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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.

 Q. What are economic activities?                                          

Ans:- Economic activities are those that are concerned with production, exchange and distribution of goods and rendering of services to earn money.

 Q. What is business risk?                                                            

Ans:-   Business risk means possibility of some occurrence, which might lead to some loss for the business.

 Q. Define 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.

 Q. Describe three features of employment.

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.

 Q. What is meant by Profession? Explain with examples.        

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.

 Q. Give three features of business activities.                     

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.

 Q. What are the characteristics of business risk?                   

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.

 Q. What are the important changes brought about by the industrial revolution?

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.

 Q. Define human objectives of business.                        

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.

 Q. State any four causes of business risks.                             

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.

 Q. State the difference between business and employment.     

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.

 Q. Can profit be the sole objective of Business?                       

Ans:-   According to Urwick, "Earning of profits cannot be the objective of a business any more than eating is the objective of living”.

 Arguments in favour of profit as the sole objective:

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.

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