing fruits and vegetables), Floriculture (growing flowers), Dairy Farming, Poultry Farming, Pisiculture (breeding fish) etc.
Q. 4. Explain Commerce.
Ans: Commerce is defined as the exchange of goods and services between two or more entities. It typically involves buying and selling things of value. Commerce can take place between businesses, between consumers, or between businesses and consumers.
Thus, Commerce includes two types of activities, viz:
(i) Trade. and
(ii) Auxiliaries to trade.
Trade: Buying and selling of goods is termed as trade.
Auxiliaries to Trade: On the other hand, activities that are required to facilitate the purchase and sale of goods are called services or auxiliaries to trade.
Q. 5. What is ‘Trade’?
Ans: Trade refers to the process of buying and selling of goods and services. When trade takes place within the boundaries of a country, it is called Internal trade. It is called Wholesale trade when goods are bought in bulk from manufacturers/produces and sold in bulk to retailers. It is termed as retail trade when goods are bought from manufacturers or wholesalers and sold in small quantities to consumers. Trade that takes place between two countries is known as External trade. When goods are purchased from a foreign country, it is known as Import trade. Export trade is the process of selling goods to a foreign country. When goods are bought from one foreign country to be sold in some other foreign country it is known as Entrepot trade.
Q. 6. What do you meant by ‘Auxiliary to trade’?
Ans: Auxiliaries to trade refers to the factors that are essential for bringing the goods from the place of their production to the place of their consumption. In simple words, these are essential services and functions that assist the business.
Q. 7. Name the obstacles in the way of Trade.
Ans: A trade barrier refers to any regulation or policy that restricts international trade, especially tariffs, quotas, licences etc.
Q. 8. List two examples of human causes of loss in business.
Ans: If the management fail in estimating demand for products, loss may arise. Uncertainties caused by human actions e.g. forgery, misappropriation of cash, theft of goods, riots, wars, etc. can also result in loss.
Short Answer Type Questions:
Q. 1. Explain the different type of primary industries.
Ans: Primary industries refer to the activities of extraction of natural resources like coal, oil, minerals etc. and reproduction and development of living organisms like plants and animals etc. Primary industries can be categorised as extractive and genetic industries.
Extractive Industries: ONGC it is a company that extracts oil and natural gas from earth. Similarly we have farmers growing crops, business houses engaged in extracting raw materials/minerals from earth (coal-mines, iron-ore mines etc.), extracting materials from forest for further processing (like collecting natural honey, timber etc.), extracting items from sea/river (like fish, crab, prawn, sea foods etc.). All these are examples of extractive industries.
Genetic Industries: Have you seen poultry farms, or apple orchards or nurseries? All these are industries engaged in rearing and breeding animals and birds and growing plants or flowers for sale and are known as genetic industries. Now-a-days genetic industries are growing in number which include Horticulture (growing fruits and vegetables), Floriculture (growing flowers), Dairy Farming, Poultry Farming, Pisiculture (breeding fish) etc.
Q. 2. How would you classify business activities?
Ans: Let’s look around and find out the various types of business activities that usually take place in an economy.
Some of these are:
1. Extraction of oil, natural gas or minerals.
2. Manufacturing of commodities.
3. Buying of goods from one place/country and selling it at different place/country.
4. Construction of buildings, roads, and bridges etc.
5. Providing services like ticketing, warehousing, transportation, banking, insurance etc.
When we analyse the above business activities we find that most business activities are concerned with production and/or processing of goods and services or distribution of goods and services. The former is known as ‘Industry’ and the latter as ‘Commerce’. So we can classify business as Industry and Commerce.
Q. 3. Distinguish between economic and non-economic activities.
Ans: The human activities that are undertaken with an objective to earn money or livelihood are called economic activities. Whereas the other types of activities that are undertaken to derive self-satisfaction, are called non-economic activities. A farmer growing crops, a worker working in a factory for wage/salary, a businessman engaged in buying and selling of goods are examples of economic activities. While activities like meditation, engaging in sports for physical fitness, listening to music, providing relief to flood victims etc., are examples of non-economic activities.
Q. 4. State any two characteristics of business.
Ans: The two characteristics of business are:
(a) It is an occupation where a person is engaged in manufacturing or buying and selling of goods and services. The goods may be consumer goods or capital goods.Similarly the services may be in the form of transportation, banking, insurance etc.
(b) The activities must be carried on regularly. A single transaction is usually not treated as a business. For example, if a person sells his old car at a profit, it is not treated as a business activity. However, if he is engaged in the activity of buying old cars and selling them on a regular basis, he shall be treated as engaged in business activity.
Q. 5. Mention any three economic objectives of business.
Ans. Some of the main economic objectives of business are:
(i) earning of adequate profits.
(ii) exploring new markets and creation of more customers.
(iii) growth and expansion of business operation.
(iv) making innovations and improvements in goods and services. and
(v) making use of available resources in the best possible manner.
Q. 6. Mention any three characteristics of business risks.
Ans: 1. Uncertainty: Business risks is due to uncertainty of the future course of action. Natural clamaties such as flood, earthquake etc. result is loss. Loss may also arise due to human causes like strike, lockouts, accidents, theft, bad-debts etc. There are other uncertainties such as competition, technological changes, price fall etc.
2. Profit is the Reward for Risk: A business concern which is willing to take risk earns handsome profits. Heavy risk results in higher profits.
3. Difficult to Measure: A businessman may anticipate some risks. He cannot predict all the risks which will occur in future. Therefore, risk cannot be measured accurately.
Q. 7. Briefly describe physical causes of business risks.
Ans: Physical and Technical Causes: Change in technology may make the machines obsolete before their expected life. Mechanical failures arise due to leakage of gas, bursting of a boiler etc. Value of assets may be reduced due to loss in weight, vaporisation etc. Another kind of physical cause is the loss of goods in transit.
Long Answer Type Questions:
Q. 1. Describe the importance of business in modern society.
Ans: Business is an integral part of modern society. It is an organised and systematic activity for earning profit. It is concerned with activities of people working towards a common economic goal. Modem society cannot exist without business.
The importance of business can be described as follows:
(a) Business improves the standard of living of the people by providing better quality and large variety of goods and services at the right time and at the right place.
(b) It provides opportunities to work and earn a livelihood. Thus, it generates employment in the country, which in turn reduces poverty.
(c) It utilises the scarce resources of the nation and facilitates mass production of goods and services.
(d) It improves national image by producing and exporting quality goods and services to foreign countries. By participating in international trade fairs and exhibitions it also demonstrates the progress and achievements of its own country to the outside world.
(e) It enables the people of a country to use quality goods of international standard. This is possible by way of importing goods from foreign countries or by producing quality goods in the country by applying modern methods of production.
(f) It gives better return to the investors on their capital investment and also provides opportunities to grow and expand the business.
(g) It promotes social interest by providing tourist services, sponsoring cultural programmes, trade shows etc. in the country, which enable people of different parts of the country to exchange their culture, traditions and practices. Thus, it promotes national integration.
(h) It also facilitates exchange of culture among the people of different nations and thus, maintains international harmony and peace.
(i) It helps in the development of science and technology. It spends large amount of money on research and development in search of new products and services. Hence, a number of innovative products and services are developed through industrial research.
Q. 2. What is meant by profession? Explain its features in brief.
Ans: Profession: You are aware of doctors. What are they and what do they do? They are basically individuals who have a special knowledge and training to examine the patients, find out the ailment, if any, and then treat them to be cured from such ailment. And, for doing allthese they charge a fee from patients. Similarly, we have Chartered Accountants whospecialise in matters related to accounts, taxes etc. and help people and organisations for such jobs for a fee. If we look further, we find Engineers, Architects, Film-stars, Dancers, Artists and many others engaged in their own field having specialised knowledgeand training. They are all known as professionals and the activities they are engaged inare called profession. In order to gain clarity on the concept of a profession, let us look at its basic features which can be summarised as follows:
(a) Profession is an occupation for which the individual has to acquire a special knowledge and skill.
(b) The money they get for providing such a service is usually known as ‘fee’.
(c) Most of the professionals are regulated by a professional body, which frames the code of conduct to be followed by the member professionals. For example,Chartered Accountants in India are regulated by a professional body known as Institutes of Chartered Accountants of India, Cricketers by International Cricket Council (ICC), and so on.
(d) Professionals acquire the specialised knowledge mostly from colleges, universities or specialised institutes. In some cases, individuals also acquire such knowledge and skill through training or coaching by an expert in the same field, say for example.dancers and musicians, etc.
(e) Professionals usually work on their own and get a fee for their services and termed as those in practice. However, some of them may work in organisations as employees or consultants.
(f) The primary objective of every profession is to provide service though they may charge a fee. They should not exploit the people using their knowledge of expertise.
Q. 3. Explain the various human objectives of business.
Ans: Human objectives of business primarily refer to the objectives aimed at safeguarding the interest of its employees and their welfare.
Some of the major human objectives are:
(i) providing fair remuneration and incentives to the employees.
(ii) arrangement of better working conditions and proper work environment for the employees.
(iii) providing job satisfaction by making the jobs interesting and challenging, putting the right persons in right job.
(iv) providing the employees with more and more promotional opportunities.
(v) organising training and development programmes for the growth of the employees. and
(vi) providing employment to the backward classes of the society and people who are physically and mentally challenged.
Q. 4. State the meaning of ‘Industry’. Explain the various classifications of industry.
Ans: Industry primarily refers to all such business activities concerned with production/raising or processing of goods and services. It processes raw materials or semi-finished goods into finished goods. Extracting raw materials from earth’s surface, ed manufacturing goods and commodities, producing crops, fish, flowers, etc., constructing buildings, dams, roads etc. are all examples of industry. These activities are called industrial activities and the units engaged in these activities are known as industrial enterprises. However in a broader sense, provision of services like banking, insurance, transport also form part of industries known as tertiary industries.
Classification of Industries Before classifying industry on the basis of nature of activity, let us have a broad idea of different approaches of its classification.
Classification of industry based on nature of activity involved.
(a) Primary Industries: Primary industries refer to the activities of extraction of natural resources like coal, oil, minerals etc. and reproduction and development of living organisms like plants and animals etc. Primary industries can be categorised as extractive and genetic industries. ONGC is acompany that extracts oil and natural gas from earth. Similarly we have farmers growing crops, business houses engaged in extracting raw materials/minerals from earth (coal-mines, iron-ore mines etc.), extracting materials from forest for further processing (like collecting natural honey, timber etc.), extracting items from sea/river (like fish, crab, prawn, sea foods etc.). All these are examples of extractive industries.Have you seen poultry farms, or apple orchards or nurseries? All these are industries engaged in rearing and breeding animals and birds and growing plants or flowers for sale and are known as genetic industries. Now-a-days genetic industries are growing in number which include Horticulture (growing fruits and vegetables),Floriculture (growing flowers), Dairy Farming, Poultry Farming, Pisiculture (breeding fish) etc.
(b) Secondary Industries: The products of primary industries are normally used as raw materials to produce a variety of finished goods. And it is the secondary industry that uses the products of primary industry as its raw materials. The activities of secondary industries may be of manufacturing or construction. Manufacturing industries are engaged in producing finished goods out of raw materials or semi-finished products. For example, cotton is used to produce textile, timber to produce furniture, bauxite to produce alumina. The industries engaged in erection of buildings, dams, bridges, roadways, railways, canals, tunnels etc. are known as construction industries. They make use of the products of other industries and construct different types of structures as per the requirements of the customers.
(c) Tertiary Industries: These industries are basically concerned with generating or processing of various services and facilitate the functioning of primary industries and secondary industries as well as activities of trade. These include service industries like banking, insurance, transport etc. Film industry which provides entertainment to the individuals, produces films; tourism industry which provides services to the individual by facilitating their travel, booking of tickets and hotel rooms etc. are also included in this category.
Manufacturing industries may be divided further into the following categories:
(i) Analytical Industries manufacture different types of products by analysing and separating different elements from the same product. Petrol, diesel, kerosene, lubricating oil etc. are produced from the crude oil in oil refinery industry.
(ii) Synthetic Industries put together various ingredients and manufacture a new product. For instance, soap is produced by combining potassium carbonate and vegetable oil. Similarly, cement is produced by using limestone, coal and other chemicals.
(iii) Processing Industries are those in which raw materials are processed through successive stages to get the final products. Textile, sugar and paper are the examples of processing industry.
(iv) Assembling Industries put together various manufactured products and make a new product as in the case of car, scooter, bicycle, radio and television etc.
Q. 5. Define the term ‘Commerce’. Describe the various activities relating to commerce.
Ans: All goods and services produced are to be made available by those who need them. This involves a number of additional activities. For example when some body produces bread, he has to make it available at convenient locations at right time. This involves activities like making people aware about the product, storing the product at right places, arranging retail outlets, packaging the product, transportation of the product, selling the product and so on. All these activities taken together are known as, Commerce.It provides the necessary link between producers and consumers of goods and services and facilitates the purchase and sale of goods and services. In fact, it performs all functions, that are essential for maintaining a smooth and uninterrupted flow of goods and services to the customers.
Thus, commerce involves:
(a) Buying and selling of goods and services. and
(b) Activities essential for the smooth and uninterrupted flow of goods and services from the point of production to the point of consumption.
The first activity, that is, purchase and sale of goods and services is termed as Trade, and the second activity i.e The activities that ensure smooth flow of goods to customers are known as ‘Auxiliaries to trade or ‘Aids to trade’.
Thus, commerce is classified as:
(1) Trade. and
(2) Auxiliaries to trade.
(1) Trade: Trade is an integral part of commerce. It simply refers to sale, transfer or exchange of goods and services. It helps in making the goods and services available to ultimate consumers. The manufacturers of goods who produce in bulk or large quantity generally find it very difficult to sell those goods directly to the consumers. The reasons may be distance of the consumers from the place of manufacturing, or the quantity of the product bought at one point of time, the problem of payment and so on. Hence they utilise the services of some firms or individuals who buy goods from the manufactures and sell it to the consumers. For example, the local grocery shop owner sells grocery items to the consumers after buying it from the manufactures. Sometimes, he buys it from the wholesalers who buy goods in bulk from the manufactures and sell it to him. It may be noted that the wholesalers as well as the grocery shop owners are said to be engaged in trading.
Thus, the features of trade can be summed up as follows:
(a) It involves actual buying and selling of goods.
(b) It refers to procuring goods from one place/person to sell it to another person or at another place.
(c) Traders, also known as middlemen facilitate the distribution of goods.
(d) Trading helps in equalising demand and supply. For example, the state of Punjab may be producing plenty of rice without much demand for it in its own state. Traders buy rice from Punjab and make it available to states like Orissa and West Bengal where there is a great demand for rice. Thus, the demand and supply ratio is maintained. On the basis of area of operation, trade can be classified as under-
(a) Internal Trade. and
(b) External Trade.
(a) Internal Trade: When trade takes place within the boundaries of a country it is called internal trade. It means both the buying and selling take place within the country. For example, a trader can buy woolen garments from the manufacturers at Ludhiana and sell it to the retailers in Delhi. Similarly a trader of a village can buy goods from the wholesale market of a city for sale in the village. From these two examples, we find that internal trade can be
(i) buying from manufactures and selling it to retailers in bulk (known as wholesale trade).
or
(ii) it can be buying from manufacturers or wholesalers and selling it to consumers (known as retail trade).
(b) External Trade: Trade that takes place between different countries is known as external trade. In other words, external trade refers to buying and/or selling of goods/services across national boundaries.
This may take any of the following forms:
(i) Firms of country ‘A’ purchase goods from firms of county ‘B’ to be sold in their own country. This is known as Import trade.
(ii) Firms of country ‘A’ sell goods produced in their own country to firm of country ‘B’. This is known as Export trade.
(iii) Firms of country ‘A’ purchase goods from firms of country ‘B’ to be sold to firms of country ‘C’. This is known as Entrepot trade.
(2) Aids/Auxiliaries to Trade: To facilitate buying and selling of goods (trade) a variety of other activities are required to be performed. These include, transport of goods, storage of goods, financial transactions, insurance of goods etc. For example, when a company at Chennai buys goods from Delhi or imports it from Singapore, it needs to undertake most of the following activities, in addition to buying and selling of goods.
These activities are-
1. Carrying of goods physically from Delhi/Singapore to Chennai (called Transportation).
2. Systematic storage of goods once the goods are received at Chennai (called Warehousing).
3. Arranging money and making payments to the seller through banks and other sources(called Banking).
4. Covering risk of damage/loss of goods in transit from Delhi/Singapore or while it is in store (called Insurance).
5. Exchange of information with each other through postal and telecom services (called Communication).
6. Advertising: In today’s competitive market, it is not possible for a businessman to sit and wait for customer after investing heavily in business. To attract customers towards his product, a producer has to provide full knowledge of his product to the customer. Advertising does this properly. Advertisement enhances the knowledge of the customer about the products available in the market and with the help of this knowledge, a customer takes decision about the purchase of the product. In this way, advertisement enhances the knowledge of the customers and eliminates the hindrance of information.
All the above activities help in facilitating the trading activities or providing support to the trading activities. That is why these are called auxiliaries to trade. So auxiliaries to trade refer to those activities that facilitate trade. These activities not only facilitate the trading activities, but also provide the necessary support to the entire business in its successful functioning. Hence, these are also called support services of business.
Q. 6. Explain the role of profit in business.
Ans: Role of Profit in Business: Profit plays an important role in business.
Following points indicate the role of profit in business:
1. Survival: Profit helps an organization to replace old assets and increases the capacity of an organization to survive.
2. Future Growth and Expansion: Extra profit earned can be utilized for expansion purpose. Entry in new areas helps an enterprise to grow.
3. Incentive: Profit is an incentive for businessmen who put hard work. Profit motivates the businessmen to put maximum efforts.
4. Prestige: Profit making organizations can afford to give higher wages/salaries and other facilities to their employees. This can retain employees and attract highly competent persons to join the enterprise. So profit making concern enjoys goodwill in the society.
5. Achievement of Goals: Only a profit making concern can achieve the goals of an enterprise because achievement of economic objectives require expenditure.
6. Measure of Efficiency: The success of an organization can be evaluated by looking at its profit. So profit is an index of success in business. It measures the efficiency of business.
7. Means of Livelihood to Businessmen: Profit is a regular income to the family of business persons.
Q. 7. What do you mean by business risk? Explain the natural causes of business risks.
Ans. Business Risks: Business is full of uncertainties. Uncertainties can be of different forms like loss due to change in fashion; fall in market price, goods produced may be destroyed by fire,storm, cyclone, theft etc. Thus, while running a business enterprise, there is an element of risk. Business risk means chance of loss due to uncertain events in future.
1. Natural Causes: Fire, flood, storm, cyclone, earthquake, famine, lightning, snowfall, tide etc. result in loss of life, property and income. Therefore, its successful natural causes are beyond the control of business.
Q. 8. Describe the causes of business risks.
Ans. Causes of Business Risks are:
1. Natural Causes: Fire, flood, storm, cyclone. earthquake, famine, lightning, snowfall, tide etc. result in loss of life, property and income. Therefore, natural causes are beyond the control of business.
2. Economic Causes: It refers to change in market conditions. Economic causes can be in the form of fluctuation in demand, fluctuation in price, availability of cheap substitutes, competing business firms etc.
3. Political Causes: Fall of government may change license policy and tax policy. This may result in loss to the business. Import and export restrictions, high taxes, rise in interest rate on borrowings etc. may cause loss to the business. Political causes refer to changes in government policies and laws.
4. Human Causes: Inefficient management and carelessness of employees may result in loss. Workers may damage machines. They may involve in strike, lockout etc. which may also result in loss. If the management fail in estimating demand for products, loss may arise. Uncertainties caused by human actions e.g. forgery,misappropriation of cash, theft of goods, riots, wars, etc. can also result in loss.
5. Physical and Technical Causes: Change in technology may make the machines obsolete before their expected life. Mechanical failures arise due to leakage of gas, bursting of a boiler etc. Value of assets may be reduced due to loss in weight, vaporisation etc. Another kind of physical cause is the loss of goods in transit.
Q. 9. “Profit plays the same role in business as blood plays in human beings.”Give your comments in the light of this statement.
Ans: Profit plays an important role in business.
Following points indicate the role of profit in business:
1. Survival: Profit helps an organization to replace old assets and increases the capacity of an organization to survive.
2. Future Growth and Expansion: Extra profit earmed can be utilized for expansion purpose. Entry in new areas helps an enterprise to grow.
3. Incentive: Profit is an incentive for businessmen who put hard work. Profit motivates the businessmen to put maximum efforts.
4. Prestige: Profit making organizations can afford to give higher wages/salaries and other facilities to their employees. This can retain employees and attract highly competent persons to join the enterprise. So profit making concern enjoys goodwill in the society.
5. Achievement of Goals: Only a profit making concern can achieve the goals of an enterprise because achievement of economic objectives require expenditure.
6. Measure of Efficiency: The success of an organization can be evaluated by looking at its profit. So profit is an index of success in business. It measures the efficiency of business.
7. Means of Livelihood to Businessmen: Profit is a regular income to the family of business persons.
Q. 10. Your friend Ramesh wants to starts a business. Therefore, he is interested to know the business risks and their causes. Explain to him the meaning and causes of business risks.
Ans: Business risk means chance of loss due to happening of uncertain events in future.
Business risk is uncertain, difficult to measure, variable and an essential element of business.
Causes of Business Risks:
1. Natural Causes: Fire, flood, storm, cyclone, earthquake, famine, lightning, snowfall, tide etc. result in loss of life, property and income. Therefore, natural causes are beyond the control of business.
2. Economic Causes: It refers to change in market conditions. Economic causes can be in the form of fluctuation in demand, fluctuation in price, availability of cheap substitutes, competing business firms etc.
3. Political Causes: Fall of government may change license policy and tax policy. This may result in loss to the business. Import and export restrictions, high taxes, rise in interest rate on borrowings etc. may cause loss to the business. Political causes refer to changes in government policies and laws.
4. Human Causes: Inefficient management and carelessness of employees may result in loss. Workers may damage machines. They may involve in strike, lockout etc. which may also result in loss. If the management fail in estimating demand for products, loss may arise. Uncertainties caused by human actions e.g. forgery,misappropriation of cash, theft of goods, riots, wars, etc. can also result in loss.
5. Physical and Technical Causes: Change in technology may make the machines obsolete before their expected life. Mechanical failures arise due to leakage of gas, bursting of a boiler etc. Value of assets may be reduced due to loss in weight, vaporisation etc. Another kind of physical cause is the loss of goods in transit.
