Nature and Purpose of Business
Q. What are
non- economic activities?
Ans:- Non – economic
activities are those activities, which are pursued by human beings because of
social, psychological and religions sentiments.
Ans:- Economic activities are those that
are concerned with production, exchange and distribution of goods and rendering
of services to earn money.
Ans:- Business risk means
possibility of some occurrence, which might lead to some loss for the business.
Ans:- Business refers to all
those activities, which are concerned with the production, purchase and sale of
goods and services with the purpose of earning profits.
Ans:- The three distinctive
features of employment are: -
1.
It involves performing the duties assigned by the employer.
2.
It does not need any capital investment.
3.
An employee cannot transfer his job to another.
Q. What are insurable
risks?
Ans:- Insurable risks are
those, which can be covered through some type of insurance policy. The
possibility of occurrence or probability of insurable risks such as fire, theft
etc. can be determined.
Ans:-A profession is a specialised
occupation, which involves rendering of personal services by using professional
knowledge. The examples of professionals are doctors, lawyers, accountants,
engineers etc.
Ans:- Three
features of business activities are: -
1.
Dealing in goods and services.
2.
Production and distribution of goods and services.
3.
Satisfaction of customer’s wants and earning profits.
Ans:- The nature of business
risks shall be clear from the following features: -
1.
Uncertainty gives rise to business
risk: - Uncertainty is an important feature of any business. Fluctuations
in demand or prices, possibility of book debts turning into bad debts, wrong
estimates of demand and supply, changes in government policies, improvements in
technology etc. are some of the examples of uncertainly, which influence the
business.
2.
Risk is an essential element: -
No business can run without some element of risk in it. In fact business means
assuming risk.
3.
Reward for undertaking risks in
profit: - "No risk, no gain” is an important principle which is applicable
to all types of businesses. An entrepreneur assumes risks and in consideration
he gets rewards that are profits in the business.
4.
Degree of risk depends upon the
nature of business: - The
nature of business and the volume of operations determine the degree of risk.
For instance, a business dealing in fashionable items has higher degree of
risk, as the current fashion may not last long.
Ans:- The important changes
brought about by the industrial revolution are given below:
1.
Use of Power Driven Machines: -
Power driven machines mostly driven by steam power were used in industry. It
began with cotton spinning and later on, spread to other manufacturing
processes.
2.
Development of Engineering: -
Engineers were required to design machinery for textiles, coal mining etc.
3.
Revolution in Iron-making:-
The engineers, who took charge of important tasks connected with the
industrialisation could succeed in their work only if iron was cast in large
quantities and was of fairly good quality.
4.
Development of coal mining: -
Coal was needed to refine pig iron and cast it into the form which was needed
by the engineers. Coal also needed for generation of steam power.
5.
Rise of chemical Industry: -
The application of power driver machines in textile mills made it necessary to
develop bleaching, dyeing, finishing and printing processes to keep pace with
the output of textile mills.
Ans:- The human objectives
of business are given below:
1.
The employees are treated as partners in business and not as
inferior lot.
2.
They should get fair wages and healthy working conditions.
3.
They should be able to acquire and develop new skills in the
process of employment.
4.
They should derive job satisfaction.
Ans:- Causes of business
risks may be classified as follows: -
1.
Natural Causes:
Human beings have no control over the nature. Unforeseen events like heavy
rains, famine, earthquake etc. affects business adversely.
2.
Human causes: These
include dishonesty, carelessness and negligence of employee, riots, strikes
etc.
3.
Economic Causes: Economic
causes relate to fluctuations in demand and price or changes in the market conditions.
A business may incurr losses because of price fluctuations, severe competition,
and depression in the market. For example, color T.V. has replaced Black and
white T.V. from the market.
4.
Physical Causes: These
include all technical or mechanical causes, which affect the working of the
business. For example an explosion in a boiler may cause injuries to human
beings.
Ans:- Business
differs from employment with regards to the following points: -
1.
Nature of Activity –
Business deals with providing goods and services for the satisfaction of
customer demands. Employment involves performing the work assigned by the
employer under the contract of service.
2.
Profit Motive –
A businessman carries out economic activities to earn profit, but an employee
earns wages or salaries.
3.
Capital –
A business can’t be run without any capital, but for employment, there is no
need of any capital investment.
4.
Degree of risk –
A business is exposed to many risks, but in employment, there is practically no
risk.
5.
Transferability of Interest –
Transfer of ownership interest is possible in case of business. It is not
possible to transfer one’s job to another.
Ans:- According to Urwick,
"Earning of profits cannot be the objective of a business any more than eating
is the objective of living”.
Earning
of profits is essential for a business due to the following reasons:-
1.
It is a sign of healthy business.
2.
It would provide sufficient return to the investors of capital.
3.
It would provide funds for reinvestment in the business.
4.
A profit–earning business is on asset for the society and thus enjoys higher
goodwill.
Arguments
against profit maximization:
Profit
maximization should not be the sole motive of any business:
1.
Profit maximisation ignores the interest of labour, customers,
society etc.
2.
Unfair means such as hoarding, black marketing or adulteration may
be practiced to maximise profit.
3.
Long-term interest of the business may be ignored to maximise
profits in the short run.
In
short, a business must pursue not only economic (profit) objectives but also
the social and human objectives. A business must earn reasonable profits by
providing right quality goods and services at reasonable prices to the society.