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

Short Answer Type Questions

Q.1. What are the various types of Industries? 
Ans. The various types of Industries are:
(a) Primary Industry: Includes all activities related to
(i) Extraction and production of natural resources
(ii) Reproduction and development of living organisms, plants, etc.
(b) Secondary Industry: These industries process raw material supplied by primary industries to produce goods for further processing by other industries or for final consumption.
(c) Tertiary Industry: Tertiary industries provide supporting services to primary industries, secondary industries and to all activities related to trade, removing hindrances arising during the process of production and distribution of goods.

Q.2. Briefly explain any four auxiliaries to trade.
Ans. Following are the important auxiliaries to trade:
(a) Transportation and communication: Production of goods generally takes place in particular location, But these goods are demanded for consumption in different parts of the country. This hindrance of place can be removed by transportation — road, rail or coastal shipping, etc. In the same way, the hindrance of information is removed by communication. Communication helps in exchange of information between producers, consumers and traders.
(b) Banking and finance: Banks and financial institution provide credit facility to provide finance for smooth flow of business activities. Other facilities like collection and deposit of cheques, issue of bank draft, discounting of bills of exchange, etc. are also provided by banking institutions.
(c) Insurance: Risk is inherent with business. The insurance sector provides protection from some of the risks faced by business. These risks mainly include theft, burglary, fire, accident, etc.
(d) Warehousing: Goods are not consumed immediately when these are produced usually there is a time gap between production and consumption of goods special arrangement has to be made to store the goods to prevent the loss to goods and to keep them fresh. Warehousing helps the businessman to overcome the problem of storage by creating time utility.

Q.3. Explain how industry, trade and commerce are interrelated.
Ans. Industry, commerce and trade are closely related to each other in a number of ways:
(a) Industry is related to the production of goods and services and commerce helps to distribute the goods and services produced by the industry to the final consumer.
(b) Industry and commerce are interdependent on each other. They cannot survive in isolation as both are vital for each other. Commerce will be of no use in the absence of industry and industry cannot survive in the absence of commerce. Commerce is a creator of place utility and time utility and serves the backbone of industry, while industry provides the base for commerce.
(c) Trade is an integral part of commerce. It refers to the sale and purchase of goods and services. It provides a ground for commerce to play. It not only provides support to industry but also maintains a smooth flow of commerce at the same time.

Q.4. Name the six hindrances to trade.
Ans. 
(a) Hindrance of persons.
(b) Hindrance of place.
(c) Hindrance of time.
(d) Hindrance of risk.
(e) Hindrance of finance.
(f) Hindrance of information.

Q.5. Why is commerce considered as the backbone of industry and other business activities?
Ans. Commerce is considered as the backbone of industry because it performs the following functions:
(a) Helps in eliminating the hindrances of persons.
(b) Helps in eliminating the hindrances of place.
(c) Helps in eliminating the hindrances of time.
(d) Helps in eliminating the hindrances of finance.
(e) Helps in eliminating the hindrances of risk.
(f) Helps in eliminating the hindrances of information.

Q.6. Explain in brief the type of manufacturing industries with examples of products manufactured in each type.
Ans. The following are the types of manufacturing industry:
(a) Analytical industry: This industry includes activities which are involved in analyzing and separating basic materials into a number of products.
Example: processing crude oil to produce petrol, diesel, etc.
(b) Synthetic industry: In this industry, two or more materials are mixed together to create a new product.
Example: producing soap, biscuits, etc.
(c) Processing industry: In this industry, raw materials are processed to produce finished goods through a series of manufacturing operations.
Example: sugar from sugarcane, textile products, etc.
(d) Assembling industry: In this industry, the finished product is produced by assembling the various parts or components.
Example: radio, car, T.V., etc.

Q.7. Identify the economic activities in the following case and classify them into Primary, Secondary and Tertiary industries.
(a) Mohan, a farmer producing wheat.
(b) Raj, the owner of a cotton textile firm.
(c) Ramesh, is working as a peon in an oil refinery.
(d) Krishna, is running her advertisement agency.
Ans. 
(a) Farmer—Business—Primary industry.
(b) Owner of a cotton textile firm—Business secondary industry.
(c) Peon—Employment—Secondary industry.
(d) Advertisement agency—Profession—Tertiary industry.

Q.8. Define service. Name the services which are related to the following cases:
(a) The services which help in removing hindrance of knowledge.
(b) The services which help in removing hindrance of place.
(c) The services which help in removing hindrance of time.
(d) The services which help in removing hindrance of risk.
Ans. 
(a) Advertisement segment.
(b) Transport segment.
(c) Warehousing segment.
(d) Insurance segment.

Q.9. Rohit is not able to understand the difference between Trade and Auxiliaries to Trade. Help him in understanding the same and also give their classifications.
Ans. Trade involves buying and selling of goods. It links the producer and the consumer. It is classified as follows:  
(a) Internal or home trade.
(b) External or foreign trade.
Auxiliaries to trade means those activities which support or assist trade. These are an internal part of commerce in particular and business activity in general.
Main auxiliaries are:
(a) Transportation and communication.
(b) Warehousing
(c) Banking and finance
(d) Insurance
(e) Advertising

Q.10. Classify the following into different industries:
(a) Banking
(b) Warehousing
(c) Sugar industries
(d) Animal husbandry
(e) Farming
(f) Construction of roads.
Ans. 
(a) Tertiary industry
(b) Tertiary industry
(c) Secondary industry
(d) Genetic industry
(e) Primary and extractive industry
(f) Construction industry.

Q.11. Rohan, a student of business studies, wants to understand the interrelation between industry, trade and commerce. Help him.
Ans. Industry, trade and commerce are closely related to each other. Industry produces goods which are distributed through commerce. No commercial activity is possible in the absence of industry. At the same time, industrial production is meaningless without the distribution of goods through commerce. If industry is the backbone of commerce, commerce serves as the lifeline of industry.

Q.12. Identify and explain the objectives of business in the following statements:
(a) Mrs. Suman, the owner of Start Coaching Institute teaches the poor children for free.
(b) HP comes out with latest Calling Tablet.
(c) Employer contributing to NPS (New Pension Scheme) to his employee.
Ans. The objectives of business in the following statements:
(a) Mrs. Suman, the owner of Start Coaching Institute teaches the poor children for free: social responsibility of business is the objective which states the role of business towards upliftment of poor section of society along with profit making.
(b) HP comes out with latest Calling Tablet: Objective of providing new and upgraded products to its customers.
(c) Employer contributing to NPS (New Pension Scheme) to his employee: Objective of welfare of its employees. There must be a security of service and job satisfaction and they develop a sense of belonging and dignity of labor.

Q.13. Explain any three economic objectives of the business.
Ans. Three economic objectives of business are:
(a) Profit motive: The main motive of every business activity is to earn money in the form of profit and any activity which results in earning of money and creation of wealth is considered as an economic activity.
(b) Survival: The business must cover the costs
(c) Growth: The business increase in the number of products employees, capital

Q.14. “Profit plays an important role in the business.” Give any four reasons to justify the statement.
Ans. Profit plays an important role in the business because:
(a) For long-term survival: Profits alone help a business to continue to exist for a long time. It has been observed that for achieving other economic as well as social objectives, profit must be earned. The business in which the profit is meagre or no profit is earned closes down quickly.
(b) For rapid growth: Profit provides a sound financial structure for the growth and expansion of the business.
(c) Increases the efficiency of business: It acts as an incentive, motivating workers to contribute their maximum worth to the enterprise. Profit increases with the increase in efficiency and improved performance of the organisation.
(d) For building reputation and recognition: If the business earns adequate profits, it will pay fair and competitive wages to its employees, dividends at competitive rates to shareholders, etc. In other words, all the parties can be satisfied. This helps the business to earn reputation and goodwill in the society.

Q.15. What do you understand by Social Responsibility of business? How is it different from legal responsibility?
Ans. Social Responsibility refers to the obligations of businessmen to pursue those policies to make those decisions and to follow those lines of action, which are desirable in terms of objectives and values of our society.
Social responsibility of business is broader than Legal responsibility, as business can fulfill its legal responsibilities by compliance with law whereas to fulfil social responsibility voluntary efforts are required. Social responsibility is voluntary in nature but legal responsibility is mandatory in nature.

Q.16. ‘Business is an organised institution that operates to provide goods and services under the incentive of private gain’. Discuss.
Ans. Yes, it is right to call business as an institution that provides goods and services for earning profit because of certain characteristics of business.
Following are the main characteristics of business:
(a) Sale or exchange of goods and services for the satisfaction of human needs: Business involves sale or exchange of goods and services. The production of goods or services for self consumption is not business.
(b) Deals in goods or services on a regular basis: Another important feature of business is that it must sell or exchange goods or services on a regular basis.
(c) Profit motive: The main purpose of business is to earn profit. If the profit motive is missing in a transaction, then it cannot be considered as business transaction.
(d) Risk: Another important feature of business is the presence of risk factor in the transaction.

Q.17. Why does every business enterprise aim at greater productivity? How can this objective be achieved.
Ans. Every business enterprise aims at greater productivity to ensure continuous survival and growth. This objective can be achieved by:  
(a) Reducing wastages.
(b) Making efficient use of machines and equipment, human resource, money, etc.

Q.18. State three economic and social objectives of business.
Ans. Economic objectives: 
(a) Earning profits
(b) Creation of new customers
(c) Innovation
Social objectives: 
(a) Quality of goods
(b) Fair trade practices
(c) Generation of employment

Q.19. ‘Profit is not an objective but a requirement of business’. Do you agree with this statement? Support your answer with reasons.
Ans. Yes, I agree with this statement, that profit is not an objective but a requirement of business. A business must earn profit because of the following reasons:
(a) For long-term survival: Profits alone help a business to continue to exist for a long time. It has been observed that for achieving other economic as well as social objectives, profit must be earned. The business in which the profit is meagre or no profit is earned, closes down quickly.
(b) For rapid growth: Profit provides a sound financial structure for the growth and expansion of the business.
(c) Increases the efficiency of business: It acts as an incentive, motivating workers to contribute their maximum worth to the enterprise. Profit increases with the increase in efficiency and improved performance of the organization.
(d) For building reputation and recognition: If the business earns adequate profits, it will pay fair and competitive wages to its employees, dividends at competitive rates to shareholders, etc. In other words, all the parties can be satisfied. This helps the business to earn reputation and goodwill in the society.

Q.20. ‘Earning of profit cannot be the objective of business any more than eating is the objective of living’. Do you agree with this statement? Give reasons to support your answer.
Ans. Yes, I agree with this statement. Just as eating is essential for the survival of any human being, same way profit is essential and must for the survival of any business. But a person cannot survive for a long time and cannot lead a healthy life only by eating. A person has to perform other activities as well, such as social activities, religious activities and patriotic activities. Similarly, a business with the sole motive of earning profit cannot survive for a long time. To capture a big share in the market and to create the goodwill, businessmen must have social and individual objectives along with the economic objective of earning profit.

Q.21. Explain the objectives of business briefly.
Ans. 
(a) Market standing: The position of an enterprise in relation to its competitors with reference to reputation, profitability, solvency, etc. is referred to as market standing. A firm must aim at having a strong market position by providing quality products at reasonable prices so that the consumers can be satisfied.
(b) Managers’ performance and development: Management is required in every sphere of life. Business enterprises too require management. To manage a business enterprise, managers are required for operating and coordinating business activities. Thus, organisations must aim at improving managers’ performance by implementing various programs for enhancing their skills further and hence motivating them to perform better.

Q.22. State the role of profit in business.
Ans. Profit is very essential in every business due to the following reasons:
(a) It is the source of income for business persons providing them incentive for hardworking and reward for risk taking.
(b) Profit is the source of finance for meeting expansion requirements of business.
(c) It builds up the reputation of business enterprise.

Q.23. Arun has just passed his 10th standard and has opted for Business Studies as his optional subject. During his initial classes regarding this subject he is not able to understand the concept of business. You being the teacher of this subject explain to him any three characteristics of business.
Ans. Characteristics of business are as follows:
(a) Economic Activity: Business is an economic activity as it includes exchange of goods and services with the purpose of earning money or livelihood.
(b) Uncertainty of Returns: In business, the returns on amount invested are not certain. There is always a possibility of loss.
(c) Profit Earning: The primary objective of business is to earn profit. For this, businessmen make all the possible efforts to increase the volume of sales and reduce cost.

Q.24. Identify the following activities into economic and non-economic activities, and also mention which type of economic activities are they :
(a) People working for others and getting paid in the form of salaries.
(b) Providing food to the people in flood affected area by a charitable institution.
(c) Production and sale of goods by a leading textile industry.
(d) A lawyer filing a case in the court for his client.
Ans. 
(a) Economic activity – employment.
(b) Non – economic activity.
(c) Economic activity – business.
(d) Economic activity – profession.

Q.25. Explain the nature of business risk.
Ans. The nature of business risk is explained below:
(a) It arises due to uncertainties: A business is started and operated on the basis of forecasts and assumptions about the likely future events which may or may not hold good. Therefore, the uncertainty of the expected or unexpected event may cause risk of loss to the business.
(b) Risk is an essential part of every business: Every business is exposed to one or the other kind of risk. Risks cannot be eliminated though they can be minimized by making suitable provisions in advance.
(c) Profit is the reward of the risk: An entrepreneur undertakes risks of investing his capital under the expectation of higher profits. Profit is thus the reward for risk- taking.
(d) Degree of risk depends mainly upon the nature and size of business: The nature of the business (type of goods and services produced) and the size (volume of production) of the business determines the amount of risk. Larger the scale of business, higher will be the possibility of risk.

Q.26. What is business risk? Define the nature of business risk.
Ans. The term ‘business risk’ refers to the possibility of inadequate profits or even losses, due to uncertainties or unexpected events. For example, the demand for a particular product may decline due to change in tastes and preferences of consumers. Decrease in demand will result in lesser sale and thereby lesser profits.
Nature of business risk: The nature of business risks can be understood in terms of its peculiar characteristics:
(a) Business risks arise due to uncertainties.
(b) Risk is an essential part of every business.
(c) Degree of risk depends mainly upon the nature and size of business.
(d) Profit is the reward for risk taking.

Q.27. Explain the following features of business risk:
(a) Business risks arise due to uncertainties. 
(b) Risk is an essential part of every business.
Ans.
(a) Business risks arise due to uncertainties: A business can’t have any control over future happenings due to uncertainty about future. Change in demand, change in govt. policy etc. are some of the examples of uncertainty which create risks for business because the happening of these future events is not known in advance.
(b) Risk is an essential part of every business: Every business is subject to one or the other kind of risk. No business can avoid risk. Though risk can be minimized but can’t be eliminated.

Q.28. Raj wants to start a new business. He is well aware about the nature and causes of business risks but does not know anything about the methods of dealing with these risks. Tell him the methods of dealing with these risks.
Ans. 
(a) He might decide not to enter into too risky transactions.
(b) He should take preventive measures like insurance policies to transfer risk to insurance companies.
(c) He should create provision for bad debts and make reserves out of profits.
(d) He can share risks with other enterprises.
Example: by agreeing to share losses which are caused by falling prices.

Long Answer Type Questions

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)

OR

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.

OR

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.