Previous Year Short & Long Questions With Answers: Nature And Purpose Of Business | Business Studies (BST) Class 11 - Commerce PDF Download

Short Answer Type Questions

Q1: State the meaning of business.
Ans: The term ‘Business’ is derived from the term ‘busy.’ As a result, running business demands being busy. In a more exact sense, business refers to an occupation in which individuals regularly participate in purchasing, manufacturing, and selling products and services to make money. Production or acquisition of commodities for resale, as well as the exchange of goods or the supply of services to meet the needs of others, might all be part of this process.

Q2: State the objectives of business.
Ans: The following are some business objectives:

• Innovation: Every Business must develop novel ideas and innovations and apply them to stay afloat and develop.
• Productivity: When the value of the output is compared to the value of the input, productivity is established.
• Earning Profits: Any business entity open for business must make a decent profit to survive and develop.

Q3: State the different types of economic activities.
Ans: The following are some examples of economic activities:

• Profession: These tasks need specialised knowledge and abilities, and those participating are professionals.
• Employment: It is an economic activity in which individuals are paid for their services and are referred to as employees.
• Business: Business is an economic activity involving the trade of products and services for profit.

Q4: Which form of public sector was brought into existence by a special act of the parliament?
Ans: Statutory corporations are public format enterprises that were brought into existence by a Special Act of the Parliament. The act establishes the company’s functions, powers, rules and regulations, and relationships with other government agencies. As a result, they have government power and a significant level of private-sector operating flexibility.

Q5: The insurance sector is referred to as the tertiary industry. Explain.
Ans: Insurance serves both the primary and secondary sectors as a support service.
The tertiary industry is the part of the economy that provides services to clients, and it includes a wide range of enterprises, including schools, financial institutions, and restaurants. The tertiary sector, or service industry/sector, is another name.

Q6: What are the various types of industries?
Ans: The following are the various kinds of industries:

• Primary: All activities involving the extraction and production of natural resources, as well as the reproduction and growth of living beings, plants, and other living things, are included in this category.
• Secondary: These are related to the utilisation of materials that have been extracted in their natural state. These companies employ these materials to make items for end customers or for further processing by other companies.
• Tertiary: These oversee supporting primary and secondary industries and trade-related businesses.

Q7: How can a trader get rid of a person’s stumbling block?
Ans: The following are ways for a trader to get of a person’s hindrance:

• Getting rid of a person’s obstacle by making goods available to clients via trade from producers.
• Transportation removes a location’s barrier by delivering goods from their producing area to the marketplace for sale.
• However, insurance eliminates the risk of goods being lost or damaged due to disasters, theft, or accidents, among other things.
• Advertising eliminates the data barrier by keeping clients informed about the products and services available in the marketplace.

Q8: What is commerce, and what role does it play in modern life?
Ans: The control of business among economic agents is referred to as commerce. It usually refers to exchanging goods, services, or other valuable objects between organisations or entities.

The following are the benefits of commerce:

• Between producers and customers, commerce serves as a catalyst.
• It creates chances for employment.
• It promotes trade on a worldwide scale.
• Assists in the development of new industries.
• Helps in times of need, such as natural disasters such as earthquakes, floods, and droughts.

Q9: Discuss the development of the indigenous banking system in the Indian subcontinent.
Ans: With the use of currency and subsequently with letters of credit, the indigenous banking system played a significant role in lending money and financing local and foreign trade. People began depositing precious metals with persons known as Seths as the banking system grew. Money became a tool for manufacturers to increase their output. Later, papers like Hundi and Chitti were used to conduct financial transactions. In ancient India, intermediaries played an essential role in commerce promotion. They were able to take chances in overseas trade because of the financial stability they provided. During the Mughal era and subsequently, the East India Company era, organisations like Jagat Seth had significant power. The expansion of commercial businesses was helped by the availability of loans and increased credit transactions.
India’s trade balance was excellent, with exports outnumbering imports by a wide margin. Manufacturers, traders, and merchants could obtain financing for expansion and development thanks to this system. Industrial and commercial banks grew into finance trade and commerce, and agriculture banks that gave farmers short- and long-term loans.

Long Answer Type Questions

Q1: Explain the notion of business risk and any three sources of risks in light of this statement.
Ans: There is no way for a business to succeed without taking risks, as there is always the prospect of low earnings or even losses. In addition, changes in demand, technology, government legislation, and other factors place businesses at risk of profit unpredictability.
Uncertainties or unexpected developments in the business world can result in insufficient earnings or losses. The following are the three sources of company risk:

• Natural causes: These are caused by natural disasters such as floods, earthquakes, and other natural disasters. These factors are beyond the control of most people, if not all.
• Human causes: Unexpected occurrences produced by man, such as employee carelessness, power outages, employee or customer dishonesty, and so on, are among these reasons.
• Economic causes: Economic reasons include changes and variations in the economy, such as uncertainty resulting from changes in technology and manufacturing methods, political upheavals, pricing fluctuations, and tax rates, among others.

Q2: Explain two business activities which auxiliaries to trade are.
Ans: The following are two examples of trade-related business activities:

• Transport and Communication: Most things are made in specific regions. Tea is grown predominantly in Assam; cotton is grown mainly in Gujarat and Maharashtra; jute is grown primarily in West Bengal and Odisha; sugar is mainly grown in Uttar Pradesh, Bihar, and Maharashtra, and so on. On the other hand, these things are necessary for consumption in diverse parts of the country. The geographical barrier is broken down by transportation, whether by road, rail, or coastal ships. Raw materials are transported to manufacturing facilities, while finished commodities are transported from producers to consumers. Communication infrastructure is necessary in addition to transportation so that producers, traders, and consumers may communicate information. As a result, postal and phone services might be thought of as ancillary to economic activities.
• Banking and Finance: Financial resources are required to carry out business activities, including the acquisition of assets, the purchase of raw materials, and other expenses. A bank can provide the finances needed for a business. Consequently, banking helps firms overcome their financial difficulties. Commercial banks lend money through overdraft and cash credit facilities, loans, and advances. On behalf of traders, banks manage check collecting, payment transfer to other locations, and bill discounting. In international trade, commercial banks help exporters in collecting money from importers. Commercial banks also help entrepreneurs raise funding from the public.

Q3: “Profit is not an objective, but a requirement of business”. Do you agree with this argument? Give justifications for your answers.
Ans: Profit is, without a doubt, a necessary component of every business. The following are the reasons: 

• Growth: Profits are required for corporate development, diversification, and expansion. Such growth tactics cannot be implemented by a company with little or little profit.
• Long-term survival: Only through making profit can a company thrive in the market in the long run. This is because the company requires money in all operations and domains. Finance is needed for everything from day-to-day spending to corporate development. As a result, if a company does not make a profit, it will be unable to pay its bills, develop, or survive in the market, eventually leading to its closure.
• Fulfill social objectives: The company’s other aims can only be met if it makes a substantial profit. If a company does not make enough money, it will not be able to meet social demands or contribute to society.
• Efficient performance: Profits serve as a motivator for both the owners and the staff. Greater earnings increase employee efficiency and productivity, resulting in higher quality performance.
• Reputation: Good profit margins allow the company to pay its costs on time, such as salaries, wages, dividends, and rentals. As a result, all stakeholders and stockholders are happy and satisfied with the company, resulting in a strong reputation and goodwill in the market.
• The reward for taking risks: A business takes many chances to keep operations running, and earnings are the payoff for taking those risks.
• Innovation: Nature’s law of change is unavoidable. As a result, to keep up with the changing and demanding environment, an organisation must continually evolve and invent. However, innovation necessitates highly trained personnel, extensive research, and cutting-edge technology, all of which are only achievable if the company is profitable.

Q4: Define Business. Describe its essential characteristics.
Ans: ‘Business’ is derived from the term ‘busy.’ As a result, running a business necessitates a high activity level. In a more exact sense, the industry refers to an occupation where individuals regularly participate in activities related to acquiring, manufacturing, and selling products and services to make money. Production or acquisition of commodities for resale, as well as the exchange of goods or the supply of services to suit the needs of others, might all be part of the activity.

• Production or procurement of goods and services: Before commodities may be sold to the public, businesses must either manufacture or purchase them. As a result, every business enterprise makes or acquires things from producers to resell to consumers or users. Consumable products, such as sugar, ghee, pens, notebooks, and so on, are examples of goods, as are capital goods, such as equipment, furniture, and so on. Services supplied to customers, corporations, and organisations include transportation, banking, energy, and other services.
• Exchange or sale of goods and services: Whether directly or indirectly, business involves transferring or exchanging goods and services for a monetary value. If something is made for personal consumption rather than for sale, it cannot be considered a commercial activity. For example, cooking meals at home for the family is not a business but cooking meals at a restaurant and selling them to others is. As a result, the sale or exchange of products or services between the seller and the consumer is one of the most significant elements of a business.
• Dealing with goods and services regularly: Trading commodities or services regularly is a necessary aspect of running a business. As a result, a single sale or purchase does not qualify as a business transaction. For example, if a person sells their household radio set for a profit, it is not considered a business activity. However, radio of sale sets regularly, whether in a store or from one’s house, is regarded as a commercial activity.
• Earning profit: Profit generation is one of a company’s primary objectives. No business can survive for long without making a profit. As a result, companies try to maximise profits through increased sales volume or cost reduction.
• Returns uncertain: Uncertainty of return refers to a lack of understanding about the quantity of money that a business will create over a specific time. To generate a profit, every business spends money on its operations. Therefore, it is impossible to estimate the amount of money that will be made. Furthermore, despite the company’s best efforts, there is always the possibility of losses.
• Element of risk: Risk is the degree of uncertainty associated with a loss of exposure. A bad or unfavourable event triggers it. Risk considerations include changes in customer taste and fashion, manufacturing processes, workplace strikes or lockouts, increased market rivalry, fire, theft, accidents, natural disasters, and so on. Risks are often seen as an inherent component of doing business.

Q5: Define industry. Explain various types of industries giving examples.
Ans: The economic activities that result in converting resources into valuable items are referred to as an industry. Machines and technological abilities are employed in the production of a variety of things and the rearing of animals. There are three categories of industries:

Primary industry: These industries deal with items derived from natural resources. The primary goal of such sectors is to transform raw materials into consumable forms. Agriculture, hunting, mining, and fishing are examples of such businesses. Primary industries may be divided into two groups based on the actions done.

• Extractive industries: These industries deal with items that need to be polished before they can be utilised in other fields. Mining and fishing are two examples.
• Genetic industries: These businesses deal with breeding plants and animals and repurposing them.

Secondary industry: These industries deal with product manufacture, acquiring raw resources and converting them into things that may be further valued. These industries can be classified as follows:

• Manufacturing industries: Here, basic materials such as petroleum and wax derived from mineral oil are turned into final goods that are readily usable.
• Synthetic industries: These are essential components combined to create a new product. The cosmetics business is one example.
• Processing industries: The raw material is treated and refined before being turned into a finished product. The paper and sugar industries are two examples.
• Assembling industries: Assembling industries specialise in putting together numerous components to create the final product. Electronics, automobiles, and construction companies are just a few examples.

Tertiary industry:These industries act as intermediaries between primary and secondary industries. Baking and transportation are two examples of sectors that provide services to other industries.

Q6: What factors are to be considered while starting a business? Explain.
Ans: The following are some considerations to make while starting a business:

• Selection of the line of business: The first considerations an entrepreneur must make are the kind and type of business to pursue. They will undoubtedly want to explore the sector of business and industry that gives the most profit possibilities. In addition, market client needs, the entrepreneur’s technical expertise, and excitement for producing a specific product will influence the selection.
• Size of the company: Another essential decision to make at the start of a firm is the company’s size or scope of activities. Some components favour a wide range of activities, while others want to keep it to a minimum. The enterprise will be started on a vast scale if the entrepreneur is certain that demand for the intended product will be substantial over time and that they can acquire the required finance. On the other hand, if market conditions are unknown and risks are considerable, a small business might be a preferable option.
• Ownership structure choice: In terms of ownership, the company might be a single proprietorship, a partnership, or a joint-stock corporation. Each kind has its own set of benefits and drawbacks. Considerations such as the type of business, capital requirements, owner responsibility, profit split, legal formalities, company continuity, and interest transferability, among others, will decide the suitable form of ownership.
• Location of the business: When founding a business, the company’s headquarters is a crucial factor to consider. Any miscalculation here might lead to high production expenses, inconvenient access to the proper manufacturing inputs, or a failure to give clients the most excellent possible service. Likewise, when picking a site, raw materials and labour availability, as well as electricity and services like banking, transportation, communication, and warehousing, are all essential factors to consider.
• Obtaining funds: Financing is concerned with providing the required money for the start-up and continuance of a potential firm. Fixed assets like land, buildings, machinery, and equipment, as well as current assets like raw materials, books, debts, completed goods stock, and so on, require capital.
• Physical facilities: When launching a business, the availability of physical infrastructures such as machinery and equipment, as well as a building and accompanying services, is crucial. This decision will be influenced by the kind and scope of the firm, the availability of capital, and the production process.
• The layout of the plan: Once the necessity for physical facilities has been recognised; the entrepreneur should draft a layout plan explaining how they will organise them. Design refers to the physical arrangement of machinery and equipment needed to manufacture a product.
• Dedicated workforce: Every company needs qualified and devoted employees to do various duties to turn physical and financial resources into desired outputs. Because no single entrepreneur can do it all, they must assess the demand for skilled and unskilled labour and administrative staff. There should also be plans for how employees will be taught and encouraged to perform at their best.
• Tax preparation: Due to the country’s complex tax regulations, which touch almost every aspect of contemporary corporate operations, tax planning has become increasingly important in recent years. The tax responsibilities under various tax legislation and their influence on company actions must be evaluated by the business’s founder in advance.
• The beginning of a new business: Following the decisions mentioned above, the entrepreneur may go on with the actual business launch, which includes mobilizing various resources, completing the legal procedures, starting the manufacturing process, and initiating a sales advertising campaign.

Q7: Explain any five objectives of the business.
Ans: The following are the business’s objectives:

• Market standing refers to a company’s position in the market relative to its rivals. A company should improve its position by supplying consumers with competitive products and meeting their demands.
• Innovation: Innovation is the introduction of new ideas or techniques into how something is done or generated. Product or service innovation and product and service supply chain innovation in various skills and activities are two forms of innovation in any company. No company can thrive in a competitive climate without innovation. As a result, innovation has become a top priority.
• Productivity: To determine productivity, the value of output is compared to the value of inputs. It’s a measure used to assess efficiency. Every firm must aim for higher productivity by making the most effective use of available resources to secure long-term survival and profitability.
• Financial and physical resources: Any company must have material resources, such as plants, machinery, and offices, and financial resources, such as capital, to create and sell goods and services to its customers. The business enterprise’s purpose should be to acquire these resources and put them to good use in line with their demands.
• Profits: Businesses are operated to make a profit on the money invested. When we talk about profitability, we’re talking about profit as a percentage of invested capital. Every firm must produce a decent profit to secure its existence and growth.

Q8: A company’s primary goal cannot be only profit maximisation. Explain.
Ans: The primary goal of a business is to make money. Hence profit maximisation is the primary goal. However, because business exists in society and consumes society’s resources, it is not its sole goal.
As a result, it has various societal goals that could be pursued to protect the balance, as follows:

• Supply of desired services and goods: Businesses must provide high-quality goods and services with the necessary certifications. Customer pleasure must be the goal.
• Social and fair trade activities: Businesses must avoid black marketing, stockpiling, and lowering product quality or safety. Businesses must contribute to the betterment of society.
• Job possibilities: Businesses must generate employment opportunities for society, particularly for the less fortunate.
• Employee welfare: Businesses must promote employee growth and development, such as social and personal skill training and a pleasant working environment. Employees have a direct impact on productivity and profitability.
• Social welfare: Businesses must use their revenues to benefit society by establishing schools, charitable hospitals, and other vital institutions for society’s progress.