Business Environment NCERT Solutions | Business Studies (BST) Class 12 - Commerce PDF Download

Very Short Answer Type Questions

Q2: How does understanding of business environment help in improving performance of a business? 
Ans: Understanding the business environment helps in:

1. Identifying opportunities and gaining a competitive edge.
2. Recognizing threats and taking early action.
3. Adapting to rapid changes in the external environment.
4. Assisting in planning and policy formulation to align with external factors.
5. Enhancing the overall performance and sustainability of the enterprise.

Q3: Give an example to show that a business firm operates within numerous inter related factors constituting the business environment.(Hint: example highlighting the inter relatedness of dimensions of business environment). 
Ans: An example is the rise in consumer awareness for health and fitness, which has increased demand for products like fat-free cooking oil and organic food. This demand shift is influenced by interrelated dimensions of the business environment such as social trends (health awareness), technological advances (production methods), and economic factors (increased disposable income).

Q4: Krishna Furnishers Mart started its operations in the year 1954 and emerged as the market leader in the industry because of their original designs and efficiency in operations. They had a steady demand for their products but over the years, they found their market share declining because of new entrants in the field. The firm decided to review their operations and decided that in order to meet the competition, they need to study and analyze the market trends and then design and develop their products accordingly. List any two impacts of changes in business environment on Krishna Furnishers Mart’s operations. (Hint: increase in competition and Market orientation). 
Ans: Two changes are: 

• Increase in Competition: New entrants in the market led to a decline in Krishna Furnishers Mart's market share.
• Market Orientation: The need to analyze market trends and adapt products according to customer preferences became essential for survival.

Q5: Name any two Specific forces of business environment affecting business.
Ans: Customers & Competitors

Short Answer Type Questions

• Identifying Opportunities: Helps businesses identify and capitalize on emerging market opportunities.
• Recognizing Threats: Enables early detection of potential threats to mitigate risks.
• Adapting to Changes: Assists in adjusting to technological, economic, or legal changes effectively.
• Improving Performance: Provides insights for better strategic planning and decision-making.
• Aligning with Trends: Keeps businesses updated with consumer preferences and industry trends.

Q2: Explain the following terms: 
(a) Liberalisation
(b) Privatization 
(c) Globalisation
Ans:  (a) Liberalisation: Refers to the removal or reduction of restrictions and controls imposed by the government on businesses and industries. This includes deregulation, reduction of trade barriers, and encouraging private investment to foster competition and growth.
(b) Privatization: Involves the transfer of ownership, management, and control of public sector enterprises to private individuals or organizations to increase efficiency and profitability.
(c) Globalisation: Refers to the integration of the domestic economy with the global economy through increased trade, foreign investment, technological advancements, and the free flow of goods, services, capital, and information across borders.

Q3: National Digital Library of India (NDL India) is a pilot project initiated by the HRD ministry. It works towards developing a framework of virtual repository of learning resources with a single­window search facility. It provides support to all academic levels including researchers, life­long learners and differentlyabled learners free of cost. State the dimensions of business environment highlighted above. 
Ans: The dimensions of the business environment highlighted are:

1. Technological Environment: The development of a virtual repository reflects advancements in technology.
2. Social Environment: It supports lifelong learning and inclusivity by catering to differently-abled individuals and learners from all academic levels.
3. Political Environment: The project is a government initiative under the Ministry of HRD, reflecting the role of political decisions.

Q4: State the impact of demonetization on interest rates, private wealth and real estate.
Ans: Impact of demonetization on interest rates private wealth and real estate

• Interest Rates: A significant increase in bank deposits due to demonetization led to lower interest rates.
• Private Wealth: There was a decline in unaccounted wealth as people were required to deposit cash into banks.
• Real Estate: The real estate sector experienced a downturn due to reduced cash transactions and a decrease in speculative investments.

Long Answer Type Questions

• Totality of External Forces: Business environment is aggregative in nature as It is the sum total of all things external to business firms. 
• Inter-relatedness: Different elements of business environment are closely related to each other. e.g., increased awareness of health care have increased the demand for many health products. 
• Dynamic Nature: The business environment is highly dynamic. It keeps on changing. Sometimes there is a change In technology, tastes and preference of consumer etc 
• Uncertainty: The environment cannot be predicted. It IS highly uncertain and unpredictable. 
• Complexity: Since there are many elements of business Environment and they are Inter-related and dynamic in nature Therefore, it becomes very difficult to understand them as a whole. 

Difference between Specific and General Environment
There are two types of forces operating in business environment specific and general Specific forces affect the individual enterprises directly and Immediately, e.g., customers, suppliers General forces affect the firms and only indirectly e g , social conditions or political conditions.

Q2: How would you argue that the success of a business enterprise is significantly influenced by its environment? 
Ans: Importance of business environment 

1. It Enables the firm to Identify Opportunities and Getting the First Mover Advantage Environment provides numerous opportunities for business success. Early identification of opportunities helps an enterprise to be the first to exploit them instead of loosing them to competitors, e g., Eureka Forbes introduced Aquaguard and took away the cream of demand. 
2. It Helps the Firm to Identify Threats and Early Warning Signals Environment happens to be the source of many threats Environmental awareness can help managers to identity various threats on time and serve as an early warning signals e.g. Lakme took serious steps to improve the quality and types of products as foreign multinational cosmetics companies started coming to India after 1991. 
3. It Helps in Tapping Useful Resources Environment offers various resources for running a business in return the business enterprise supplies the environment With its outputs such as goods and services for customers taxes for government. In order to arrange for the best possible resources, better understanding of the environment becomes Important 
4. It Helps in Coping with Rapid Changes It is not the fact of change itself that is so Important as the pace of change There are many changes taking place in the environment and at a fast speed. In order to effectively cope with these changes, managers must understand and examine the environment and develop Suitable courses of action . 5. It Helps in Assisting in Planning and Policy Formulation Since environment is a source of both opportunities and threats Its understanding and analysis only helps In formulating the best possible policies to handle the future properly .
5. It Helps in Improving Performance Continuous monitoring and adopting changes in an enterprise will help if! Improving not only their present performance. but also continue to succeed in the market in long run.

Q3: Explain, with examples, the various dimensions of business environment. 
Ans: (i) Economic Environment It includes the changes In the system due to economic policies made by the government. Reserve Bank of India is the key regulator of country’s economic environment since it 
(a) influences the Interest rates 
(b) controls the flow of money in the economy 
(c) regulates the working of banks Example When the banks reduce the interest rates on long term loans. automobiles and construction industries get a boost to the business as more spending is made on the purchase of homes and cars through loans. 

(ii) Social Environment: The social environment of business Include the social forces like customs and traditions, values social trends, society’s expectations from business etc. In business terms, these values translate into freedom of choice in the market. Major elements of social environment are 
(a) life expectancy 
(b) shifts in the presence of women in the workforce 
(c) consurnonon habits 
Example: Due to the shift in the presence of women in the workforce the demand for readymade ladles formal wear, cosmetics, packed/processed food, electronic gadgets has gone up. 

(iii) Technological Environment:Technological environment Includes forces relating to scientific Improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. Example Because of technological advancement, it has become possible to book railway tickets through internet from home, office etc. 

(iv) Political Environment: Political environment includes political conditions such as general stability and peace In the country and specific attitudes that elected government representatives hold towards business. It is only of use when a business enterprise can predict its business activities under stable political conditions. Major elements of political environment are 
(a) The constitution of the country 
(b) The nature and profile of political leadership and thinking of political personalities 
(c) Political ideology and practices of the ruling party. Example After the NEP of 1991, due to globalisation the foreign companies started coming to India, but due to the bureaucratic red tape it became difficult for them to cut through it to do business here. As a result, these companies were discouraged in our country regarding investments. The situation has improved overtime. 

(v) Legal Environment: Legal environment includes various legislations passed by the Government administrative orders Issued by government authorities, court judgements as well as the decisions rendered by various commissions and agencies. It is imperative for the management of every enterprise to obey the law of the land. Therefore, an adequate knowledge of rules and regulations framed by the government is a prerequisite for better business performance. Example There is a government regulation to protect consumer’s interest e.g., the advertisements of alcoholic beverages is prohibited.

Q4: The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 201Q6: As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.
This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e­wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection. 
(a) Enumerate the dimensions of business environment highlighted above.
(b) State the features of Demonetization.
Ans: (a) Dimensions of Business Environment Highlighted:
Political Dimension:

• "The Government of India announced demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016."
• This highlights the influence of government policies and decisions on business operations.

Legal Dimension:

• "As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date."
• This emphasizes the role of legal changes in altering business practices and consumer behavior.

Technological Dimension:

• "The step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash, and other modes of cashless transactions."
• This reflects advancements in technology and its role in driving new business practices like digital payments.

(b) Features of Demonetization:
Measure of Tax Administration:

• Black money holders were required to declare unaccounted wealth and pay taxes at penalty rates, aiming to reduce illicit financial activities.

Measure to Avoid Tax Evasion:

• The government's action sent a strong signal against tax evasion, emphasizing its zero-tolerance stance.

Channelizing Savings into the Financial System:

• By requiring deposits of demonetized currency into banks, it increased the formalization of money within the financial system.

Creating a ‘Cash-less’ or ‘Cash-lite’ Economy:

• Promoted digital transactions to boost financial savings, reduce reliance on cash, and curb tax evasion.

Q5: What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry? 
Ans: Economic changes initiated by the government under the Industrial Policy, 1991

1. The government reduced the number of industries under compulsory licensing to six.
2. The role of public sector was reduced. It was now limited only to four industries of strategic importance.
3. Disinvestment was carried out in case of many public sector industrial enterprises.
4. Foreign Direct Investment was permitted.
5. Automatic permission was now granted for technology agreements with foreign companies.
6. Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.

The Indian corporate sector has come lace-to-face with several challenges due to  government policy changes. Some of them are

1. Increasing Competition The competition has Increased due to entry of new players (pnvausanon and globalisation).
2. More Demanding Customers Customers today. has become more demanding because they are well-informed. Increased competition in the market gives the customers Wider choice In purchasing better quality of goods and services.
3. Rapidly Changes Technological Environment The rapidly changing technological environment creates tough challenges before smaller firms.
4. Necessity for Change After 1991. the market forces have become turbulent as a result of which the enterprises have to continuously modify their operations.
5. Need for Developing Human Resources Earlier. Indian enterprises worked with inadequately trained personnel The new market conditions require people with higher competence and greater commitment Hence. the need for developing human resources.
6. Market Orientation Before 1991. all firms worked with production oriented marketing operations. In a fast changing world. there was a shift to market orientation. The firms had to study and analyse the market first and produce goods accordingly.
7. Loss of Budgetary Support to the Public Sector The public sector undertakings have realised that in order to survive and grow, they will have to be more efficient and generate their own resources.

Q6: What are the essential features of: 
(a) Liberalisation, 
(b) Privatization and 
(c) Globalisation?
Ans: Essential features of
(a) Liberalisation

1. Abolishing licensing requirements In most of the industries a short list. except
2. No restriction on expansion or contraction of business.
3. Free movement of goods and services
4. Freedom in fixing the prices of goods and services.
5. Reduction in tax rates.
6. Simplifying procedures for imports and exports.
7. Making it easier to attract foreign capital and technology to India.

(b) Privatisation

1. The government redefined the role of public sector.
2. Policy of planned disinvestments of the public sector
3. Refining of sick enterprises to the Board of Industrial and Financial Reconstruction.

(c) Globalisation

1. Import liberalisation
2. Export promotion
3. Foreign exchange reforms