BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

BUSINESS, TRADE AND COMMERCE

Economic and Non-economic Activities:

An individual performs many activities in his day-to-day life. For Example, going to office,
spending time with children, watching TV, etc. All the activities performed by an individual
can be classified as economic activities and non-economic activities.

Economic Activities:
Activities which are undertaken by people with an objective of earning livelihood are known
as economic activities. For example, a worker working in a factory, a teacher teaching in
school. Economic activities can be further classified as business, profession and employment.

 Business: It is an economic activity which is concerned with the purchase or production

and sale of goods or provision of services with a view to earn income in the form of
profit by satisfying the needs of the people.
 Profession: It includes those activities which require expert knowledge and special skills
to be applied by individuals. in their occupation- Profession includes professional
activities which are subject to guidelines or codes of conduct laid down by professional
bodies. Those engaged in profession are called professionals and they earn income by
charging professional fee.
 Employment: It refers to the occupation in which people work for others and get
remuneration in the form of wages/salaries. Those who are employed by others are
called employees and the one who employs is called employer

Basis Business Profession Employment

Business is an The profession is also an Employment is an
economic activity, economic activity under economic activity,
Meaning conducted to earn a which a person uses his conducted to earn
profit. knowledge and provide remuneration.
services.
A person invests his A professional has to take A person works for
capital and starts a formal education and another person or
business. He may or training before starting organisation to get his
Nature
may not have the his profession. livelihood.
proper skills or
knowledge.
Formal A businessman may Formal education is a It depends upon the type
education or may not take must for a professional to of employment whether
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formal education. It enter into a profession. a specific formal

is not required. education is required.
A businessman gets A professional gets fees An employee gets
Returns to profit from the for the services rendered. remuneration in the
business. form of a wage or salary.
More capital is Comparatively less capital Employees need not
required to run a is required to carry out a invest money in the
Capital
business. Capital is profession. The required business. He does not
requirement
brought by a capital is brought by a require capital.
businessman. professional.
A businessman need A professional has to An employee does not
not register with a register under the require registering
particular body or respective body or himself with specific
association. But it is association e.g. A Lawyer associations.
always better for the has to register himself
Registration
businessman to get with the Bar Council of
the membership of India before carrying out
the associations like his profession.
Chamber of
Commerce.
Businessman is free A Professional can take The employee has no
Decision to take his decisions. his own decisions as he is right to make decisions
making the owner. in the organisations
unless he is asked.
Risk is involved in Limited risk is involved in Risk is involved as long
Risk every business. the case of self-employed as the job continues.
professionals.
It can be started It can be started after It can be started after
Commencem after completing receiving a certificate of receiving specific
ent certain legal practice. qualifications.
formalities
It can be transferred It cannot be transferred It cannot be transferred
Transfer of to another person to anyone else as certain from one person to
Ownership with necessary legal qualification and training another.
formalities. is a must.
Builder, Grocery Doctor, Architect, Receptionist, Clerks, etc.
Examples Shop, Shopping mall, Lawyers, etc.
etc.
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Non-economic Activities:
Activities which are undertaken to satisfy social and psychological needs are called non-
economic activities. These are concerned with love, sympathy, patriotism, sentiments, etc.
For example, cooking food for family, fighting for independence of a country, etc.

 Characteristics of Business:

 Economic Activity: Business is an economic activity as it includes exchange of goods

and services with the purpose of earning money or livelihood.
 Production or Procurement of Good & and Services: Every business enterprise
produces the goods or acquires them from producers to sell them to consumers and
earn profit in the process. A businessman can also provide services to the consumer
for a value and earn profits.
 Sale or Exchange of Goods and Services for Value: Directly or indirectly business
involves transfer or exchange of goods and services for value. If goods are produced
not for purpose of sale, it cannot be called as business activity.
 Profit Earning: The primary objective of business is to earn profit. For this,
businessmen make all possible efforts to increase the volume of sales and reduce
cost.
 Uncertainty of Return: In business, the returns on amount invested are not certain.
Also, there is always a possibility of loss.
 Dealing of Goods and Services on Regular Basis: Business deals in good & and
services on regular basis. One single transaction of sale or purchase does not
constitute business.
 Element of Risk: Business involves an element of risk. It implies the uncertainty of
reward or possibility of loss.

Classification of Business Activities:

Into two broad categories, various business activities can be classified-

 Industry
 Commerce
 Industry:

The sector where raw material gets converted into useful products is called industry.
Activities related to production & processing as well as activities related to rearing &
reproduction of animals or other living species are all included in the industry. The purpose of
industry is to create form utility by converting raw materials into useful forms of finished
products.
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An industry may produce consumer goods or capital goods. Goods such as bread, butter,
cloth, radio, etc. are consumer goods. These goods are directly used by the consumer. Goods
such as machinery, cement etc. are called capital goods as these are used further in the
production process to make useful products.

Industry can be classified into three broad categories:

 Primary Industry:

This is also known as extractive industries. It includes activity connected with the
production of wealth directly from natural resources such as water, air, & land etc. Primary
industry includes activities like extraction & processing of natural resources etc. These
industries are further subdivided as follows:

 Extractive industry: These industries extract or draw out products from natural
sources. Raw materials that are mostly products of the soil are some basic supply of
extractive industries. Manufacturing industries transform these products into many
other useful goods. Some of the examples of extractive industries include farming,
mining, lumbering, hunting & fishing operation.

 Genetic industry: The industries involved in the activities of rearing & breeding of
living organism i.e. birds, plants, animals etc. are known as a genetic industry. For
example, rearing of cattle for milk, dairy farms, poultry farms, rearing of plants in
the nursery, growing fish in ponds etc. are included in the genetic industry.

 Secondary Industry:
This industry is concerned with converting raw material into finishing product. The
materials which have already been extracted at the primary stage is the concern of the
secondary industry. Such materials are processed to produce goods for final consumption
or for further processing by other industrial units in these industries.
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Secondary industries may be further divided as follows:

 Manufacturing industries: These industries are engaged in the process of

conversion of raw materials or semi-finished goods into finished goods. These
industries create from the utility by changing the form of raw materials into finished
products.

 Construction industries: These industries are concerned with the construction of

buildings, dams, roads etc. These industries use the products of manufacturing
industries such as cement, iron & steel, lime etc.

 Tertiary Industry:

These industries are concerned with providing those services which facilitate a flow of
goods & services. This industry helps in the activities of the primary & secondary industry.

Commerce:
We can refer to commerce as all those activities which help directly or indirectly in the
distribution of goods to the ultimate consumer. There will be no use of producing goods
unless & until these goods reach the ultimate consumer. Goods are produced at one place &
consumers are scattered at different places. Commerce can be classified into two broad
categories:

Trade: Trade is an integral part of commerce. It includes buying & selling of goods & services.
The trade segment of commerce brings together the manufacturer & the consumer, i.e. it is a
link between the manufacturer & the consumer.

Trade can be classified into two types:

 Internal trade: It refers to buying & selling of goods or services within the geographical
boundaries of a country. It is also known as home trade or domestic trade. Under internal
trade, goods & services are bought & sold in the home currency only.
The internal trade can be two types:
 Local Trade: Buying and selling within a local area.
 State Trade: Buying and selling within a single state. That is intra-state trade.
 National Trade: Buying and selling between the states. That is Inter-state trade.

 External trade: When the buying & selling of goods & services is beyond the geographical
limits of the country it is called external trade. It is also known as trade between two or
more countries. In external trade, the market is very wide.

External trade is of the following types:

 Imports: It refers to the purchase of goods and services from other countries.
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 Exports: Selling goods and services to other countries.

 Entreport: Importing goods and services from one country and exporting to some
third country.
 Aids to Trade:

The activities which help in the smooth flow of trade are known as aids to trade. These
activities make buying & selling of goods easier. These help in removing various hindrances
of trade which arises in production & distribution of goods.

The common aids to trade are:

 Transport and Communication: Transportation helps in the movement of raw

material and finished products from the place of production to the place of
consumption. Communication enables easy interaction by one party with the
another who are far away from each other. It assists in removal of the hindrance
cause due to place.
 Banking and finance: It helps business activities to overcome the problem of finance
by lending loans and credit facilities since business can't survive if funds are not
available for procuring material. It assists in removal of the hindrance cause due to
finance.
 Insurance: It provides protection to businesses from various types of risks such as
due to fire, theft etc. It assists in curbing hindrances of risk.
 Warehousing: It helps business firms to overcome the problem of storage and
facilitates the availability of goods. It assists in curbing hindrances of time.
 Advertising and Public Relations: It helps them to increase the sales and widen the
customer base by promoting business products or services at a wide spectrum. It is a
tool to influence customers. It assists in curbing hindrances caused due to
information
 Middlemen: These people act as mediators between the producer and consumers.
These include wholesalers, retailers etc. It assists in curbing hindrances of persons.

Objectives of Business
The business objective is a goal, i.e. where the business wants to reach in the future. For
example, a business wants to set up its franchise in another state in the next 3 years or it
wants to increase its workforce in the coming months.

 Economic Objectives of Business:

 Profit Earning: Business is a set of activities undertaken with the prospect of sale for
the purpose of earning a profit. Profit is the extra income over the expenses. The
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main objective of any business is to earn a profit. Just as a plant cannot survive
without water, similarly a business cannot sustain without profit.
 Market Share/ Creation of Customers: In the words of Drucker, “There is only one
valid definition of business purpose; to create a customer. “Profits are not
generated out of thin air. They are the result of the hard work of the businessman to
satisfy the needs of the customers.
 Increasing Productivity: Productivity is a scale to measure the efficiency of the
business activity. It is usually the last objective but just as important because
productivity is measured by the output given by the activities. It is the end result of
any business activity.

 Social Objectives of Business:

According to Dayton Hudson “The business of business is serving society, not just making
money.” Business is one of the pillars on which the society stands. Therefore, it is a part of
the society. In fact, it cannot thrive without the resources from the society. The business
earns its income from the sale of products and services to the society. It is mandatory on
the part of the business to take care of the social factors.

 Providing Goods & Services at Reasonable Prices: Business exists in the first place
to satisfy the needs of the society. It’s the first and major social objective of the
business. Products and services ought to be of better quality and these ought to be
provided at sensible costs. It is additionally the social commitment of business to
keep away from misbehaviors like boarding, Black promoting and manipulative
advertising.
 Employment Generation: One of the major problem today’s generation facing is
unemployment. Business generates employment. Therefore, it is the social objective
of a business to give chances to beneficial employment to individuals of the society.
In a nation like India, unemployment has turned into a critical issue.
 Fair Remuneration to Employees: The business does not run on its own but the
people are responsible for the success and failure of the business. The people on the
inside of the business are more valuable i.e. employees. They are an asset of the
business and make a ground-breaking contribution to the business. They must be
given reasonable pay for their work.

Business Risk
Business risk is defined as the possibility of occurrence of any unfavorable event that has the
potential to minimize gains and maximize loss of a business. In simple words, business risks
are those factors that increase the chances of losses in a business and reduce opportunities of
profit.
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These factors are not under the control of the business and result in declining profits of the
business.

 Nature of Business Risk:

 Business risk arises due to uncertainties. Uncertainty is when it is not known what is
going to happen in future. Examples of uncertainties that affect a business are,
change in government policy, change in demand, change in technology, etc.
 Risk is an essential part of the business. The risk involved in a business can be
reduced to some extent but it is not possible to eliminate the risk involved.
 Every business has risk which varies in severity based on the type of business. For
example a large corporation or business will carry more risk as compared to small
scale businesses.
 Businesses take risk with the motive or expectation of earning profit.

 Types of Business Risk:

 Strategic Risk: Strategic risks are such that can happen to a business at any time.
This could be due to the change in customer preferences. Hence, businesses need to
have a real time feedback system for recognising customer feedback.
 Compliance Risk: Compliance risk relates to the risk that arises from the changing
rules by a regulatory body or government that a company needs to adjust
accordingly and implement the same in their operations.
 Financial Risk: Financial risk is related to the financial health of the business. It
relates to the companies ability to carry on operations in case of non-payment by
some clients.
 Operational Risk: Operational risk is where there is a risk arising from the execution
of the processes or operations of the business. It can be due to sudden breakdown
of machinery or the system which can result in delay in operations, that can be
detrimental to the business.
 Before starting a new business venture, an entrepreneur must carefully consider
various aspects. He or she must evaluate each aspect, considering the various
positive and negative consequences. The following are some of the important
factors that must be considered while starting a business.

 Factors to start a Business:

 Selecting the line of business: The line of business is the foremost decision that
involves choosing the kind of product to produce, analysing its existing and future
market demand, profit considerations and the level of technical knowhow possessed
by the entrepreneur.
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 Scale of the business: Once the line of business is selected, the entrepreneur needs
to decide the scale of the business, i.e., the business size, whether to operate on
large scale or small scale.
 Location: The choice of business location is dependent on numerous factors such as
easy and cheap availability of raw material and labour, well-connected
transportation facilities, and power and other infrastructural facilities. Generally,
locations where good infrastructure is available are preferred.
 Financial requirement: Finance is required for every aspect of business—from the
purchase of raw material and machinery to further investment for the growth of the
business. Therefore, while starting a business, the availability of alternatives to raise
funds must be carefully analyzed.
 Efficient workforce: A competent and trained workforce is the basic input to carry
on various business activities. In this regard, the entrepreneur must appropriately
identify the requirement of human resources for the business, both at the worker
level and at the managerial level.
 Physical requirements: These requirements include machinery, other equipment,
tools and technology that add to the efficiency of a business. The entrepreneur must
carefully consider and decide the physical requirements on the basis of the nature
and production scale of the business.
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BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

Important Questions

Multiple Choice questions-

1. Which one of the following is NOT the objective of the business?
A. Investment
B. Innovation
C. Creation of customers
D. Profit-making
2. Which one of the following is an economic activity in which specialized knowledge is
required?
A. Profession
B. Business
C. Employment
D. None of the above
3. Commerce includes activities relating to trade and _________________ to trade.
A. Auxiliaries
B. Subsidiaries
C. Supporting
D. None of the above
4. Bad debts due to non-payment of debt by the debtor are an example of which type of
business risk?
A. Human
B. Natural
C. Physical
D. Economic
5. Which of the following is an economic cause of business risks?
A. Demand for goods
B. Competition
C. Price
D. All of the above
6. Business risk is not likely to arise due to
A. Power failure
B. Employee dishonesty
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C. Changes in government policy

D. Good management
7. The word marketing standing is concerned with __________
A. Position of an enterprise
B. Supply of the product
C. Customers
D. Competitors
8. Why a business should earn a profit?
A. To provide a return to investors
B. To increase the reputation of the business
C. To provide funds for future growth
D. All of the above
9. Which one of the following is NOT an Auxiliary to trade?
A. Mining
B. Warehousing
C. Insurance
D. Transport
10. Which of the following is not a natural cause of business risks?
A. Earthquake
B. Strikes
C. Famine
D. Heavy Rains
11. Which of the following is not concerned with the profession?
A. Manufacturing goods and services
B. Specialised body of knowledge and skill
C. Code of conduct
D. Formal Training
12. Which of the broad categories of industries covers oil refinery and sugar mills?
A. Primary
B. Secondary
C. Tertiary
D. None of the above
13. Which of the following is an instrument of exchange, which was prominent in the
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subcontinent?
A. Copper
B. Hundi
C. Gold
D. Silver
14. The occupation in which people work for others and get remunerated in return is
known as:
A. Profession
B. Employment
C. Business
D. None of the above
15. The industries which provide support services to other industries are known as
A. Primary industries
B. Commercial industries
C. Tertiary industries
D. Secondary industries
Very Short:
1. What are the different types of economic activities?
2. Name one economic pursuit, in which expertise is required.
3. Name the industries that furnish support to other fellow industries.
4. Can fishing be contemplated as a primary industry?
5. What is the reward that a businessman earns for bearing risk?
6. Sort the following into a business concern, employment and profession.
 Farmer
 Clerk
 Lawyer
 Doctor
7. Under which type of industry do oil refinery and sugar mills are classified?
Short Questions:
1. What is the difference between Business and Profession?
2. Mention the risks that are involved in the business.
3. What are the objectives of the business?
4. What is Commerce and its significance in modern life?
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

5. What are the differences between primary and secondary industry?

6. How does a trader get rid of the hindrance of a person?
7. Insurance is known as the tertiary industry. Explain.
Long Questions:
1. Explain in detail the social objectives of the business in today’s context.
2. Can profit be the sole objective of a business? Explain the reasons in favor and
against the profit objective of the business.
Case Study Questions-
1. Read the following passage and answer the questions given below
Saransh and Vishal have their pharmaceutical factory in Jaipur. Their main focus is
providing quality products at reasonable prices. They procure the services of a renowned
medicine specialist Mr. Andrews from Germany who gives them feedback about the
quality of their products. Because of increasing competition with foreign Pharmaceutical
Companies, their market share is decreasing and they are suffering huge losses.
To ensure their existence in the market, their management is concentrating on full usage
of machines, and reducing wastage, and effective promotion of their products to increase
the sales.
(i) ”Mr. Andrews from Germany who gives them feedback about the quality of their
........”Identify the economic activity Mr. Andrews performs.
(a) Business
(b) Profession
(c) Employment
(d) Partnership
(ii) “Because of increasing competition with foreign Pharmaceutical Companies, their
market share is decreasing...” Name the type of risk related to the above-stated line.
(a) Speculative risk
(b) Foreign risk
(c) Pure risk
(d) All of the above
(iii) Pharmaceutical industry is an example of which of the following types of secondary
industries?
(a) Genetic
(b) Analytical
(c) Synthetic
(d) Processing
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(iv) Match the different manufacturing industries with their suitable examples.
Nature and Purpose of Business:

(a) 1. (i), 2. (iii), 3. (iv), 4. (ii)

(b) 1. (iii), 2. (i), 3. (iv), 4. (ii)
(c) 1. (iv), 2. (i), 3. (iii), 4. (ii)
(d) 1. (iii), 2. (i), 3. (ii), 4. (iv)
(v) ”To ensure their existence in the market, their management is concentrating...” Which
economic objective is indicated in this statement?
(a) Survival
(b) Profit
(c) Growth
(d) Diversification
2. Read the following passage and answer the questions given below.
Oorza Limited is the manufacturer and trader of electrical goods. The company’s efficient
management team, and effective marketing strategies have enabled it to carve a niche in
the industry, allowing it to stand out. But, over the past few years, its profit margins and
customer loyalty have been going down. After analysis of the reasons for lowering
performance, the company executives suggested how CSR can improve profits. They
understand that CSR can promote respect for their company in the marketplace which can
result in higher sales, and enhance employee loyalty. Also, CSR activities focusing on
sustainability issues may lower costs and improve efficiency as well. The company
followed the CSR initiatives and is able to regain its market position and increase its
goodwill.
(i) Which objective will be fulfilled by the company through CSR?
(a) Economic
(b) Social
(c) Legal
(d) Personal
(ii) Identify which of these is not a role of profit as stated above.
(a) Survival of business
(b) Enhancing goodwill
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(c) Increasing efficiency

(d) Enhancing customer loyalty
(iii) Match the following services to trade with the hindrances which they remove.

(a) 1. (iv), 2. (iii), 3. (ii), 4. (i)

(b) 1. (iii), 2. (ii), 3. (iv), 4. (i)
(c) 1. (iii), 2. (iv), 3. (ii), 4. (i)
(d) 1. (iii), 2. (iv), 3. (i), 4. (ii)
(iv) Identify the term which is related to uncertainties about the returns and chances of
losses in the business.
(a) Risk
(b) Market trend
(c) Natural calamities
(d) Market standing
(v) ”...may lower costs and improve efficiency as well.” If the company is able to achieve it,
which business objectives are accomplished by the company?
(a) Profit maximization
(b) Social responsibility
(c) Growth and expansion
(d) All of the above

ANSWER KEY
Multiple Choice questions-
1. Investment
2. Profession
3. Auxiliaries
4. Human
5. All of the above
6. Good management
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7. Position of an enterprise
8. All of the above
9. Mining
10. Strikes
11. Manufacturing goods and services
12. Secondary
13. Hundi
14. Employment
15. Tertiary industries
Very Short Answer-
1. There are various types of economic activities. Namely,
 Profession
 Business
 Employment
2. Profession is an economic pursuit, in which expertise is required.
3. Tertiary industries are involved in furnishing support to all the primary and
secondary industries.
4. Yes.
5. When a businessman bears the risk, the reward that he’ll get is – earning the profit.
6.
 Farmer – Business
 Clerk – Employment
 Lawyer – Profession
 Doctor – Profession
7. Secondary industry
Short Answer-
1.

Business Profession

In the business, capital investment In the profession, limited capital is

is necessary according to the size required for the establishment of
and nature of the business. the business enterprise.
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Here, profits are uncertain. Here, the risk factor is not to that
extent.

2. Every aspect has its own risk factors. So does business has too. Namely,
 Business risks arise due to a few uncertain and unexpected situations
 It is a quintessential part of any business
 However, profit is the reward for bearing the risks
3. Objectives of business are mentioned below:
 Innovation: Every business concern must come up with novice ideas,
inventions and implement them; which are helpful for survival and growth.
 Productivity: Productivity is certainly determined by contrasting the value of
the output with the value of the input.
 Earning Profits: Any business entity that is operating must earn a reasonable
amount of profits in order to sustain survival and growth.
4. Commerce is the control of business among economic agents. Usually, it refers to
the exchange of commodities, services or items of value, among companies or
entities.
The significance of Commerce are:
 Commerce acts as a catalyst between the manufacturers and customers.
 It establishes employment opportunities.
 It encourages trade in the global level.
 Assists in the growth of developing the industries.
 Helps during exigencies like the natural calamities – earthquake, flood,
drought etc.
5.

Primary Secondary

Pursuits that are concerned with These industries manufacture

the extraction and manufacturing raw materials to produce the
of natural resources. commodities for final utilisation.

Classified as follows: Classified as follows:

 Extractive industries  Manufacturing industries
 Genetic industries  Construction industries

Example: Mining, fishing Example: Oil refinery, Sugar mill

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6.
 Getting rid of hindrance of a person by making the commodities obtainable to
the customers from the manufacturers via trade.
 Transportation removes hindrance of a location by transporting the commodities
from the place of manufacturing to the market place for selling purpose.
 However, insurance removes the hindrance of perils of loss or damage of
commodities due to dire, theft and accidents etc.,
 Advertising removes the hindrance of the data by keeping the customers
informed regarding the commodities and services that are obtainable in the
market place.
7. Insurance is the support service to both the primary and secondary industries.
The tertiary industry is the section of the economy that contributes services to its
customers, including a broad array of businesses such as schools, financial
institutions and restaurants. It is also called as the tertiary sector or service
industry/sector.
Long Answer-
1. Social Objectives: Business does not exist in a vacuum. It is an integral part of
society and it can achieve its economic objectives only by having deep roots in
the society. According to Henry Ford, “The purpose of business is not only
earning profit but also discharging responsibilities towards the society,” A
business must be guided by social objectives since it is a part of the society and
gets men, materials, and machines from the society only.
The decision taken by the business has a great influence on the socio-economic
conditions in the country. Business is not merely an economic entity, it is a
social institution as well. Therefore, it is in the interest of business to pursue
certain objectives that are expected by people.
The social objectives of the business are as follows:
1. Better Quality Goods at Fair Prices- The business must provide better
quality products as desired by the customers. Quality means purity as in the
case of food items and medicines or safety as in the case of electrical goods or
durability as in the case of TV and refrigerator. Consumers prefer the
products which are of satisfactory quality and are available at reasonable
prices.
In fact, consumers have become increasingly conscious of quality and want
value for money. Therefore, an important objective of a business is to
produce and supply goods of proper quality to satisfy the expectations of
consumers. The prices charged for the goods should also be reasonable.
2. Fair Trade Practices- Anti-social practices include hoarding, black
marketing, and adulteration. Making false claims in advertisements to
mislead and exploit people is an example of unfair trade practice. Such
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practices are not only illegal but bring a bad name to the business
community. Therefore, businessmen must avoid such means of making
money. The business should follow fair business practices all the time.
3. Generation of Employment- Every business should grow and expand its
operations to create new frontiers of employment for society. The business
has tremendous scope for the generation of employment opportunities.
Business must provide employment without any discrimination on account
of caste, creed, religion, or sex. Business is expected to give special
consideration to handicapped and weaker sections of society in the matter of
employment. Business firms that pursue this objective can improve their
public image.
4. Employment Welfare- Employees are a valuable asset and they make
significant contributions towards the success of the business. It is an
important responsibility’ of the business to promote the welfare of the
employees. Businesses must recognize the dignity of labor and treat
employees as partners rather than as mere working hands. Businesses must
provide good working conditions, housing, transport, and medical facilities
besides fair wages to their employees.
2. Can profit be the sole objective of a business? – Despite the indispensable role in
business, profit cannot be the all and all of the business. Profit maximization
objective is undesirable and social accountability is also the responsibility of
business. According to Urwick, “Earning of profits cannot be the objective of a
business any more than eating is the objective of living.”
A business unit is an economic entity in which various factors of production are
used. Capital is one of the factors of production and the reward for investing
capital is given in the form of profit. Therefore, a business should not be run
only to maximize the reward of one factor of production, i.e., the capital.
Besides’earning profits, it should also aim at the satisfaction of customers, the
welfare of workers, community service, etc.
The argument in favor of profit as the sole objective: Earning profits is essential
for a business due to the following reasons:
1. It is a sign of healthy business as profit is the chief motivating factor in
business.
2. It would provide sufficient return to the investors of capital. Profit is
considered to be an index of success in business.
3. It would provide funds for reinvestment in the business.
4. A profit-making concern enjoys goodwill in society.
5. The assets of the business would be used for maximizing profits. Misuse of
assets would thus be avoided.
Arguments against profit maximization: Profit maximization should not be the
sole motive of any business. The arguments against profit maximization are as
under:
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

1. Profit maximization ignores the interests of labor, customers, and society.

2. Unfair means such as hoarding, black marketing, or adulteration may be
followed to maximize profits.
3. The long-term interest of the business may-be ignored to maximize profits in
the short-run.
4. In the present-day environment, a business can’t be effective with the sole
objective of profit maximization. It must also set objectives in areas like
customer satisfaction, social responsibility, environmental protection,
research, and development, etc.
The profit-making and social service objectives of the business are not
contradictory to each other, they go hand in hand. According to Henery Ford,
“Mere money chasing is not business. The businessman who keeps his
customers satisfied by service will definitely earn good profits.
To conclude earning profits through service to society is the real objective of the
business.
Case Study Answers-
1.
(i) (b) Profession
Explanation: A profession is an occupation founded upon specialized educational training,
the purpose of which is to supply disinterested objective counsel and service to others, for
a direct and definite compensation, wholly apart from expectation of other business gain.
A profession is not a trade and not an industry.
(ii) (a) Speculative risk
Explanation: Speculative risk is a category of risk that, when undertaken, results in an
uncertain degree of gain or loss. In particular, speculative risk is the possibility that an
investment will not appreciate in value. Speculative risks are made as conscious choices
and are not just a result of uncontrollable circumstances.
(iii) (d) Processing
Explanation: Secondary Industries which are essentially manufacturing or assembling
industries. It receives raw materials from primary industries and processes them to
commodities for the customers. Example: Food manufacturing, Textile manufacturing etc.
(iv) (b) 1. (iii), 2. (i), 3. (iv), 4. (ii)
Explanation: Analytical industry is the industry which analysis and separates different
elements from the same materials.
Synthetic industries are those industries that combine various ingredients and make a new
product like Cement, fragrance and plastics.
The process industries are those industries where the primary production processes are
either continuous, or occur on a batch of materials that is indistinguishable.
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

Assembling industry: These industries are engaged in bringing together various

components or parts of bicycles, television, radio and these are some examples of
assembling industries.
(v) (a) Survival
Explanation: Business survival refers to keeping the business operating for a certain
amount of time. Most businesses initially aim to survive their first year. Profit refers to any
money left over after all costs have been taken away from any revenue made by a
business.
2.
(i) (b) Social
Explanation: Corporate Social Responsibility is a management concept whereby
companies integrate social and environmental concerns in their business operations and
interactions with their stakeholders.
(ii) (d) Enhancing customer loyalty
Explanation: Customer loyalty is an ongoing positive relationship between a customer and
a business. It's what drives repeat purchases and prompts existing customers to choose
your company over a competitor offering similar benefits.
(iii) (c) 1. (iii), 2. (iv), 3. (ii), 4. (i)
Explanation: Traders act as link between consumers and producers. Traders remove
hindrance of persons by making goods available to consumer from producers.
(iv) (a) Risk
Explanation: Business risk is the exposure a company or organization has to factor(s) that
will lower its profits or lead it to fail. Anything that threatens a company's ability to
achieve its financial goals is considered a business risk. There are many factors that can
converge to create business risk.
(v) (a) Profit maximization
Explanation: Profit maximisation is a process business firms undergo to ensure the best
output and price levels are achieved in order to maximise its returns. Influential factors
such as sale price, production cost and output levels are adjusted by the firm as a way of
realising its profit goals.
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

Important Questions
Multiple Choice questions-
1. Which one of the following is NOT the objective of the business?
A. Investment
B. Innovation
C. Creation of customers
D. Profit-making
2. Which one of the following is an economic activity in which specialized knowledge is
required?
A. Profession
B. Business
C. Employment
D. None of the above
3. Commerce includes activities relating to trade and _________________ to trade.
A. Auxiliaries
B. Subsidiaries
C. Supporting
D. None of the above
4. Bad debts due to non-payment of debt by the debtor are an example of which type of
business risk?
A. Human
B. Natural
C. Physical
D. Economic
5. Which of the following is an economic cause of business risks?
A. Demand for goods
B. Competition
C. Price
D. All of the above
6. Business risk is not likely to arise due to
A. Power failure
B. Employee dishonesty
C. Changes in government policy
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

D. Good management
7. The word marketing standing is concerned with __________
A. Position of an enterprise
B. Supply of the product
C. Customers
D. Competitors
8. Why a business should earn a profit?
A. To provide a return to investors
B. To increase the reputation of the business
C. To provide funds for future growth
D. All of the above
9. Which one of the following is NOT an Auxiliary to trade?
A. Mining
B. Warehousing
C. Insurance
D. Transport
10. Which of the following is not a natural cause of business risks?
A. Earthquake
B. Strikes
C. Famine
D. Heavy Rains
11. Which of the following is not concerned with the profession?
A. Manufacturing goods and services
B. Specialised body of knowledge and skill
C. Code of conduct
D. Formal Training
12. Which of the broad categories of industries covers oil refinery and sugar mills?
A. Primary
B. Secondary
C. Tertiary
D. None of the above
13. Which of the following is an instrument of exchange, which was prominent in the
subcontinent?
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

A. Copper
B. Hundi
C. Gold
D. Silver
14. The occupation in which people work for others and get remunerated in return is
known as:
A. Profession
B. Employment
C. Business
D. None of the above
15. The industries which provide support services to other industries are known as
A. Primary industries
B. Commercial industries
C. Tertiary industries
D. Secondary industries
Very Short:
1. What are the different types of economic activities?
2. Name one economic pursuit, in which expertise is required.
3. Name the industries that furnish support to other fellow industries.
4. Can fishing be contemplated as a primary industry?
5. What is the reward that a businessman earns for bearing risk?
6. Sort the following into a business concern, employment and profession.
 Farmer
 Clerk
 Lawyer
 Doctor
7. Under which type of industry do oil refinery and sugar mills are classified?
Short Questions:
1. What is the difference between Business and Profession?
2. Mention the risks that are involved in the business.
3. What are the objectives of the business?
4. What is Commerce and its significance in modern life?
5. What are the differences between primary and secondary industry?
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

6. How does a trader get rid of the hindrance of a person?

7. Insurance is known as the tertiary industry. Explain.
Long Questions:
1. Explain in detail the social objectives of the business in today’s context.
2. Can profit be the sole objective of a business? Explain the reasons in favor and
against the profit objective of the business.
Case Study Questions-
1. Read the following passage and answer the questions given below
Saransh and Vishal have their pharmaceutical factory in Jaipur. Their main focus is providing
quality products at reasonable prices. They procure the services of a renowned medicine
specialist Mr. Andrews from Germany who gives them feedback about the quality of their
products. Because of increasing competition with foreign Pharmaceutical Companies, their
market share is decreasing and they are suffering huge losses.
To ensure their existence in the market, their management is concentrating on full usage of
machines, and reducing wastage, and effective promotion of their products to increase the
sales.
(i) ”Mr. Andrews from Germany who gives them feedback about the quality of their
........”Identify the economic activity Mr. Andrews performs.
(a) Business
(b) Profession
(c) Employment
(d) Partnership
(ii) “Because of increasing competition with foreign Pharmaceutical Companies, their
market share is decreasing...” Name the type of risk related to the above-stated line.
(a) Speculative risk
(b) Foreign risk
(c) Pure risk
(d) All of the above
(iii) Pharmaceutical industry is an example of which of the following types of secondary
industries?
(a) Genetic
(b) Analytical
(c) Synthetic
(d) Processing
(iv) Match the different manufacturing industries with their suitable examples.
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

Nature and Purpose of Business:

(a) 1. (i), 2. (iii), 3. (iv), 4. (ii)

(b) 1. (iii), 2. (i), 3. (iv), 4. (ii)
(c) 1. (iv), 2. (i), 3. (iii), 4. (ii)
(d) 1. (iii), 2. (i), 3. (ii), 4. (iv)
(v) ”To ensure their existence in the market, their management is concentrating...” Which
economic objective is indicated in this statement?
(a) Survival
(b) Profit
(c) Growth
(d) Diversification
2. Read the following passage and answer the questions given below.
Oorza Limited is the manufacturer and trader of electrical goods. The company’s efficient
management team, and effective marketing strategies have enabled it to carve a niche in
the industry, allowing it to stand out. But, over the past few years, its profit margins and
customer loyalty have been going down. After analysis of the reasons for lowering
performance, the company executives suggested how CSR can improve profits. They
understand that CSR can promote respect for their company in the marketplace which can
result in higher sales, and enhance employee loyalty. Also, CSR activities focusing on
sustainability issues may lower costs and improve efficiency as well. The company followed
the CSR initiatives and is able to regain its market position and increase its goodwill.
(i) Which objective will be fulfilled by the company through CSR?
(a) Economic
(b) Social
(c) Legal
(d) Personal
(ii) Identify which of these is not a role of profit as stated above.
(a) Survival of business
(b) Enhancing goodwill
(c) Increasing efficiency
(d) Enhancing customer loyalty
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

(iii) Match the following services to trade with the hindrances which they remove.

(a) 1. (iv), 2. (iii), 3. (ii), 4. (i)

(b) 1. (iii), 2. (ii), 3. (iv), 4. (i)
(c) 1. (iii), 2. (iv), 3. (ii), 4. (i)
(d) 1. (iii), 2. (iv), 3. (i), 4. (ii)
(iv) Identify the term which is related to uncertainties about the returns and chances of
losses in the business.
(a) Risk
(b) Market trend
(c) Natural calamities
(d) Market standing
(v) ”...may lower costs and improve efficiency as well.” If the company is able to achieve it,
which business objectives are accomplished by the company?
(a) Profit maximization
(b) Social responsibility
(c) Growth and expansion
(d) All of the above

ANSWER KEY
Multiple Choice questions-
1. Investment
2. Profession
3. Auxiliaries
4. Human
5. All of the above
6. Good management
7. Position of an enterprise
8. All of the above
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

9. Mining
10. Strikes
11. Manufacturing goods and services
12. Secondary
13. Hundi
14. Employment
15. Tertiary industries
Very Short Answer-
1. There are various types of economic activities. Namely,
 Profession
 Business
 Employment
2. Profession is an economic pursuit, in which expertise is required.
3. Tertiary industries are involved in furnishing support to all the primary and secondary
industries.
4. Yes.
5. When a businessman bears the risk, the reward that he’ll get is – earning the profit.
6.
 Farmer – Business
 Clerk – Employment
 Lawyer – Profession
 Doctor – Profession
7. Secondary industry
Short Answer-
1.

Business Profession

In the business, capital investment In the profession, limited capital is

is necessary according to the size required for the establishment of
and nature of the business. the business enterprise.

Here, profits are uncertain. Here, the risk factor is not to that
extent.

2. Every aspect has its own risk factors. So does business has too. Namely,
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

 Business risks arise due to a few uncertain and unexpected situations

 It is a quintessential part of any business
 However, profit is the reward for bearing the risks
3. Objectives of business are mentioned below:
 Innovation: Every business concern must come up with novice ideas,
inventions and implement them; which are helpful for survival and growth.
 Productivity: Productivity is certainly determined by contrasting the value of
the output with the value of the input.
 Earning Profits: Any business entity that is operating must earn a reasonable
amount of profits in order to sustain survival and growth.
4. Commerce is the control of business among economic agents. Usually, it refers to the
exchange of commodities, services or items of value, among companies or entities.
The significance of Commerce are:
 Commerce acts as a catalyst between the manufacturers and customers.
 It establishes employment opportunities.
 It encourages trade in the global level.
 Assists in the growth of developing the industries.
 Helps during exigencies like the natural calamities – earthquake, flood, drought
etc.
5.

Primary Secondary

Pursuits that are concerned with These industries manufacture raw

the extraction and manufacturing materials to produce the
of natural resources. commodities for final utilisation.

Classified as follows: Classified as follows:

 Extractive industries  Manufacturing industries
 Genetic industries  Construction industries

Example: Mining, fishing Example: Oil refinery, Sugar mill

6.
 Getting rid of hindrance of a person by making the commodities obtainable to the
customers from the manufacturers via trade.
 Transportation removes hindrance of a location by transporting the commodities
from the place of manufacturing to the market place for selling purpose.
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

 However, insurance removes the hindrance of perils of loss or damage of

commodities due to dire, theft and accidents etc.,
 Advertising removes the hindrance of the data by keeping the customers
informed regarding the commodities and services that are obtainable in the
market place.
7. Insurance is the support service to both the primary and secondary industries.
The tertiary industry is the section of the economy that contributes services to its
customers, including a broad array of businesses such as schools, financial
institutions and restaurants. It is also called as the tertiary sector or service
industry/sector.
Long Answer-
1. Social Objectives: Business does not exist in a vacuum. It is an integral part of
society and it can achieve its economic objectives only by having deep roots in
the society. According to Henry Ford, “The purpose of business is not only
earning profit but also discharging responsibilities towards the society,” A
business must be guided by social objectives since it is a part of the society and
gets men, materials, and machines from the society only.
The decision taken by the business has a great influence on the socio-economic
conditions in the country. Business is not merely an economic entity, it is a social
institution as well. Therefore, it is in the interest of business to pursue certain
objectives that are expected by people.
The social objectives of the business are as follows:
1. Better Quality Goods at Fair Prices- The business must provide better
quality products as desired by the customers. Quality means purity as in the
case of food items and medicines or safety as in the case of electrical goods or
durability as in the case of TV and refrigerator. Consumers prefer the products
which are of satisfactory quality and are available at reasonable prices.
In fact, consumers have become increasingly conscious of quality and want
value for money. Therefore, an important objective of a business is to produce
and supply goods of proper quality to satisfy the expectations of consumers.
The prices charged for the goods should also be reasonable.
2. Fair Trade Practices- Anti-social practices include hoarding, black marketing,
and adulteration. Making false claims in advertisements to mislead and exploit
people is an example of unfair trade practice. Such practices are not only
illegal but bring a bad name to the business community. Therefore,
businessmen must avoid such means of making money. The business should
follow fair business practices all the time.
3. Generation of Employment- Every business should grow and expand its
operations to create new frontiers of employment for society. The business
has tremendous scope for the generation of employment opportunities.
Business must provide employment without any discrimination on account of
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

caste, creed, religion, or sex. Business is expected to give special consideration

to handicapped and weaker sections of society in the matter of employment.
Business firms that pursue this objective can improve their public image.
4. Employment Welfare- Employees are a valuable asset and they make
significant contributions towards the success of the business. It is an
important responsibility’ of the business to promote the welfare of the
employees. Businesses must recognize the dignity of labor and treat
employees as partners rather than as mere working hands. Businesses must
provide good working conditions, housing, transport, and medical facilities
besides fair wages to their employees.
2. Can profit be the sole objective of a business? – Despite the indispensable role in
business, profit cannot be the all and all of the business. Profit maximization
objective is undesirable and social accountability is also the responsibility of business.
According to Urwick, “Earning of profits cannot be the objective of a business any
more than eating is the objective of living.”
A business unit is an economic entity in which various factors of production are
used. Capital is one of the factors of production and the reward for investing
capital is given in the form of profit. Therefore, a business should not be run only
to maximize the reward of one factor of production, i.e., the capital.
Besides’earning profits, it should also aim at the satisfaction of customers, the
welfare of workers, community service, etc.
The argument in favor of profit as the sole objective: Earning profits is essential
for a business due to the following reasons:
1. It is a sign of healthy business as profit is the chief motivating factor in
business.
2. It would provide sufficient return to the investors of capital. Profit is
considered to be an index of success in business.
3. It would provide funds for reinvestment in the business.
4. A profit-making concern enjoys goodwill in society.
5. The assets of the business would be used for maximizing profits. Misuse of
assets would thus be avoided.
Arguments against profit maximization: Profit maximization should not be the
sole motive of any business. The arguments against profit maximization are as
under:
1. Profit maximization ignores the interests of labor, customers, and society.
2. Unfair means such as hoarding, black marketing, or adulteration may be
followed to maximize profits.
3. The long-term interest of the business may-be ignored to maximize profits in
the short-run.
4. In the present-day environment, a business can’t be effective with the sole
objective of profit maximization. It must also set objectives in areas like
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

customer satisfaction, social responsibility, environmental protection,

research, and development, etc.
The profit-making and social service objectives of the business are not
contradictory to each other, they go hand in hand. According to Henery Ford,
“Mere money chasing is not business. The businessman who keeps his customers
satisfied by service will definitely earn good profits.
To conclude earning profits through service to society is the real objective of the
business.
Case Study Answers-
1.
(i) (b) Profession
Explanation: A profession is an occupation founded upon specialized educational training,
the purpose of which is to supply disinterested objective counsel and service to others, for
a direct and definite compensation, wholly apart from expectation of other business gain. A
profession is not a trade and not an industry.
(ii) (a) Speculative risk
Explanation: Speculative risk is a category of risk that, when undertaken, results in an
uncertain degree of gain or loss. In particular, speculative risk is the possibility that an
investment will not appreciate in value. Speculative risks are made as conscious choices and
are not just a result of uncontrollable circumstances.
(iii) (d) Processing
Explanation: Secondary Industries which are essentially manufacturing or assembling
industries. It receives raw materials from primary industries and processes them to
commodities for the customers. Example: Food manufacturing, Textile manufacturing etc.
(iv) (b) 1. (iii), 2. (i), 3. (iv), 4. (ii)
Explanation: Analytical industry is the industry which analysis and separates different
elements from the same materials.
Synthetic industries are those industries that combine various ingredients and make a new
product like Cement, fragrance and plastics.
The process industries are those industries where the primary production processes are
either continuous, or occur on a batch of materials that is indistinguishable.
Assembling industry: These industries are engaged in bringing together various components
or parts of bicycles, television, radio and these are some examples of assembling
industries.
(v) (a) Survival
Explanation: Business survival refers to keeping the business operating for a certain
amount of time. Most businesses initially aim to survive their first year. Profit refers to any
money left over after all costs have been taken away from any revenue made by a business.
BUSINESS STUDIES BUSINESS, TRADE AND COMMERCE

2.
(i) (b) Social
Explanation: Corporate Social Responsibility is a management concept whereby companies
integrate social and environmental concerns in their business operations and interactions
with their stakeholders.
(ii) (d) Enhancing customer loyalty
Explanation: Customer loyalty is an ongoing positive relationship between a customer and
a business. It's what drives repeat purchases and prompts existing customers to choose
your company over a competitor offering similar benefits.
(iii) (c) 1. (iii), 2. (iv), 3. (ii), 4. (i)
Explanation: Traders act as link between consumers and producers. Traders remove
hindrance of persons by making goods available to consumer from producers.
(iv) (a) Risk
Explanation: Business risk is the exposure a company or organization has to factor(s) that
will lower its profits or lead it to fail. Anything that threatens a company's ability to achieve
its financial goals is considered a business risk. There are many factors that can converge to
create business risk.
(v) (a) Profit maximization
Explanation: Profit maximisation is a process business firms undergo to ensure the best
output and price levels are achieved in order to maximise its returns. Influential factors
such as sale price, production cost and output levels are adjusted by the firm as a way of
realising its profit goals.