NCERT Textbook - Nature and Purpose of Business Commerce Notes | EduRev

Business Studies (BST) Class 11

Commerce : NCERT Textbook - Nature and Purpose of Business Commerce Notes | EduRev

 Page 1


PART I
Foundations of Business
Page 2


PART I
Foundations of Business
CHAPTER 1
NATURE AND PURPOSE OF BUSINESS
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the concept and characteristics of business;
• compare the distinctive features of business, profession and
employment;
• classify business activities and clarify the meaning of industry and
commerce;
• state various types of industry;
• explain the activities relating to commerce;
• analyse the objectives of business;
• describe the nature of business risks and their causes; and
• discuss the basic factors to be considered while starting a business.
Page 3


PART I
Foundations of Business
CHAPTER 1
NATURE AND PURPOSE OF BUSINESS
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the concept and characteristics of business;
• compare the distinctive features of business, profession and
employment;
• classify business activities and clarify the meaning of industry and
commerce;
• state various types of industry;
• explain the activities relating to commerce;
• analyse the objectives of business;
• describe the nature of business risks and their causes; and
• discuss the basic factors to be considered while starting a business.
3 NATURE AND PURPOSE OF BUSINESS
influence on our daily lives. It,
therefore, becomes important that we
understand the concept, nature and
purpose of business.
1.2 CONCEPT OF BUSINESS
The term business is derived from the
word ‘busy’. Thus, business means
being busy. However, in a specific
sense, business refers to any
occupation in which people regularly
engage in an activity with a view to
earning profit. The activity may consist
of production or purchase of goods for
sale, or exchange of goods or supply of
services to satisfy the needs of other
people.
In every society people undertake
various activities to satisfy their needs.
These activities may be broadly
classified into two groups — economic
and non-economic. Economic activities
are those by which we can earn our
livelihood whereas non-economic
1.1 INTRODUCTION
The conversation among the four
classmates is obviously focused on the
meaning, nature and purpose of
business. All human beings, wherever
they may be, require different types of
goods and services to satisfy their
needs. The necessity of supplying goods
and services has led to certain activities
being undertaken by people to produce
and sell what is needed by others.
Business is a major economic activity
in all modern societies concerned as it
is 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. Business is central to our lives.
Although our lives are influenced by
many other institutions in modern
society such as schools, colleges,
hospitals, political parties and religious
bodies, business has the major
Imran, Manpreet, Joseph and Priyanka have been classmates in Class X. After
their exams are over, they happen to meet at a common friend Ruchika’s house.
Just when they are sharing their experiences of examination days, Ruchika’s
father, Mr. Raghuraj Chaudhury intervenes and asks about their well-being. He
also enquires from each one of them about their career plans. But none of them
has a definite reply. Mr. Raghuraj, who himself is a businessman, suggests to
them that they can opt for business as a promising and challenging career.
Joseph gets excited by the idea and says, “Yes, business is really good for making
lots of money even more than is possible by becoming an engineer or a doctor.”
Mr. Raghuraj opines, “Let me tell you, young man, there is a lot more to business
than merely money”. He then gets busy with some other guests. However, the
four classmates begin raising many questions: What exactly business is all about?
What else is there in business besides money? How is business different from
non-business activities? What does one require to start a business? And, so on.
Page 4


PART I
Foundations of Business
CHAPTER 1
NATURE AND PURPOSE OF BUSINESS
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the concept and characteristics of business;
• compare the distinctive features of business, profession and
employment;
• classify business activities and clarify the meaning of industry and
commerce;
• state various types of industry;
• explain the activities relating to commerce;
• analyse the objectives of business;
• describe the nature of business risks and their causes; and
• discuss the basic factors to be considered while starting a business.
3 NATURE AND PURPOSE OF BUSINESS
influence on our daily lives. It,
therefore, becomes important that we
understand the concept, nature and
purpose of business.
1.2 CONCEPT OF BUSINESS
The term business is derived from the
word ‘busy’. Thus, business means
being busy. However, in a specific
sense, business refers to any
occupation in which people regularly
engage in an activity with a view to
earning profit. The activity may consist
of production or purchase of goods for
sale, or exchange of goods or supply of
services to satisfy the needs of other
people.
In every society people undertake
various activities to satisfy their needs.
These activities may be broadly
classified into two groups — economic
and non-economic. Economic activities
are those by which we can earn our
livelihood whereas non-economic
1.1 INTRODUCTION
The conversation among the four
classmates is obviously focused on the
meaning, nature and purpose of
business. All human beings, wherever
they may be, require different types of
goods and services to satisfy their
needs. The necessity of supplying goods
and services has led to certain activities
being undertaken by people to produce
and sell what is needed by others.
Business is a major economic activity
in all modern societies concerned as it
is 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. Business is central to our lives.
Although our lives are influenced by
many other institutions in modern
society such as schools, colleges,
hospitals, political parties and religious
bodies, business has the major
Imran, Manpreet, Joseph and Priyanka have been classmates in Class X. After
their exams are over, they happen to meet at a common friend Ruchika’s house.
Just when they are sharing their experiences of examination days, Ruchika’s
father, Mr. Raghuraj Chaudhury intervenes and asks about their well-being. He
also enquires from each one of them about their career plans. But none of them
has a definite reply. Mr. Raghuraj, who himself is a businessman, suggests to
them that they can opt for business as a promising and challenging career.
Joseph gets excited by the idea and says, “Yes, business is really good for making
lots of money even more than is possible by becoming an engineer or a doctor.”
Mr. Raghuraj opines, “Let me tell you, young man, there is a lot more to business
than merely money”. He then gets busy with some other guests. However, the
four classmates begin raising many questions: What exactly business is all about?
What else is there in business besides money? How is business different from
non-business activities? What does one require to start a business? And, so on.
4 BUSINESS STUDIES
activities are those performed out of
love, sympathy, sentiments, patriotism,
etc. For example, a worker working in
a factory, a doctor operating in his
clinic, a manager working in the office
and a teacher teaching in a school—
are doing so to earn their livelihood and
are, therefore, engaged in an economic
activity. On the other hand, a housewife
cooking food for her family or a boy
helping an old man cross the road are
performing non-economic activities
since they are doing so out of love or
sympathy. Economic activities may be
further divided into three categories,
namely business, profession and
employment. Business may be defined
as an economic activity involving the
production and sale of goods and
services undertaken with a motive of
earning profit by satisfying human
needs in society.
1.3 CHARACTERISTICS OF BUSINESS
ACTIVITIES
In order to appreciate how business
activity is different from other activities
in society, the nature of business or its
fundamental character must be
explained in terms of its distinguishing
characteristics, which are as follows:
(i) An economic activity: Business is
considered to be an economic activity
because it is undertaken with the object
of earning money or livelihood and not
because of love, affection, sympathy or
any other sentimental reason.
(ii) Production or procurement of
goods and services: Before goods are
offered to people for consumption they
must be either produced or procured
by business enterprises. Thus, every
business enterprise either manu-
factures the goods it deals in or it
acquires them from producers, to be
further sold to consumers or users.
Goods may consist of consumable
items of daily use such as sugar, ghee,
pen, notebook, etc. or capital goods like
machinery, furniture, etc. Services may
include facilities offered to consumers
in the form of transportation, banking,
electricity, etc.
(iii) Sale or exchange of goods and
services for the satisfaction of
human needs: Directly or indirectly,
business involves transfer or exchange
of goods and services for value. If goods
are produced not for the purpose of
sale but say for internal consumption,
it cannot be called a business activity.
Cooking food at home for the family is
not business, but cooking food and
selling it to others in a restaurant is
business. Thus, one essential
characteristic of business is that there
should be sale or exchange of goods
or services between the seller and
the buyer.
(iv) Dealings in goods and services
on a regular basis: Business involves
dealings in goods or services on a
regular basis. One single transaction
of sale or purchase, therefore, does not
constitute business. Thus, for example,
if a person sells his/her domestic radio
set even at a profit, it will not be
considered a business activity. But if
he/she sells radio sets regularly either
through a shop or from his/her
Page 5


PART I
Foundations of Business
CHAPTER 1
NATURE AND PURPOSE OF BUSINESS
LEARNING OBJECTIVES
After studying this chapter, you should be able to:
• explain the concept and characteristics of business;
• compare the distinctive features of business, profession and
employment;
• classify business activities and clarify the meaning of industry and
commerce;
• state various types of industry;
• explain the activities relating to commerce;
• analyse the objectives of business;
• describe the nature of business risks and their causes; and
• discuss the basic factors to be considered while starting a business.
3 NATURE AND PURPOSE OF BUSINESS
influence on our daily lives. It,
therefore, becomes important that we
understand the concept, nature and
purpose of business.
1.2 CONCEPT OF BUSINESS
The term business is derived from the
word ‘busy’. Thus, business means
being busy. However, in a specific
sense, business refers to any
occupation in which people regularly
engage in an activity with a view to
earning profit. The activity may consist
of production or purchase of goods for
sale, or exchange of goods or supply of
services to satisfy the needs of other
people.
In every society people undertake
various activities to satisfy their needs.
These activities may be broadly
classified into two groups — economic
and non-economic. Economic activities
are those by which we can earn our
livelihood whereas non-economic
1.1 INTRODUCTION
The conversation among the four
classmates is obviously focused on the
meaning, nature and purpose of
business. All human beings, wherever
they may be, require different types of
goods and services to satisfy their
needs. The necessity of supplying goods
and services has led to certain activities
being undertaken by people to produce
and sell what is needed by others.
Business is a major economic activity
in all modern societies concerned as it
is 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. Business is central to our lives.
Although our lives are influenced by
many other institutions in modern
society such as schools, colleges,
hospitals, political parties and religious
bodies, business has the major
Imran, Manpreet, Joseph and Priyanka have been classmates in Class X. After
their exams are over, they happen to meet at a common friend Ruchika’s house.
Just when they are sharing their experiences of examination days, Ruchika’s
father, Mr. Raghuraj Chaudhury intervenes and asks about their well-being. He
also enquires from each one of them about their career plans. But none of them
has a definite reply. Mr. Raghuraj, who himself is a businessman, suggests to
them that they can opt for business as a promising and challenging career.
Joseph gets excited by the idea and says, “Yes, business is really good for making
lots of money even more than is possible by becoming an engineer or a doctor.”
Mr. Raghuraj opines, “Let me tell you, young man, there is a lot more to business
than merely money”. He then gets busy with some other guests. However, the
four classmates begin raising many questions: What exactly business is all about?
What else is there in business besides money? How is business different from
non-business activities? What does one require to start a business? And, so on.
4 BUSINESS STUDIES
activities are those performed out of
love, sympathy, sentiments, patriotism,
etc. For example, a worker working in
a factory, a doctor operating in his
clinic, a manager working in the office
and a teacher teaching in a school—
are doing so to earn their livelihood and
are, therefore, engaged in an economic
activity. On the other hand, a housewife
cooking food for her family or a boy
helping an old man cross the road are
performing non-economic activities
since they are doing so out of love or
sympathy. Economic activities may be
further divided into three categories,
namely business, profession and
employment. Business may be defined
as an economic activity involving the
production and sale of goods and
services undertaken with a motive of
earning profit by satisfying human
needs in society.
1.3 CHARACTERISTICS OF BUSINESS
ACTIVITIES
In order to appreciate how business
activity is different from other activities
in society, the nature of business or its
fundamental character must be
explained in terms of its distinguishing
characteristics, which are as follows:
(i) An economic activity: Business is
considered to be an economic activity
because it is undertaken with the object
of earning money or livelihood and not
because of love, affection, sympathy or
any other sentimental reason.
(ii) Production or procurement of
goods and services: Before goods are
offered to people for consumption they
must be either produced or procured
by business enterprises. Thus, every
business enterprise either manu-
factures the goods it deals in or it
acquires them from producers, to be
further sold to consumers or users.
Goods may consist of consumable
items of daily use such as sugar, ghee,
pen, notebook, etc. or capital goods like
machinery, furniture, etc. Services may
include facilities offered to consumers
in the form of transportation, banking,
electricity, etc.
(iii) Sale or exchange of goods and
services for the satisfaction of
human needs: Directly or indirectly,
business involves transfer or exchange
of goods and services for value. If goods
are produced not for the purpose of
sale but say for internal consumption,
it cannot be called a business activity.
Cooking food at home for the family is
not business, but cooking food and
selling it to others in a restaurant is
business. Thus, one essential
characteristic of business is that there
should be sale or exchange of goods
or services between the seller and
the buyer.
(iv) Dealings in goods and services
on a regular basis: Business involves
dealings in goods or services on a
regular basis. One single transaction
of sale or purchase, therefore, does not
constitute business. Thus, for example,
if a person sells his/her domestic radio
set even at a profit, it will not be
considered a business activity. But if
he/she sells radio sets regularly either
through a shop or from his/her
5 NATURE AND PURPOSE OF BUSINESS
residence, it will be regarded as a
business activity.
(v) Profit earning: One of the main
purpose of business is to earn income
by way of profit. No business can
survive for long without earning profit.
That is why businessmen make all
possible efforts to maximise profits, by
increasing the volume of sales or
reducing costs.
(vi) Uncertainty of return: Uncertainty
of return refers to the lack of knowledge
relating to the amount of money that
the business is going to earn in a given
period. Every business invests money
(capital) to run its activities with the
objective of earning profit. But it is not
certain as to what amount of profit will
be earned. Also, there is always a
possibility of losses being incurred, in
spite of the best efforts put into the
business.
(vii) Element of risk: Risk is the
uncertainty associated with an
exposure to loss. It is caused by some
unfavourable or undesirable event. The
risks are related with certain factors like
Business refers to those economic
activities, which are connected with the
production or purchase and sale of
goods or supply of services with the
main object of earning profit. People
engaged in business earn income in the
form of profit.
Profession includes those activities,
which require special knowledge and
skill to be applied by individuals in
changes in consumer tastes and
fashions, changes in methods of
production, strike or lockout in the
work place, increased competition in
the market, fire, theft, accidents,
natural calamities, etc. No business
can altogether do away with risks.
1.4 COMPARISON OF BUSINESS,
PROFESSION AND EMPLOYMENT
As has been mentioned earlier,
economic activities may be divided into
three major categories viz.,
(i) Business
(ii) Profession
(iii) Employment
Business Functions at Enterprise Level
Business includes a wide variety of functions performed by many different kinds
of organisations called business enterprises or firms. Financing, production
marketing and human resource management are the four major functions which
are performed by business enterprises to carry on business. Financing is
concerned with mobilising and utilising funds for running a business  enterprise.
Production involves the conversion of raw materials into finished products or
generation of services. Marketing refers to all those activities which facilitate
exchange of goods and services from producers to the people who need them, at
a place they want, at a time they require and at a price they are prepared to pay.
Human resource management aims at ensuring the availability of working people
who have necessary skills to perform various tasks in enterprises.
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