Q.1. Explain the characteristics of business. (KVS Agra, 2017)
Ans. Characteristics of business are as follows:
(i) An economic activity: Business is considered to be an economic activity because it is undertaken with the objective 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 manufactures goods it deals in or acquires them from producers to be further sold to consumers.
(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.
(iv) Dealing in goods and services on a regular basis: Business involves dealing in goods or services on a regular basis. One single transaction of sale or purchase does not constitute business.
(v) Profit earning: One of the main purposes of business is to earn income by way of profit. No business can survive for long without earning profit.
(vi) Uncertainty of return: Uncertainty of return refers to the lack of knowledge relating to the amount of profit that the business is going to earn during a given period.
Q.2. Explain the role of profit in business. (KVS 2013)
What functions does the profit perform?
Ans. Functions of profit:
(i) Source of income: It is the most important source of income and provides livelihood for the businessman. Everyone has to satisfy his/her needs and hence no one is expected to undertake business activities without any earnings for the same.
(ii) Source of finance: Profit is a source of finance for expansion and diversification of business activities. A part of the profits can be retained for increasing the volume of the business. Retention of profit is always considered the best way for carrying out business activities.
(iii) Efficient working: Profit is required for efficient and smooth functioning of the business. It is considered as a barometer for judging the performance of the business.
(iv) Goodwill: Profit helps in building the reputation or goodwill of the business firms. With profit increasing over time, a business enterprise gains reputation. Such goodwill creates market standing which ultimately helps to raise loans and thereby obtain credit more easily.
(v) Reward for risk bearing: Risk is always associated with every business. A person who invests money in the business has to bear the risk also. In the eventuality of loss due to any risk, the businessman doesn’t stop the business. It is the profit element that motivates him to carry on with business even in the case of losses.
(vi) Social responsibility: Higher profits make better remuneration and amenities possible. It increases the standard of living of workers. A firm with a higher profit is in a position to carry out its social responsibility towards various social groups.
Q.3. ‘Profit maximization is not the sole objective of a business’. Discuss.
Ans. While the importance of profits cannot be ignored, earning profit cannot be the only objective of the business; it has to achieve other economic and social objectives too. The sole aim of earning profit has the following effects on a business:
(i) Ignores the interest of workers: Labour is one of the most important factors of production. Profit maximization the interest of workers in the way that they do not get fair remuneration and hence are not motivated. In the absence of motivation, they will not work up to their full potential. Resultantly, quality and standards of the products and services will deteriorate and will ultimately lead to losses.
(ii) Ignores the interest of customers: Customers are very important for every business in the sense that without their existence, even thinking about business is merely a dream. Profit maximization their interest because goods/services are overpriced which ultimately leads to reduction in this number of customers, reduction in quantity of sales and thereby reduction in profits.
(iii) Ignores the interest of society: Profit maximization overlooks the interest of the society in which it works. It may propel a businessman to indulge in unfair trade practices like hoarding, black marketing, etc.
(iv) Ignores long-term interest of the business itself: Profit maximization may be the objective for the short-term, but in the long-term it may lead the business to a dangerous position where it could become very difficult for the business to even survive.
Q.4. State and explain five objectives of business.
Why does business need multiple objectives? Explain any five such objectives.
Ans. Continuous increase in the profits of any enterprise is possible only by performing useful services to the society. In fact, objectives are needed in every area that influences the survival and prosperity of business. Since a business has to balance a number of needs and goals, it requires multiple objectives. The five multiple objectives of business are as follows:
(i) Market standing: Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise must aim at stronger market standing in terms of offering competitive products to its customers and serving them to their satisfaction.
(ii) Innovation: Innovation is the introduction of new ideas or methods in the way something is done or made. There are two kinds of innovation in every business, i.e.,
(a) innovation in product or service.
(b) innovation in the various skills and activities needed to supply them.
(iii) Productivity: Productivity is calculated by comparing the value of outputs with the value of inputs. It is used as a measure of efficiency.
(iv) Physical and financial resources: Any business requires physical resources like plants, machines, offices, etc., and financial resources i.e. funds to be able to produce and supply goods and services to its customers.
(v) Earning profits: One of the main objectives of business is to earn profits on the capital employed. Profitability refers to profit in relation to capital investment. Every business must earn a reasonable profit which is crucial for its survival and growth.
Q.5. Explain briefly the concept of Business, Profession and Employment.
Ans. 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. People engaged in business earn income in form of profit.
Profession: Includes those activities which require special knowledge and skill to be applied by individuals in their occupation. Those engaged in Professions are knows as professional and earn their income in the form of professional fee.
Employment: It refers to the occupation in which people work for others and get remunerated in return. Those who are employed by others are known as employees and get their income in the form of wages or salaries as per their service agreement.