Professional Documents
Culture Documents
Written as per the revised syllabus prescribed by the Maharashtra State Board
of Secondary and Higher Secondary Education, Pune.
STD. XI Commerce
Organization of Commerce
&
Management
Salient Features:
• Exhaustive coverage of syllabus in Question Answer Format.
• Covers answers to all Textual Questions.
• Relevant Marking Scheme for Each Question.
• Includes Additional Important Questions for better preparation.
• Mnemonics to facilitate easy answer recall.
• Quick Recap at the end of each chapter to facilitate quick revision.
• Simple and Lucid language.
• Includes GG ‐ our very own mascot.
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P.O. No. 23903
10162_10805_JUP
PREFACE
We present to you "Std. XI Commerce: Organization of Commerce and Management" with a
revolutionary fresh approach towards content thus laying a platform for an in‐depth understanding of the
subject.
This book has been written according to the revised syllabus and guidelines as per the State Board and covers
answers to all textual questions.
In addition to this, we have included extra questions in each lesson that not only aim at covering the entire
topic but also make students ready to face the competition. The sub‐topic wise classified “Question and
Answer” format of this book helps students in easy comprehension.
Furthermore, we have provided model answers to each question in the form of pointers which makes it easy
for students to memorize and reproduce the answers in their examinations.
We have incorporated “Mnemonics” to facilitate easy answer recall. Every chapter ends with a Quick Recap to
facilitate quick revision of the lesson learnt. The model questions are provided with relevant marking schemes
so as to highlight the importance of each question.
We are sure this study material will turn out to be a powerful resource for students and facilitate them in
understanding the concepts of this subject in the most lucid way.
The journey to create a complete book is strewn with triumphs, failures and near misses. If you think we've
nearly missed something or want to applaud us for our triumphs, we'd love to hear from you.
Please write to us on: mail@targetpublications.org
Best of luck to all the aspirants!
Yours faithfully,
Publisher.
Gyan Guru (GG)
We present to you our mascot 'GG', who has been proudly
introduced by us. GG is a student‐buddy who pops up
throughout the book and draws your attention to important bits
of knowledge also termed as 'Good to Know'. These 'Good to
Know' sections help you understand a concept distinctly with a
corresponding example from your immediate environment. This
is our initiative in education that helps linking learning to life
and we're hopeful that you are going to love it.
Chapter 01: Nature and Scope of Business
01. Nature and Scope of Business
Introduction
Ms. Priya is conducting her first OCM class for class XI. She is eager to start with the
chapter ‐ ‘Nature and Scope of Business’. She wants the class to be interactive. So, she asks
them to introduce themselves one by one.
The conversation flows as given below:
Ms. Priya: Hi all, welcome to class XI. I am your OCM teacher. Today we are starting with the
first chapter. But before that, let’s have a quick round of introduction about you
and your family.
Praful: Hi, my name is Praful. My dad works as an engineer with an MNC. My mother is a
home maker.
Ms. Priya: Thanks for the introduction Praful. Let’s take your example. Everybody in Praful’s
family does some or the other activity. Praful studies, his dad works with an MNC
and his mom looks after household duties. Is that right?
Students: Yes.
Ms. Priya: Great. However, do all of them receive money for the activity they perform?
Students: No.
Ms. Priya: Only Praful’s dad receives money for the activity he does. Hence, the work that he
does is termed as ‘economic activity’ and the activity of studying and performing
household duties are termed ‘non‐economic activity’.
Ravi: Hi, I am Ravi. My mom is a doctor and runs her own clinic. My dad deals in
purchase and sale of old furniture.
Ms. Priya: Thanks Ravi. Ravi’s introduction takes me towards the classification of Economic
activities. Economic activities are classified into Business, Profession and
Employment. Business includes manufacturing and/or trading in goods or services.
Profession includes rendering expert services. Employment means hiring
somebody to do a job.
Ravi: I understood. The work my mom does is termed as ‘Profession’ and the work my
father does is termed as ‘Business’. Is that right, ma’am?
Ms. Priya: Absolutely Yes.
Anuj: Ma’am, I have a question. We sold some furniture last month. Does that also mean
‘Business’?
Ms. Priya: No, Anuj. Business is a regular activity. If you purchase and sell furniture on a
regular basis, then it would be termed as ‘Business’.
Thus, we conclude that human activities can be of two types viz. economic
activities and non‐economic activities. Economic activities take place on pursuing a
business, profession or an employment.
In this chapter, you will learn the meaning of economic activity and its classification.
Human Activities
What are Human Activities?
‐ Every human being engages himself/herself in some kind of activity.
‐ All human activities can be broadly classified into two categories. They are as follows:
Non‐Economic Activities:
These activities are performed for gaining happiness, pleasure and satisfaction. These
activities do not involve money matters at all. For e.g. Reading a book, attending a family
function, chatting with friends, worshipping god, etc.
1
Std. XI : Commerce
Economic Activities:
These activities are undertaken for the purpose of earning livelihood. A person conducting
economic activities receives money in return of it. For e.g. Running a shop, working in an
MNC, practicing as a chartered accountant, selling second hand goods, etc.
Economic activities can be further classified into three types viz. Business, Profession and
Employment (Service).
Economic Activities ‐ Business
Meaning of Business:
‐ Business is a state of being busy.
‐ The primary aim of conducting business is to earn profit.
‐ Business is related to the continuous and regular production & distribution of goods &
services for the purpose of satisfying human wants and earning profit.
‐ Production refers to changing the form of resources and/or adding value to them so that they
can be used for consumption.
‐ Goods can be either agricultural goods or manufactured goods.
‐ Such goods are made with the help of manpower or with the use of machines.
‐ For e.g. Growing mangoes on a piece of land is an example of agricultural production.
Converting the mangoes into pulp/juices and selling them in the market is an example of
manufactured goods.
‐ Distribution, on the other hand, is the process of making the products and/or services
available for consumption in the market. This process includes actual buying and selling along
with the arrangement for transportation, advertising, warehousing and other aids‐to‐trade
that help the products to reach the consumers.
Definitions of Business:
Stephenson defines business as, “The regular production or purchase and sale of goods
undertaken with the object of earning profit and acquiring wealth through the satisfaction of
human wants”.
According to Prof. Haney, “Business activities are all those human activities which are directed
towards the production and processing of wealth”.
*Q.1. Define Business. Explain its Features. [10]
Ans: Stephenson defines business as, “The regular production or purchase and sale of goods
undertaken with the object of earning profit and acquiring wealth through the satisfaction of
human wants”.
According to Prof. Haney, “Business activities are all those human activities which are directed
towards production and processing of wealth”.
Features of Business (Traditional Business):
The features of business are as discussed below: [Mnemonic: DIRECT Plan]
i. Deals in Goods and Services:
‐ Every business transaction is concerned with either goods and/or services.
‐ In their absence, business cannot take place.
‐ Goods are tangible in nature. They may either be capital goods (like tools and machinery) or
consumer goods (like clothes, shoes, toothpaste etc).
‐ Services are intangible in nature. They include transport, banking, insurance etc.
ii. Involves Production and Distribution:
‐ Every business deals with production of goods / creation of services and their distribution.
‐ Any activity or transaction that is required to complete the process of making goods or
services available for a price to the consumers is called a business activity.
2 2
Chapter 01: Nature and Scope of Business
iii. Risk:
‐ Risk and uncertainty are a part of any business activity.
‐ The element of risk exists due to a variety of factors such as:
change in the demand of goods;
risk of loss due to fire, earthquake, pilferage, theft etc.
competition, changes in government policies etc.
‐ A businessman tries to predict the future uncertainties and plans his business activities
accordingly.
‐ However, the element of risk always remains associated with a business.
iv. Involves Exchange:
‐ Business means exchange of goods or services for money or money’s worth.
‐ When goods are exchanged for money’s worth, it is called monetary exchange.
‐ On the other hand, when goods exchanged for some other goods is called Barter Exchange.
‐ However, exchange does not include goods donated or gifted to someone.
‐ Also, business does not include goods used for personal consumption by a businessman.
v. Continuity:
‐ Business involves a regular activity of production and/or distribution of goods and services.
‐ A single transaction of buying and selling cannot be termed as business, even if it involves
monetary exchange.
‐ For e.g. If a person sells his old television for money, then it cannot be called as business. It
can be just termed as an economic activity. However, a dealer dealing in second hand
electronic goods can be called a businessman.
vi. Two Parties:
‐ A business transaction involves an exchange.
‐ Every business transaction, thus, involves at least two parties i.e. a buyer and a seller.
‐ A business transaction is a result of an agreement; hence the presence of two parties is a
must.
vii. Aims at Profit:
‐ The primary aim of a business concern is to earn profit as it is a driving force behind every
business.
‐ Every business transaction includes profit, though its amount may vary based on the nature
and size of the transaction.
Features of Modern Business:
The above mentioned features of business are related to traditional businesses. However, the
modern businesses operate in a much more competitive and dynamic world. Hence, in addition
to the basic features mentioned above, modern businesses have some additional features too.
These additional features are listed below: [Mnemonic: I M a STAR]
i. Information:
‐ Information plays an important role in today’s business world.
‐ A business unit frames its plans and policies depending upon the information on market
conditions, consumers’ tastes and preferences, government policies etc. gathered through
various sources of information such as market surveys, internet, newspaper and journals.
‐ Information so collected helps the business units to take correct and timely decisions.
3
Std. XI : Commerce
ii. Many Lines of Products:
‐ With the expansion of markets, Good to Know:
the business world has become A company like HUL
very competitive. has numerous product
‐ In order to survive, companies lines like Shampoos,
produce and distribute many detergents, Soaps etc.
products at the same time. The combination of all
‐ Thus, even if one product does these product lines
not yield sufficient profits, the forms the product mix.
company can recover the
reduction in profit by selling other products.
iii. Large Scale of Business:
‐ Owing to the development in transport and communication, businesses have crossed
national boundaries.
‐ Thus, production and distribution of goods and services takes place on a large scale.
iv. Science and Technology:
‐ Modern businesses make use of Good to Know:
scientific techniques for making
Barrix Ago Sciences, a
budgets, recruitment of
Bangalore‐based start‐
employees, handling employees
up offers eco‐friendly
and overall control.
crop protection
‐ They make use of latest
methods after much
technology for producing goods.
research on products
that support organic farming to increase crop
produce and quality with minimal expenditure.
v. Adaptability:
‐ The ability of a business to react Good to Know:
as per the changing situation is Jalgaon's farmers owe their prosperity to precision
known as adaptability. farming, an agricultural method first tried out in the
‐ The business environment is ever district in 2002‐03. This technique reduces fertiliser
changing. and pesticide use, prevents soil degradation, utilizes
‐ Factors like consumers’ tastes and water optimally and raises productivity. Globally,
preferences, government policies, this is done with the aid of modern, eco‐friendly
technology, etc. change very farming practices and technology, including satellite
rapidly and hence, the business imagery and information technology. Over the last
has to change its policies to suit decade, Jalgaon's farmers, with some help from
the changing environment. companies such as Jain
Irrigation Systems, have
adapted precision
farming practices
without depending
on satellite imagery
and the like.
vi. Role of Government:
‐ In a modern business scenario, the government possesses a crucial role to play.
‐ It plays the role of a regulator by forming various acts and policies.
‐ Through such regulations, it regulates the working of the business units in national and
international markets to restrict unfair and unethical trade practices.
‐ The government, by such acts, intends to protect the welfare of the consumers, investors,
creditors, employees, etc.
4 4
Chapter 01: Nature and Scope of Business
Economic Activities ‐ Profession
Meaning of Profession:
‐ Profession is the utilization of special knowledge and skills that empowers an individual to
provide services in order to earn a living.
‐ In order to become a professional, a person has to attain a certain degree of knowledge,
formal education and undergo training.
‐ Profession is an intellectual activity.
‐ For e.g. Teachers, lawyers, doctors, engineers, chartered accountants, etc. are known as
Professionals.
*Q.2. Write a short note on: Features of Profession. [5]
Ans: Profession is the utilization of special knowledge and skills that empowers an individual to
provide services in order to earn a living. A person has to attain a certain degree of knowledge,
formal education and undergo training in order to become a professional.
The features of Profession are as follows:
i. Qualification:
‐ A person has to acquire certain expertise to offer professional services.
‐ Every profession has its own definite body of knowledge.
‐ The knowledge required for practicing a profession has to be acquired through systematic
and formal training.
‐ A person cannot practice a profession, unless he has the prescribed qualification, education
and skills.
ii. Motive:
‐ Profession is an economic activity.
‐ Every economic activity is undertaken for earning money.
‐ However, profession should also have the motive to provide diligent service to the clients.
‐ A professional renders services of special nature to solve the problems and work for the well
being of his clients.
‐ For e.g. A doctor treating the illness of a patient should aim at improving the health of the
patient rather than just focusing on money.
iii. Monetary Returns:
‐ A professional renders services in exchange of ‘Fees’.
‐ Income of profession depends upon the expertise, quality of service and experience of the
professional.
‐ The income of self‐employed professional, in particular is uncertain.
‐ For e.g. A doctor having his own clinic is self‐employed and so his income will be uncertain
whereas, a doctor working in a hospital is considered as an employee, whose income is
certain.
iv. Capital:
‐ The capital required by a self‐employed professional is low as compared to a businessman.
‐ If a professional is working under someone else, he usually does not require any capital.
v. Requirement of Registration:
‐ Every professional needs to register himself/herself with the respective council and get a
certificate of practice after successful completion of the specified education and training.
‐ For e.g. The Bar Council of India for Lawyers, Council of Architecture, India for Architects etc.
‐ Generally, professions have a distinct national level council that lays down the code of
conduct to be followed by them. The professionals have to strictly adhere to the code of
conduct prescribed by their respective councils. It protects the interests of both, the
professionals as well as their clients.
5
Std. XI : Commerce
vi. Non‐transferability:
‐ Unlike a business, profession cannot be transferred to some other person as per the will of a
professional.
‐ To practice a profession, one requires to have the prescribed qualification, education and
skill.
‐ However, it can be transferred to a person who is equally qualified in the said profession.
‐ For e.g. A lawyer cannot transfer his office or his practice to his son who has not completed
his education in law. However, it can be transferred to another lawyer.
vii. Nature of Work:
‐ A professional renders expert services to his clients based on his formal education, training
and skills in exchange of fees.
‐ For e.g. A doctor treats the illness of a patient and accepts fees.
Economic Activities ‐ Employment
Meaning of Employment:
‐ Employment is an economic activity wherein a person appoints another person for the
purpose of completing a job, task or assignment and pays wages / salary in return.
‐ The person who assigns the task is known as an Employer and the one who is expected to
perform the assigned task is known as an Employee.
‐ For e.g. Factory workers, office assistants, managers, etc. are employees of a company.
‐ Employment may be full‐time, part‐time, permanent or temporary in nature.
*Q.3. Write a short note on: Features of Employment. [5]
Ans: Employment is an economic activity wherein a person appoints another person for the purpose
of completing a job, task or assignment and pays wages / salary in return. The person who
assigns the task is known as an Employer and the one who is expected to perform the assigned
task is known as an Employee.
The features of employment are as follows:
i. Qualification:
‐ Qualification required for an employment may or may not be specific.
‐ Some jobs do require specific qualifications, whereas some do not.
‐ The qualification required to perform a job depends upon the nature of the job.
‐ As the nature of job changes, the qualification also changes.
‐ The criteria for qualification can be used for employing skilled as well as unskilled employees.
‐ For e.g. A driver should know how to drive a car.
ii. Motive:
‐ The motive of employment is to earn money in order to satisfy the primary and secondary
needs.
iii. Monetary Returns:
‐ An employee gets returns in the form of ‘Wages’ or ‘Salary’ for the work completed by him.
‐ The returns of employees are certain as they are paid on the basis of pre‐determined terms
of engagement.
‐ Wages are paid daily or weekly while salary is paid monthly.
‐ An employee may also get incentives and rewards in the form of travelling allowances, rent
allowance, bonus, commission etc.
iv. Capital:
‐ No capital is required to be invested by an employee.
‐ An employer provides the employee with all the material, infrastructure, tools and
equipment that is required to complete the given job.
6 6
Chapter 01: Nature and Scope of Business
v. Code of Conduct:
‐ An employee has to abide by the rules and regulations as specified by the employer.
‐ These rules are agreed by the employee at the time of accepting the employment.
‐ For e.g.: Reporting time to office, dress code etc.
vi. Non Transferability:
‐ Every employment is an individual and independent contract which cannot be transferred
from one person to another.
‐ For e.g. If a manager retires, he cannot transfer the job to his son / daughter, provided
certain provisions and guidelines are given on Government level.
vii. Nature of Work:
‐ The nature of work depends upon the job profile of the employee.
‐ An employer assigns a task and the employee is expected to complete the same.
Objectives of Business
*Q.4. Describe the various objectives of a business unit. [10]
Ans: Business is related to the continuous and regular production and/or distribution of goods and
services for satisfying human wants and earning profit.
Objectives of Business:
Objectives are the desired results that a business intends to achieve. A business may be started
with the objective of earning profit, but sooner or later it realises the influence of social factors
on business. Thus, it has to maintain good relations with suppliers, customers, employees,
investors etc. In short, it has to maintain a balance between the profit objective and the social
objective.
The statement by Henry Ford is as follows: “business is not mere money chasing but it also
should aim at serving the community”.
Objectives of business can be classified into two types: Economic Objectives and Social
Objectives.
They are explained as follows:
A. Economic Objectives:
Business being an economic activity, its objectives is economic in nature. Economic objectives
of business are:
i. Earning Profit:
‐ Profit is essential for the survival, expansion and growth of a business.
‐ Earning legal profit is not objectionable.
‐ Thus, a business unit produces those goods and services that are in demand and commercially
viable.
‐ Profitability is also an indicator of the stability, efficiency and progress of a business unit.
ii. Search of New Customers:
‐ Customers are key to the profitability of an organization.
‐ The survival of a business depends on the number of customers it has created in the market.
‐ Given the level of competition in the market, a business unit works hard to create and
maintain a loyal customer base.
‐ New customers are created when a business supplies goods that suit the tastes and
preferences of the market.
‐ Existing customer base can be maintained by supplying quality goods at reasonable prices.
‐ Thus, customer satisfaction is the end towards which all business energies are directed.
‐ Customer satisfaction ensures that the business remains operational in the market for a long
time.
7
Std. XI : Commerce
iii. Innovation:
‐ Innovation can be in the form of
Good to Know:
introduction of a new
product/service in the market
Tata Motors got the idea of launching a small truck
half the size of a Tata 407, a 2.25 tonner. The
‐ It can also be in the form of
feedback from the market clearly pointed towards a
improvement in an existing
rising demand for small trucks. Tata Motors
product/service available in the
identified this gap in the market and launched Ace.
market
Today, every fourth
‐ A business needs to be innovative
truck sold in India is
in order to be competitive.
a Tata Ace. It has
‐ It cannot keep offering the same
created an all‐new
product for a long time as the
segment that of the
tastes and preferences of the
small light
consumers change rapidly.
commercial vehicle.
‐ A business needs to spend on
research, market surveys etc. to
bring innovation in its products.
‐ Such novelties attract the customers and expand the customer base.
‐ Apart from new product launches, innovations can also be achieved by tapping into unique
channels of distribution and offering value added services.
iv. Best Possible use of Resources:
‐ Most of the available resources are scarce and they can be put to productive use in more ways
than one.
‐ Resources include human resources, raw materials, financial resources etc.
‐ A business should make best possible use of these resources and try to minimize their
wastage.
‐ Reduction of wastage also reduces the cost of production and increases the profits.
‐ Additionally, reduction of wastage is beneficial from the environmental perspective.
‐ Thus, optimum (maximum) use of resources helps in increasing the efficiency, productivity and
profitability of the business organization.
B. Social Objectives:
A business depends on society for the utilization of various resources. Hence, as a token of
gratitude, it has to undertake social initiatives to gain goodwill and acceptance of the people.
i. Supplying Quality Products:
‐ Customers are a part of the society that a business actively seeks to serve.
‐ Thus, providing quality products/services at reasonable prices becomes a pre‐requisite.
‐ Quality refers to product attributes such as purity, safety, durability, utility etc.
‐ Customers will be satisfied if they get value for money.
‐ Satisfied customers help in creating a favourable brand image that leads to further widening
of the customer base.
‐ This in turn enhances the profitability of the enterprise.
ii. Avoiding Unfair Trade Practices:
‐ A business concern should avoid malpractices like black marketing, misleading advertising,
wrong measurement etc.
‐ It should follow fair trade practices.
‐ Unfair trade practices may lead to quick profits but in the long run, it affects the image of the
company and the company loses its market share to its competitors.
iii. Employment Generation:
‐ Business units undertake economic activities in the society.
‐ Thus, they can be described as socio‐economic institutions.
8 8
Chapter 01: Nature and Scope of Business
‐ Business helps society by
providing adequate employment Good to Know:
opportunities to the people. The IT‐BPO industry has
‐ A business should also consider created direct employment of
providing employment 2.2 million and indirect
opportunities to the needy and the employment of eight
physically challenged people. million. By 2020, the figures
‐ This helps in establishing a are expected to go up to 10
favourable public image and million and 20 million
enhances the goodwill of the respectively. The indications are that significant global
organization. career opportunities will be generated. Interestingly,
the employment opportunities have touched different
sections of society, going beyond the metros.
iv. Welfare of Employees:
‐ Skilled and unskilled labour
/ employees are a resource that a Good to Know:
business obtains from the society. RMSI an IT services player
‐ Therefore, employee welfare is a bagged first rank by keeping
way to serve the society. staff happy without big
‐ It can be achieved by providing budgets as India's best
the employees with fair wages, companies to work for 2015.
good working conditions, The company, which employs about 800 people
appreciations, increments, currently, plans to more than double its headcount to
additional perks and benefits etc. 2,000 people in the next one year.
The company focuses on simple employee
engagement practices like Workshops to help
employees develop life skills; Sessions on stress
management through jazz and yoga; In‐house music
band and photography club; Wellness camps, etc.
v. Help to Solve Social Problems:
‐ Rapid industrialization leads to various problems such as air pollution, water pollution, noise
pollution, traffic jams, etc.
‐ Business sector should understand the intensity and impact of such problems and try to find
a viable solution.
‐ It should implement processes that reduce pollution and safeguard the environment.
‐ This ensures harmony in the social and ecological environment.
vi. Contributing to the Welfare of the Society:
‐ A business should understand and
Good to Know:
play a pro‐active role in the
general welfare of the society. Set up in 1996,
‐ They can lend support to social, Mahindra & Mahindra
cultural, religious, research and through its flagship
developmental organizations. programme, Project
‐ They can help build schools, Nanhi Kali supports the education of over 11 lakh
colleges, libraries, dharamshalas, underprivileged girls in ten states, providing
hospitals, sports bodies and material support (uniforms, bags, notebooks, shoes
research institutions. and socks) and academic support (workbooks, study
‐ They can help non‐government classes). The key outcomes of the project include an
organizations (NGOs) like CRY, Help increase in both enrolment of girls in schools and
Age and others which render curtailing dropouts to less than 10%.
services to weaker sections of society.
9
Std. XI : Commerce
Role of Profit in Business
Q.5. *Explain the importance of profit in Business.
OR
Discuss the Role of Profit in Business. [10]
Ans: Every business operates with an aim of earning profit. It is a reward for taking risk and investing
time, money and energy in the business. Profit not only ensures the survival and growth of a
business but also helps the concern to fund its social initiatives.
Importance/Role of Profit:
The importance/role of profit can be explained as follows:
[Mnemonic: STARING Great Entrepreneurs]
i. Survival of Business:
‐ Profit is necessary for the survival and growth of a business enterprise.
‐ A new business may find it difficult to survive the initial stages in the constantly evolving
markets.
‐ However, if the business makes even small profits, it can survive and aim for better profits in
the near future.
‐ Profits also boost the morale of the employees, ease negotiations with banks, attract
investors and build customer confidence.
ii. Reward for Risk Taking:
‐ Profit is a return on investment.
‐ A businessman invests his capital and also runs his business with an uncertainty of making
profit and the risk of incurring losses.
‐ Thus, earning profit is a reward for risk taken in the business.
iii. Availability of Funds:
‐ Regularity in profit making helps a business to create a pool of available funds in the form of
savings or retained earnings.
‐ These funds can be utilized to meet future contingencies in business.
‐ Also, savings indicate a sound financial standing and thus help to build public confidence.
‐ This helps the business in raising funds by means of issuing shares to the public or taking
loans from financial institutions.
Thus, profits make the availability of funds from internal as well as external sources possible.
iv. Research and Development:
‐ Reasonable amount of profit making encourages the management to undertake research and
development.
‐ This may lead to the creation of innovative products and services that help the business to
earn more profits.
v. Index of Performance:
‐ Profit acts as an indicator of financial performance.
‐ Higher profits indicate enhanced efficiency in the functioning of the business and lower
profits signal the management towards taking corrective steps.
vi. Income to Satisfy Needs:
‐ Business is an economic activity i.e. its main purpose is to earn profit.
‐ Profit is the income earned by the businessman.
‐ Through this income earned, he can satisfy the needs and wants of his family.
vii. Growth and Expansion:
‐ Profits are required to fund the growth, expansion and diversification plans of a business.
‐ Growth and expansion may be in the form of opening new branches, offering different types
of goods and services etc.
‐ Profits are also required to make a business globally competitive.
10
10
Chapter 01: Nature and Scope of Business
viii. Satisfaction of Interest Groups:
‐ A business depends on customers, employees, government investors, etc. for its functioning.
‐ These factors are known as interest groups.
‐ A profitable business is able to satisfy these interest groups by:
providing good quality products at a reasonable price to its customers;
offering fair remuneration to its employees;
paying taxes to the government and
distributing dividends on time to its investors.
ix. Increases Efficiency:
‐ Profits help in making payments to suppliers, employees and vendors on time.
‐ This ensures that the above associates are motivated to provide prompt and quality services
to the business unit, whenever required. This in turn helps to improve the efficiency in
functioning.
Classification of Business Activities
Classification of Business Activities:
‐ Business activities are the sum total of all the activities that range from raw‐material
purchase to the production and final distribution of finished products.
‐ On the basis of function performed, the business activities can be classified into two types:
Industry:
‐ Industry includes all those business activities which are related with the production and
manufacturing of goods and services.
‐ An industry is involved in the production of:
Consumer goods that are consumed by the final consumer
Capital goods that are used for the production of other goods and services
Intangible services
‐ Industry creates form utility by processing raw materials or semi‐finished goods into finished
goods. This is done with the help of manpower, machineries and money.
‐ Industrial activities may be undertaken at large scale or small scale. They may take place in
factories, small workshops or even at home.
‐ Industries can be further classified into three types viz. Primary Industries, Secondary
Industries and Tertiary Industries.
Commerce:
‐ Commerce is an integral part of business which deals with the distribution of goods and
services produced by the Industry.
‐ Thus, role of commerce begins where the role of industry ends.
‐ All goods and services produced are to be made available to the consumers else the industrial
activities of producing goods will be of no use.
‐ In simple words, commerce facilitates the buying and selling process by removing all the
difficulties involved in the distribution of goods and services.
‐ Hence, commerce is the sum total of ‘Trade’ and ‘Auxiliaries to Trade’.
‐ Trade refers to the buying and selling of goods and services. It can be further classified into:
Home Trade / Internal Trade and Foreign Trade / External Trade.
‐ Auxiliaries to Trade are the various services and factors that are required to facilitate the
Trade. They ensure smooth flow of goods and services from the seller to the buyer.
‐ Auxiliaries to Trade include Transport, Warehousing, Insurance, Banking, Advertising and
Mercantile Agents.
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Std. XI : Commerce
Classification of Business Activities
Industry Commerce
Primary Secondary Tertiary
Trade Auxiliaries to Trade
Industry Industry Industry
Agriculture Manufacturing
Industry i. Transport
Industry
ii. Warehousing
Extractive Construction iii. Insurance
Industry Industry Home Trade Foreign Trade iv. Banking
v. Advertising
Genetic vi. Mercantile Agents
Wholesale Import vii. Communication
Industry Trade Trade
Export
Retail
Trade
Trade
Entrepot
Trade
Q.6. Discuss the different types of Industries. [10]
Ans: Industry includes all those business activities which are related with the production and
manufacturing of goods and services. It can be classified into three types viz. Primary
Industries, Secondary Industries and Tertiary Industries.
Types of Industries:
Industries can be classified into three types:
A. Primary Industry:
‐ Primary industries are directly dependent on nature.
‐ Generally, the products of these industries cannot be consumed ‘as it is’.
‐ They need to be processed first and then made available in the market.
‐ The output of Primary Industries may also be used as a raw material in Secondary Industries.
‐ Primary industries are further divided into three sub types.
They are as follows:
i. Agriculture Industry:
‐ It includes farming and cultivation of land for growing crops.
‐ The farm produce needs to be processed before it is made available in the market for
consumption.
ii. Extractive Industry:
‐ It includes extraction from natural sources (i.e. land, air and water) for the purpose of
consumption.
‐ For e.g. Extracting minerals and oils, fishing etc.
‐ The extracts from these industries may be used directly or sent to other industries for further
processing.
iii. Genetic Industry:
‐ These industries are involved in the reproduction and multiplication of plants and animals.
‐ For e.g. Poultry farming, Animal husbandry, Horticulture (growing fruits and vegetables),
Floriculture (growing flowers), Pisiculture (breeding fish).
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Chapter 01: Nature and Scope of Business
B. Secondary Industry:
‐ These industries are dependent on primary industries for the regular supply of raw materials.
They convert these raw materials into finished goods.
‐ For e.g. Fruits produced by primary industry are used for making jams and jellies, Cotton is
used to produce textile cloth, Timber is used to produce furniture.
Secondary Industries are of the following two types:
i. Manufacturing Industry:
‐ These industries convert raw materials into finished products with the help of manpower and
machines.
‐ The output of manufacturing industries can be directly consumed.
‐ They manufacture consumer goods as well as capital goods.
‐ For e.g. Manufacturing furniture from wood.
ii. Construction Industry:
‐ It refers to those industries which are concerned with construction of bridges, dams etc.
‐ It is the only industry which creates immovable wealth.
‐ The output of this industry is sold at the same place where it is built.
‐ For e.g. Residential flats, offices, shops etc.
C. Tertiary Industry:
‐ Tertiary Industries facilitate the functioning of primary industries and secondary industries by
providing them with services like Banking, Transport, Insurance, Warehousing etc.
‐ This industry can only grow if primary and secondary industries flourish in the market.
Q.7. What do you mean by Trade? Discuss the classification of Trade.
OR
*Write a short note on: Classification of Trade. [5]
Ans: Meaning of Trade:
‐ Trade involves the buying and selling of goods and/or services for money or money’s worth.
‐ Trading activities are performed in local and international markets.
‐ The purpose of trading activities is to transfer the ownership and possession of goods and/or
services from one person to another i.e. seller to buyer.
Classification of Trade:
Trade can be classified on the basis of area of operations, as Home Trade/Internal Trade and
Foreign Trade/External Trade. They are explained as follows:
A. Home Trade/Internal Trade:
‐ When trade takes place within the political boundaries of a country, it is called Internal Trade.
‐ Since the trade takes place within the country, local currency of the country is used for the
purpose of exchange.
‐ Based on the scale of operations, Internal Trade is further divided into:
i. Wholesale Trade:
‐ Wholesale trade refers to a trade wherein goods are purchased in large quantities from
manufacturers or producers for the purpose of resale.
‐ This type of trade is usually conducted on a large scale.
‐ Traders who engage in this type of trade are known as Wholesalers.
‐ A wholesaler acts as an intermediary between the manufacturer and the retailer.
ii. Retail Trade:
‐ Retail trade refers to a trade wherein goods are sold to the final consumers in small quantities.
‐ This type of trade is usually conducted on a small scale.
‐ The trader involved in this type of trade is known as a Retailer.
‐ The retailer is the last link in the chain of distribution. He establishes a link between
wholesalers and consumers.
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Std. XI : Commerce
B. Foreign Trade/External Trade/International Trade:
‐ It is a trade between two countries.
‐ When the exchange of goods and services takes place between a buyer and a seller who
belong to two different countries, it is known as External Trade.
‐ Since the buying and selling of goods/services is conducted across national boundaries,
foreign currency is used for the purpose of exchange.
‐ Foreign trade is further classified into:
i. Import Trade:
‐ Import trade refers to inflow of goods and services from foreign country to home country.
‐ In this case, goods from a foreign country enter the political boundaries of home country.
ii. Export Trade:
‐ Export trade refers to outflow of goods from home country to a foreign country.
‐ In this case, goods from home (our) country cross the boundaries and are sent to another
country.
iii. Entrepot Trade:
‐ Entrepot trade is also known as Re‐export.
‐ It is a combination of import and export trade.
‐ It refers to purchase of goods from one country and then reselling them (exporting them) to
another country.
*Q.8. What is meant by Export Trade? [5]
Ans: ‐ Export trade is a part of external trade.
‐ External trade refers to the exchange of goods and services between a buyer and a seller who
belong to two different countries.
‐ On the other hand, export trade refers to outflow of goods from home country to foreign
country.
‐ For e.g. India selling mangoes to European countries. This is an example of export trade
where India plays the role of an exporter.
‐ Usually, when goods are produced in surplus, they are exported to countries where there is a
demand for the same.
‐ This allows domestic companies to sell surplus goods in the international market.
‐ This provides a business opportunity in the form of expansion of markets and globalization.
‐ Also, it earns valuable foreign exchange and increases the foreign currency reserves of the
country thereby, facilitating the economic development of the nation.
‐ Moreover, export trade helps in creating goodwill for the company in the national and
international markets.
*Q.9. State the role of Auxiliaries to Trade in Trading Activities. [5]
Ans: Activities that facilitate buying and selling of goods (trade) are known as Auxiliaries to Trade. It
not only facilitates smooth flow of goods and services between the seller and the buyer but
also provides the necessary support to the entire business for its successful functioning.
Following are the different Auxiliaries to Trade:
i. Transport:
‐ Transport helps:
in the movement of raw‐materials up to the factory site
in the movement of finished goods from the factory to the markets
Thus, transport helps in creating place utility by making the goods available wherever they
are required.
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Chapter 01: Nature and Scope of Business
ii. Warehousing:
A trader needs to store the goods on account of the following reasons:
‐ Goods purchased in bulk by a
trader are sold in smaller Good to Know:
quantities to the customers as and
India has around 6,300
when demanded.
cold storage facilities, with
‐ Goods produced in one season a capacity of 30.11 million
may be demanded throughout the tonnes. However, some
year. For e.g. agricultural produce. 75‐80 per cent of these
‐ Goods produced throughout the refrigerated warehouses
year may be demanded only in are suitable only to store potatoes, a commodity
one season. For e.g. Sweaters in that produces only 20 per cent of agricultural
winter. revenue. This was revealed in a report by the
‐ Warehousing helps a trader to Institution of Mechanical Engineers (IME), a
store the goods till they are professional organisation of the UK.
demanded.
‐ Warehouse is a place or building used for safe storage of goods.
‐ Thus, warehousing creates time utility by making the goods available whenever they are
required.
iii. Insurance:
‐ A business is exposed to the risk of damage (of goods) on account of floods, fire, robbery etc.
‐ To safeguard against such causes of damage, a business can take an insurance policy from an
insurance company.
‐ Here, the business is required to pay premium to the insurance company for the coverage of
risk.
‐ In the event of loss, the insurance company will pay compensation that would be equivalent
to the amount of loss suffered.
iv. Banking:
‐ A business requires continuous flow of money for its smooth working.
‐ A businessman may not be able to invest large sums as capital and thus face the difficulty of
finance.
‐ Banking provides finance to the businessman.
‐ Banking offers the following services to traders:
capital funding for the business through loan facility
working capital to fund day‐to‐day operations through overdraft and cash credit facilities
other value‐added services such as cheques, demand drafts, debit card, credit card etc.
v. Advertising:
‐ There is a multitude of products available in the market. However, the consumers lack the
necessary awareness about the products available for sale.
‐ For increasing sales, it is important for a seller to make the consumers aware about his
product.
‐ However, the consumers are spread over a wide area. Hence, the seller faces difficulty in
communication. This difficulty is solved through advertising.
‐ Advertising communicates all the required information about the product, to the prospective
consumers and creates in them a strong desire to purchase the product.
‐ This results in increased amount of sales. However, a company should provide correct
information through advertising to maintain the level of trading activities in the long term.
‐ The various mediums used for the purpose of advertising are newspapers, radio, television,
cinema theatres, wall posters and hoardings at prominent places.
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Std. XI : Commerce
vi. Mercantile Agents:
‐ Consumers are spread over a wide area, thus it is difficult to have a direct contact between
the producer and consumer.
‐ Mercantile agents are middlemen who form a link between the seller and the large number
of buyers.
‐ Mercantile agents remove the difficulty of personal contact and complete the transaction on
behalf of the seller.
‐ Thus the mercantile agents bridge the gap between the seller and the buyer.
‐ There are several types of mercantile agents such as brokers, commission agents,
auctioneers, underwriters, insurers etc.
vii. Communication:
‐ In today’s world, the distance between two traders is very vast.
‐ It becomes difficult to establish a direct contact between two traders.
‐ This difficulty of distance makes it complex for a retailer to place an order with a wholesaler
located at a far off place.
‐ This difficulty is solved by various means of communication. Communication refers to
exchange of information from one person to another.
‐ Communication can be in the form of oral or written communication. With the modern
communication facilities, a retailer can simply visit the website of the wholesaler and place an
order.
‐ Modern means of communication like telephone, telex, telegraph, email, teleconference etc.,
play an important role in establishing contact between businessman, producers and
consumers.
‐ These modern means of communication save time and money.
*Q.10. Write short notes on: [5 marks each]
i. Warehousing as an Auxiliary to Trade.
Ans: ‐ Activities that facilitate buying and selling of goods (trade) and solve the various difficulties
involved in the process of trading are known as auxiliaries to trade.
‐ Time difficulty is a major problem faced by traders.
‐ Time difficulty arises as there is a time gap between the production and consumption of
goods.
‐ Sometimes, goods may be produced only once a year but they may be required for
consumption throughout the year (for e.g. agricultural goods).
‐ On the other hand, in some cases, goods may be produced throughout the year but they may
be required only once a year (for e.g. sweaters in winter).
‐ Therefore, it becomes necessary to preserve the goods and maintain the quality of these
goods till their demand arises.
‐ This difficulty is solved through warehousing.
‐ The basic function of warehousing is to store large quantities of goods and ensure steady
supply of goods in the market as and when needed.
‐ Thus, warehousing helps in creating time utility.
‐ It also stabilizes the prices by regulating the supply of goods in the market.
Hence, we can say that, warehousing is an auxiliary to trade as it facilitates smooth flow of
goods and solves the difficulty of time faced by the traders.
ii. Interdependence of Industry and Commerce.
Ans: ‐ The functions performed by Industry and commerce complement each other well.
‐ Industry produces goods and services whereas commerce helps in the distribution of those
goods and services.
‐ Goods are primarily produced to satisfy human wants.
‐ Hence, creation of goods and services is not enough.
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Chapter 01: Nature and Scope of Business
‐ They need to be made available to consumers.
‐ This activity of making the goods and services available to the consumers is performed by
commerce.
‐ Thus, the activities of commerce begin where the activities of Industry end.
Hence, Industry and Commerce are the two inseparable and interdependent functions of a
business.
Business Risks
Meaning of Business Risk:
‐ Risk is the possibility of incurring loss in a business.
‐ Each and every business has a possibility of incurring loss.
‐ Risk is an important element of business.
‐ The element of risk exists due to a variety of factors.
‐ For e.g. Change in the demand of goods; risk of loss due to fire, pilferage, theft, natural
calamities etc.
‐ A businessman tries to predict the future uncertainties and plans his business activities
accordingly.
Nature of Business Risk:
The nature or the basic characteristic of business risk is as follows:
‐ Risk is inevitable.
‐ It is present in all types of businesses, irrespective of the nature and scale of business.
‐ Risk can be minimized or transferred but cannot be completely avoided.
‐ Profit is the reward for undertaking risk.
*Q.11. What is Business Risk? Explain various causes of Business Risk. [10]
Ans: Risk is the possibility of incurring loss in a business. Each and every business has a possibility of
incurring loss. A businessman tries to predict the future uncertainties and plans his business
activities accordingly.
The causes of business risks can be explained as follows:
i. Change in Fashion:
‐ Fashion relates to a popular trend at any given point in time.
‐ This trend is influenced by people’s tastes and preferences, their purchasing power and other
influences.
‐ Based on this trend, the demand for a particular product may either rise or fall.
‐ In case the demand falls, the goods are at a risk of being unsold.
‐ This further leads to business losses.
ii. Change in Government Policies:
‐ Every Business has to operate under the legal framework i.e. the policies framed by the
Government.
‐ Businesses have to frame their plans and policies based on these government policies.
‐ Thus, when a government revises old policies or introduces new policies, the organization has
to reframe its policies.
‐ This difference in policy can affect the business and may result in profits or losses and put the
business at risk.
‐ For e.g. Changes in the Import‐Export policy of the Government.
iii. Office Personnel:
‐ This is the most common type of risk faced in business.
‐ If there is any uneasiness among workers while carrying out their job, it may result in strikes
or lock outs or non co‐operation.
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Std. XI : Commerce
‐ Work gets delayed and lead to heavy losses in production.
‐ In this process, the unit also loses its efficient workers.
‐ Negligence and dishonesty of personnel, accidents or deaths in the industry, incompetency of
managers or other important people in the organization, etc. cause losses to the
organization.
iv. Change in Technology:
‐ The ever evolving field of Good to Know:
technology leads to new Voice over Internet is
breakthroughs in product a sector that is being
development. revolutionizing
‐ Due to which, the earlier products businesses. Use of this
become obsolete in no time. technology in virtual conferencing, live‐meetings etc.
‐ This leads to huge losses in the educe costs and efforts in organizing in‐personal
form of unsold goods as meetings. Small and Medium Enterprises benefit
customers are lured by the from this cost benefit. Hence, Cisco and other
presence of newer versions of the companies have been coming up with really
products in the market. innovative ideas to reduce the overhead of making
‐ For e.g. Change from pagers to phone calls. Skype, Yahoo and others have already
mobiles affected the market for changed the way we made phone calls traditionally.
pagers adversely. This has made customers to adopt these
technologies over traditional means of
communication.
v. Natural Calamities:
‐ Natural calamities like floods, earthquakes, famines, fire etc. cause great damage to the
business units.
‐ It not only causes financial loss but may also result in loss of life and property.
‐ For e.g. Floods in Mumbai in July 2006, Tsunami in South India, etc.
vi. Manmade Disasters:
‐ Every business is exposed to manmade disaster like bomb blasts, riots, war etc.
‐ During this process, a lot of businesses come to a halt, thereby resulting in a major loss to all
business sectors.
vii. Dependence on Others:
‐ Business depends on various factors such as steady supply of raw material, employees,
contractors, logistical support etc. that are not under the direct control of a businessman.
‐ If there is any problem in the functioning of any one of the above factors or a delay in the
performance of their duties, it can create a loss.
viii. Competition Level:
‐ Today, the business world has become very competitive in local as well as international markets.
‐ Market conditions are constantly changing, especially due to globalization and liberalization.
‐ Thus, every organization needs to carefully consider all the factors while framing and
implementing its policies.
‐ Any mistake in policy making could lead to heavy losses and the organization may lose its
market share to its competitors.
Multiple Choice Questions
I. Select the correct option from the options given below and rewrite the sentences:
[1 mark each]
1. Activities undertaken to derive mental satisfaction are known as _______ activities.
(A) economic (B) human (C) non‐economic
*2. A courier agent is _______.
(A) an employee (B) a businessman (C) a professional person
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Chapter 01: Nature and Scope of Business
*3. National level of code of conduct is prepared for _______.
(A) professionals (B) businessmen (C) employees
4. _______ means changing the form of resources.
(A) Production (B) Distribution (C) Business
5. The primary aim of every business is to earn _______.
(A) salary (B) profit (C) loss
6. There should be minimum _______ parties to a transaction.
(A) one (B) two (C) three
7. _______ is the driving force of every business.
(A) Loss (B) Satisfaction (C) Profit
8. A business has to change its _______ with the changing environment.
(A) policies (B) employees (C) core values
9. Government plays a _______ role in Business environment.
(A) dormant (B) regulatory (C) none of these
10. A person has to acquire certain _______ to offer professional services.
(A) job (B) commodity (C) qualification
11. Profession is _______ activity.
(A) a non‐economic (B) an economic (C) a political
12. A person who works for others gets _______ in return.
(A) salary (B) rent (C) profit
13. A business organization can create a good public image by _______.
(A) violating rules (B) making losses (C) employment generation
14. Profit _______ is the basic aim of any business.
(A) diluting (B) maximization (C) minimization
15. Innovation means introduction of _______ idea or methods.
(A) new (B) old (C) systematic
16. _______ is a return on investment.
(A) Fund (B) Profit (C) Capital
*17. Raw material is converted into finished product by _______ industry.
(A) genetic (B) extractive (C) manufacturing
*18. Actual buying and selling of goods is known as _______.
(A) profession (B) trade (C) industry
*19. The activity that removes difficulty of risk is _______.
(A) insurance (B) transport (C) advertising
*20. Building of dams is an activity done under _______ industry.
(A) primary (B) secondary (C) tertiary
*21. Difficulty of finance is solved by _______.
(A) insurance (B) mercantile agents (C) banking
22. _______ Industry is responsible for reproduction and multiplication of plants and animals.
(A) Genetic (B) Extractive (C) Agriculture
19
Std. XI : Commerce
23. _______ industry uses the products of primary industry as its raw material.
(A) Primary (B) Secondary (C) Tertiary
24. _______ Industries facilitates the functioning of primary industries and secondary industries.
(A) Tertiary (B) Extractive (C) Manufacturing
25. Commerce is mainly concerned with _______.
(A) production (B) distribution (C) expansion
26. _______ trade takes place within the borders of a country.
(A) Internal (B) External (C) Entrepot
27. The medium which moves men, materials from one place to another is called _______.
(A) insurance (B) transport (C) banking
28. Manmade disasters include _______.
(A) earthquakes (B) floods and famines (C) bomb blasts
Match the Pairs
II. Match the correct pairs: [1 mark each pair]
*1.
Group “A” Group “B”
i. Morning walk a. Social objective
ii. Genetic industry b. Foreign trade
iii. Local currency c. Warehousing
iv. Employment generation d. Horticulture
v. Business Risk e. Non‐economic activity
f. Economic objective
g. Internal trade
h. Mining
i. Covered by insurance
j. Banking
Ans: (i e), (ii d), (iii g), (iv a) , (v i).
2.
Group “A” Group “B”
i. Tertiary Industry a. Extracting minerals and oils beneath the earth
ii. Agriculture Industry b. Cheque
iii. Construction Industry c. Animal husbandry
iv. Extractive Industry d. Warehousing
v. Manufacture Industry e. Cultivation of land and farming
f. Storage
g. Mobile
h. Construction of bridges
i. Railways
j. Making furniture
Ans: (i d), (ii e), (iii h), (iv a) , (v j).
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Chapter 01: Nature and Scope of Business
One Word
III. Write a word or phrase or a term which can substitute each of the following:
[1 mark each]
*1. Human activities conducted for earning money.
2. Activities that are done for mental satisfaction and not for monetary rewards.
*3. Monetary returns earned by a professional for rendering expert services.
4. The process of making goods, products or services available for use or consumption by a
consumer.
5. Goods exchanged for goods.
6. Goods exchanged for money’s worth.
7. The person who employs the worker.
8. Best possible use of resources in the business.
*9. A type of trade that sells the goods directly to ultimate consumer.
*10. Trade that takes place between the traders of two different countries.
*11. An aspect of business which is concerned with the production of goods.
*12. Various services which facilitate smooth flow of goods and services from seller to buyer.
*13. The type of industries that provide services.
*14. The type of industries that create immovable wealth.
*15. An aspect of business which is concerned with the distribution of goods.
*16. A type of industry which takes out wealth from the earth.
17. Industries directly dependent on nature.
18. Buying and selling of goods.
19. Storage of goods whether raw material or finished goods.
20. Selling of goods to foreign countries.
21. Exchange of information between two people.
22. Activities that facilitate the trading activities.
23. Middlemen who form a link between the buyers and the sellers.
24. The incentive for taking risk.
Ans: 1. Economic Activities 2. Non‐Economic Activities
3. Fees 4. Distribution
5. Barter Exchange 6. Monetary Exchange
7. Employer 8. Optimum utilization
9. Retail Trade 10. External Trade
11. Industries 12. Auxiliaries to Trade
13. Tertiary Industries 14. Construction Industries
15. Commerce 16. Extractive Industry
17. Primary Industry 18. Trade
19. Warehousing 20. Export Trade
21. Communication 22. Auxiliaries to trade
23. Mercantile Agents 24. Profit
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Std. XI : Commerce
Distinguish Between
IV. Distinguish between the following:
*1. Give comparative analysis of business, profession and employment.
Ans:
Sr.No. Business Profession Employment
Meaning
i. Business is an economic Profession is an economic Employment is an
activity which involves activity wherein expert economic activity where
production & services are provided. one person works for
distribution of goods & another person.
services.
Qualifications
ii. Here, specific Here, specific qualification Here, nature of work
qualification is not is required. determines the required
required. qualification level.
Monetary Returns
iii. A businessman earns A professional charges An employee receives
monetary rewards in fees for the services monetary rewards in the
the form of profits. rendered by him. form of salary / wages.
Capital
iv. Here, the scale of Here, only self‐employed Here, no money is
business determines professionals need to make required to be invested.
the amount of an investment.
investment to be made.
Decision Making
v. A businessman is free to A professional can take An employee can take
take decisions that decisions related to his decisions confined only to
serve the best interests profession on his own. his field of work.
of his business. However, the professionals
need to follow the code of
conduct laid by the
governing body.
Risk
vi. Risk is involved in every Self‐employed There is no risk if the
business. professionals face limited employer and employee
risk. adhere to the contract.
Commencement
vii. Business can be started A professional can start An employee can start
when all legal working only after working when the contract
formalities are receiving the certificate of is signed by both the
completed. practice. parties and the employee
completes the joining
formalities.
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Chapter 01: Nature and Scope of Business
Transfer of Ownership
viii. Here, the ownership Here, the ownership can Employment cannot be
can be transferred from be transferred to someone transferred as every job
one person to another who is equally qualified offered is an individual and
after completion of and competent to render independent contract,
legal formalities. services. provided certain
provisions and guidelines
are given on Government
level.
Tenure
ix. Here, no fixed tenure is Here, no fixed tenure is Here, tenure may be
applicable. applicable. mentioned in the contract
or appointment letter.
Code of Conduct
x. Businessman is not A professional is required An employee has to follow
required to follow any to follow the code of the code of conduct
code of conduct. conduct laid down by the mentioned at the time of
governing body. contract till he is under an
employer.
*2. Industry and Commerce.
Ans:
Sr. No. Industry Commerce
Meaning
i. Industry involves the production or Commerce involves the distribution and
manufacture of goods and/or exchange of goods and/or services.
services.
Location of Operations
ii. Activities of industry can take place Activities of commerce take place at markets
at factories, small workshops or and in offices.
even at home.
Utility
iii. Industry creates form utility by Commerce creates time, place and
processing raw material or semi ownership utility.
finished goods into finished goods.
Capital Investment
iv. Large amount of capital A very large sum of capital investment is not
investment is required in an required.
Industry.
Resources Required
v. Natural, physical and human Mainly human resources are required to
resources are required to distribute goods and/or services.
manufacture goods and/or
services.
Forces in the Market
vi. Industry influences the supply of Commerce influences the demand for goods
goods and/or services in the and/or services in the market.
market.
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Std. XI : Commerce
*3. Business and Commerce.
Ans:
Sr. No. Business Commerce
Meaning
i. Business includes the economic Commerce involves the distribution of goods
activities related to the production and/or services.
and distribution of goods and/or
services undertaken for the
purpose of earning profit.
Scope
ii. Business has wider and broader Commerce has narrower scope than
scope than commerce as it business as it is a part of business.
includes both industry and
commerce.
Skill
iii. Here, technical as well as Here, marketing skills are required for
marketing skills are required for undertaking commercial activities.
undertaking activities related to
business.
Subset
iv. Business is a subset of economic Commerce is a subset of business.
activities.
Classification
v. Business can be classified into Commerce can be classified into Trade and
Industry and Commerce. Auxiliaries to Trade.
True or False
V. State with reasons, whether the following statements are True or False: [5 marks each]
1. Economic Activities are performed with the purpose of gaining satisfaction.
Ans: This statement is FALSE. [Non‐economic activities are performed with the purpose of gaining
satisfaction]
Reasons:
‐ Economic activities are undertaken for the purpose of earning livelihood while non‐economic
activities are performed for gaining happiness, pleasure and satisfaction.
‐ Reward for economic activity is money or money’s worth.
‐ Examples of economic activities are: a teacher teaching in a school, a worker performing
work in a factory, a doctor treating a patient etc.
‐ Non‐economic activities are undertaken without the intention of gaining money or material
reward.
‐ Examples of non‐economic activities are: cooking for one's children, reading a book, listening
to music etc.
Thus, the above statement is false.
2. Social objectives are equally important for a Business Organization to survive.
Ans: This statement is TRUE.
Reasons:
‐ Business functions within the society for mutual benefit of both, the business as well as
society.
‐ Society includes various internal and external members such as the employees, customers,
vendors, government etc.
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Chapter 01: Nature and Scope of Business
‐ It cannot survive and develop without the support of the society as it is dependent on the
society for the utilization of various resources.
‐ Hence, as a token of gratitude it has to undertake various social initiatives to gain goodwill
and acceptance of the people.
Thus, fulfilment of social objectives is equally important.
*3. Industrial activities takes place after commerce finishes its role.
Ans: This statement is FALSE. [Commercial activities take place after Industry finishes its role]
Reasons:
‐ Industry refers to all such business activities that involve production and manufacturing of
goods and services.
‐ It processes raw materials or semi‐finished goods into finished goods.
‐ These goods can be either consumer goods which are directly used by the ultimate
consumers or they might be capital goods which are used by another industry for further
production.
‐ Commerce deals with the distribution of these goods and services produced by the Industry.
All goods and services produced are to be made available to those who need them i.e.
consumers.
‐ Thus, Industry produces goods first and later the function of commerce helps in selling the
produced goods.
Thus, commercial activities are undertaken only after Industry finishes its role.
*4. Tertiary industry depends upon primary and secondary industry.
Ans: This statement is TRUE.
Reasons:
‐ Primary and secondary industries are involved in the production of some or the other kind of
output or product.
‐ Tertiary Industry, on the other hand, is known as service industry since it provides supportive
services to the primary and secondary sector.
‐ It facilitates the functioning of primary and secondary industries by providing them with
much needed services such as banking, transport, insurance, warehousing etc.
‐ In other words, the activities of the tertiary sector help in the development of the primary
and secondary sectors.
‐ However, tertiary activities alone do not produce any product. They simply aid the process of
production carried out by the primary and secondary sectors.
Hence, tertiary industry depends upon the primary and secondary industry for its growth.
5. *Internal Trade handle import and export.
OR
Trade between two countries is called Internal Trade.
Ans: This statement is FALSE. [External Trade handles import and export]
Reasons:
‐ Trade can be classified on the basis of the area of operation into internal and external trade.
‐ Internal trade involves the buying and selling of goods and/or services that takes place within
the political boundaries of a country.
‐ External Trade involves the trading of goods and/or services that take place between a buyer
and a seller who belong to two different countries.
‐ Import and export of goods are examples of external trade where the buying and selling of
goods is conducted across the national boundaries.
Thus, imports and exports are a part of external trade and not internal trade.
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Std. XI : Commerce
*6. Commerce is a wider term than Business.
Ans: This statement is FALSE. [Business is a wider term as compared to commerce]
Reasons:
‐ Business deals with the production as well as the distribution of goods and services.
‐ Thus, business includes industry as well as commerce.
‐ On the other hand, commerce merely deals with the distribution of goods and/or services
produced by the Industry.
‐ Commerce is a part of business and includes trade and auxiliaries to trade.
Hence, business is a wider concept as it includes both, industry and commerce.
*7. Wholesaler is in direct contact with ultimate consumer.
Ans: This statement is FALSE. [Retailer is in direct contact with the ultimate consumer.]
Reasons:
‐ Wholesale trade refers to a trade wherein goods are purchased in large quantities from
manufacturers or producers for the purpose of resale.
‐ Traders who engage in this type of trade are known as Wholesalers.
‐ A wholesaler acts as an intermediary between the manufacturer and the retailer.
‐ Thus, a wholesaler is in direct contact with the retailer.
‐ A retailer, on the other hand, buys goods from wholesalers and sells them to the ultimate
consumers.
‐ Here, a retailer acts as a link between the wholesalers and the consumers.
Thus, a retailer is in direct contact with the ultimate consumer.
*8. Business can be expanded with the help of mercantile agents.
Ans: This statement is TRUE.
Reasons:
‐ In the process of distribution, producers and consumers are unable to have direct contact, as
consumers are spread over a vast area.
‐ Mercantile agent is an agent who is authorized by a principal (producer/wholesaler/retailer)
to buy or sell goods on his behalf.
‐ Mercantile agents thus remove the difficulty of personal contact by acting as middlemen who
form a link between the buyers and the sellers.
‐ They do not carry on business in their own name but in the name of the seller.
‐ With the help of mercantile agents, a seller can thus sell more goods and services and create
new customers.
In this way, mercantile agents help the business to expand as they widen the distribution area
of the business.
*9. Transport creates place utility.
Ans: This statement is TRUE.
Reasons:
‐ Transport creates place utility.
‐ ‘Difficulty of Place’ is a major problem faced by businesses.
‐ Goods are produced at one place and demanded over a wide area. The distance between
‘centers of production’ and ‘centers of consumption’ is vast.
‐ This difficulty is removed by an important aid to trade known as Transport.
‐ Transport ensures that raw material reach the industries in time and the finished goods from
the industries reach the consumers on time.
Hence, the above statement is true.
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26
Chapter 01: Nature and Scope of Business
Additional Questions for Revision
*Q.1. State the features of Business. [5]
Ans: Refer Q.1. “Features of Business (Traditional Business)”, any 5 points.
*Q.2. Why is it necessary for a business organization to create customers? [5]
Ans: Refer Q.4. (A) Point (ii).
*Q.3. What are the types of Secondary Industry? [5]
Ans: Refer Q.6. (B)
*Q.4. What do you mean by Commerce? [5]
Ans: Refer Page No. 11. “Commerce”.
*Q.5. Describe the scope of Internal Trade. [5]
Ans: Refer Q.7. (A)
*Q.6. Give the classification of foreign trade in brief.
OR
Write a short note on: Classification of Foreign Trade. [5]
Ans: Refer Q.7. (B)
*Q.7. How does Advertising help trading activities? [5]
Ans: Refer Q.9. Point (v)
*Q.8. How do government policies affect business risk? [5]
Ans: Refer Q.11. Point (ii)
Q.9. Write short notes on: [5 marks each]
*i. Primary Industry.
Ans: Refer Q.6. (A)
*ii. Social Objectives of Business.
Ans: Refer Q.4. (B)
*iii. Economic Objectives of Business.
Ans: Refer Q.4 (A)
*iv. Causes of Business Risk.
Ans: Refer Q.11.
Q.10. State with reasons, whether the following statements are True or False: [5 marks each]
*i. Risk is inevitable in business activities.
Ans: This statement is TRUE.
Reasons:
Refer Q.1. “Features of Business (Traditional Business)” Point (iii).
*ii. Available resources should be used to its maximum.
Ans: This statement is TRUE.
Reasons:
Refer Q.4. (A) Point (iv)
*iii. Changing fashions is one of the important cause of business risk.
Ans: This statement is TRUE.
Reasons:
Refer Q.11. Point (i)
Q.11. Distinguish between the following: [5 marks each]
*i. Business and Profession.
Ans: Refer IV. (1) “Comparison between Business and Profession”.
27
Std. XI : Commerce
*ii. Employment and Profession.
Ans: Refer IV. (1) “Comparison between Profession and Employment”.
QUICK RECAP
Human Activities
Economic Activities Non‐Economic Activities
Business Profession Employment
Features of Economic Activities
Business Profession Employment
i. Prescribed i. Qualification as
Traditional Modern Qualification required by the
Business Business ii. Motive to earn employer
income and render ii. Motive ‐ satisfy
[Mnemonic: [Mnemonic: primary and
services
DIRECT Plan] I M a STAR] iii. Monetary Returns ‐ secondary needs
i. Deals in Goods i. Information Fees iii. Monetary Returns
and Services ii. Many Lines of iv. Capital ‐ required ‐ salary/wages
ii. Involves Products if self‐employed iv. No Capital is
Production and iii. Large Scale of v. Requirement required
Distribution Business of registration v. Code of Conduct ‐
iii. Risk iv. Science and vi. Non transferability as specified by
iv. Involves Exchange Technology vii. Nature of work ‐ the employer
v. Continuity v. Adaptability renders expert vi. Non
vi. Two Parties vi. Role of services Transferability of
vii. Aims at Profit Government employment
vii. Nature of Work ‐
influenced by the
nature of the job
of the employer
Objectives of Business
Economic Objectives Social Objectives
i. Earning Profit i. Supplying Quality Products
ii. Search of New Customers ii. Avoiding Unfair Trade
iii. Innovation Practices
iv. Best Possible use of iii. Employment Generation
Resources iv. Welfare of Employees
v. Help to Solve Social Problems
vi. Contributing to the welfare of
the Society
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28
Chapter 01: Nature and Scope of Business
Role of Profit in Business
[Mnemonic:
STARING Great Entrepreneurs]
i. Survival of Business
ii. Reward for Risk Taking
iii. Availability of Funds
iv. Research and Development
v. Index of Performance
vi. Income to Satisfy Needs
vii. Growth and Expansion
viii. Satisfaction of Interest Groups
ix. Increases Efficiency
Classification of Business Activities
Industry Commerce
Primary Secondary Tertiary
Trade Auxiliaries to Trade
Industry Industry Industry
Agriculture Manufacturing
Industry Industry i. Transport
ii. Warehousing
Extractive Construction iii. Insurance
Home Trade Foreign Trade
Industry Industry iv. Banking
v. Advertising
Genetic vi. Mercantile Agents
Wholesale Import
Industry vii. Communication
Trade Trade
Export
Retail
Trade
Trade
Entrepot
Trade
Causes of Business Risk
i. Change in Fashion
ii. Change in Government
Policies
iii. Office Personnel
iv. Change in Technology
v. Natural Calamities
vi. Manmade Disasters
vii. Dependence on Others
viii. Competition Level
29