NCERT Solutions for Class 11 Business Studies Chapter 1: Business, Trade and Commerce

Chapter at a glance

Exercises – Short Answer Questions

Question SA – Q1

Why is business considered as economic activity?

Answer

An economic activity is one done to earn money (livelihood). Business is an economic activity because:

1. It is carried on with the aim of earning profit and not for love, sympathy or social service.
2. It involves the production or purchase and sale of goods and services in return for money.
3. The activity is done regularly and measured in money terms.

Business is an economic activity because it is undertaken to earn money (profit) through producing or trading in goods and services.

Question SA – Q2

How does business contribute to the economic development of a country?

Answer

1. Employment: it creates jobs and self-employment, reducing unemployment.
2. Goods and services: it supplies the products people need, raising the standard of living.
3. National income and GDP: it adds to production and income, and pays taxes that fund government projects.
4. Capital formation: profits are reinvested in new units, expanding industry.
5. Exports: it earns foreign exchange and strengthens the economy.
6. Regional balance and innovation: businesses in backward areas and new technologies spread development.

Business creates jobs, goods, income, taxes, capital and exports, and so drives economic development.

Question SA – Q3

State the different types of economic activities.

Answer

Economic activities are of three types:

1. Business: buying and selling or producing goods and services for profit (e.g. a shopkeeper).
2. Profession: services requiring specialised knowledge and skill, done for a fee (e.g. doctor, lawyer, chartered accountant).
3. Employment: work done for others under a contract of service, in return for wages or salary (e.g. a clerk, a teacher in a private school).

Business, profession and employment.

Question SA – Q4

State the meaning of business.

Answer

Business is an economic activity that involves the continuous and regular production or purchase and sale of goods and services to satisfy human needs, with the aim of earning profit. It carries an element of risk and uncertainty of returns.

Business is the regular production or exchange of goods and services for profit, with risk.

Question SA – Q5

How would you classify business activities?

Answer

Economic activities are first divided into business, profession and employment. Business activities are classified as:

Business activities are classified into industry and commerce (trade and auxiliaries to trade).

Question SA – Q6

What are the various types of industries?

Answer

Primary (extractive, genetic), secondary (manufacturing, construction) and tertiary industries.

Question SA – Q7

Explain any two business activities which are auxiliaries to trade.

Answer

Auxiliaries to trade are activities that help trade to go on smoothly.

1. Transport: it moves goods from the place of production to the place of consumption, removing the barrier of place.
2. Warehousing: it stores goods safely until they are needed, removing the barrier of time and keeping prices steady.

(Other auxiliaries are banking, insurance, communication and advertising.)

Transport (removes the problem of place) and warehousing (removes the problem of time).

Question SA – Q8

What is the role of profit in business?

Answer

1. Profit is the reward for the entrepreneur’s investment and risk.
2. It is the main source of income for the owner, and supports his living.
3. It gives funds for expansion and modernisation through reinvestment.
4. It builds the reputation of the business and attracts investors and lenders.
5. It is a sign of efficiency, and helps the business survive and grow.

Profit rewards the owner, finances growth, builds reputation and shows efficiency; it is essential for survival.

Question SA – Q9

What is meant by business risk?

Answer

Business risk means the possibility of loss or an inadequate profit due to uncertain events in the future that cannot be fully predicted or controlled. Risk is a feature of every business, and profit is partly a reward for bearing it.

Business risk is the uncertainty of loss or less than expected profit.

Question SA – Q10

State the causes of risks involved in business?

Answer

1. Natural causes: floods, earthquakes, fire, lightning, famine.
2. Human causes: dishonesty or carelessness of employees, strikes, theft, accidents, wrong decisions.
3. Economic causes: changes in demand, price, competition, government policies and technology.
4. Other causes: political unrest, war, sudden changes in law, and similar events.

Natural, human, economic and other causes (such as political changes).

Exercises – Long Answer Questions

Question LA – Q1

Discuss the development of indigenous banking system in Indian subcontinent.

Answer

Indigenous banking is the system of money lending and deposit-taking carried on by individuals and private firms, before modern banks.

1. Early history: moneylending is mentioned in the Vedas, the Smritis and the Jataka tales. Rates of interest were fixed by custom and religious texts.
2. Hundi: merchants developed the hundi, a written order to pay money to a named person, which worked like a bill of exchange and made trade over long distances safe without carrying cash.
3. Shroffs, sahukars and mahajans: these moneylenders and traders accepted deposits, gave loans and discounted hundis. Communities such as Chettiars, Multanis, Marwaris and Shroffs took up this work, financing trade and agriculture.
4. Seths and merchant banking: big merchants (such as the Jagat Seths of Bengal) acted as bankers to rulers and traders.
5. Decline: with the coming of modern, regulated banks, the Reserve Bank and later nationalisation, the indigenous bankers lost importance, though some still work in rural areas.

Indigenous bankers (shroffs, sahukars, mahajans) financed trade through loans and hundis, and gave way to modern banking.

Question LA – Q2

Define business. Describe its important characteristics.

Answer

Definition. Business is an economic activity of producing or buying and selling goods and services on a regular basis, with the objective of earning profit.

Characteristics

1. Economic activity: it is done to earn money, not for sentiment.
2. Production or procurement of goods and services: goods are either produced or bought for sale.
3. Sale or exchange: there must be a transfer of goods and services for money. Producing for own use is not business.
4. Dealings on a regular basis: a single sale is not business; it must be repeated.
5. Profit earning: earning profit is the main aim; without it the business cannot last.
6. Uncertainty of return: profit is not assured and may even be a loss.
7. Element of risk: business risk is a loss that cannot be fully avoided, because of changes in demand, price etc.

Business is a regular, profit-oriented economic activity of producing or trading goods and services, involving risk and uncertainty.

Question LA – Q3

Compare business with profession and employment.

Answer

Business earns profit with risk, profession earns fees through specialised skill, and employment earns a salary with no risk.

Question LA – Q4

Define Industry. Explain various types of industries giving examples.

Answer

Industry refers to economic activities concerned with the conversion of resources into useful goods (and, in the case of services, production of services).

Types

1. Primary industries extract or produce natural resources.
   • Extractive: mining, farming, fishing, forestry.
   • Genetic: plant nurseries, cattle breeding, poultry, seed production.
2. Secondary industries use raw material from the primary sector to make goods.
   • Manufacturing: analytical (oil refining), synthetic (cement), processing (sugar, textiles) and assembling (cars, computers).
   • Construction: roads, dams, bridges, buildings.
3. Tertiary industries provide support services to primary, secondary industries and to consumers, such as transport, banking, insurance, communication and trade.

Industries are primary (extractive, genetic), secondary (manufacturing, construction) and tertiary (services).

Question LA – Q5

Describe the activities relating to commerce.

Answer

Commerce covers all activities that help the exchange of goods and services from producers to consumers: trade and the auxiliaries to trade.

1. Trade: buying and selling, either wholesale or retail, within the country (internal) or across countries (exports, imports, entrepot).
2. Transport: removes the hindrance of place.
3. Warehousing: removes the hindrance of time by storing goods.
4. Banking and finance: removes the hindrance of finance by providing money and credit.
5. Insurance: removes the hindrance of risk by covering loss from fire, theft, accident etc.
6. Communication: removes the hindrance of knowledge by passing information.
7. Advertising: informs and persuades customers (hindrance of knowledge).

Commerce = trade plus auxiliaries to trade (transport, warehousing, banking, insurance, communication, advertising).

Question LA – Q6

Explain any five objectives of business.

Answer

A business needs several objectives; five important ones (from Peter Drucker’s key result areas) are:

1. Profit earning: to cover costs, reward the owners and grow.
2. Creation of customers (market standing): to hold a good share of the market through quality goods and services.
3. Innovation: to bring new products, processes and ideas so as to stay ahead of competitors.
4. Productivity: to use resources efficiently and produce more at lower cost.
5. Social responsibility: to take care of the interests of society such as the environment, employees and consumers.

(Other objectives: physical and financial resources, managerial performance and worker performance.)

Profit, market standing, innovation, productivity and social responsibility.

Question LA – Q7

Explain the concept of business risk and its causes.

Answer

Concept. Business risk is the possibility of loss or a profit lower than expected because of unforeseen events. It cannot be removed fully, but can be reduced through insurance and good planning. It has these features: (a) it is an essential part of business; (b) it arises from uncertainty; (c) the degree depends on the nature and size of business; and (d) profit is the reward for bearing it.

Causes

Business risk is the uncertainty of loss; it arises from natural, human, economic and other causes.

Question LA – Q8

What factors are to be considered while starting a business? Explain.

Answer

1. Selection of line of business: choose the product or service on the basis of demand, interest, capital and skill.
2. Size of the firm: small or large, depending on capital, market demand and risk bearing capacity.
3. Choice of form of ownership: sole proprietorship, partnership, company etc., considering capital, liability and control.
4. Location of the business enterprise: near raw materials, labour, market, transport and power.
5. Financing the proposition: estimating the capital needed (fixed and working) and its sources.
6. Physical facilities: building, machines, furniture and equipment.
7. Plant layout: arrangement of machines and work areas for efficiency.
8. Competent and committed workforce: selection and training of staff.
9. Tax planning: knowing tax laws and planning to reduce the burden legally.
10. Launching the enterprise: clearances, registrations, and final steps to start the work.

Line of business, size, ownership form, location, finance, facilities, layout, workforce, tax planning and launching.

Activities and Case Study

Question Activity – Q1

Have you ever witnessed any shop or a business getting closed in your locality? Interact with the owner to find out the reasons for its closure or losses incurred. Prepare a project report on the factors to be considered for starting any business.

Answer

This is a project work activity. Suggested approach:

1. Visit a closed or loss-making shop and interview the owner (with his or her permission).
2. Note the reasons, for example: poor location, competition, shortage of capital, wrong product choice, lack of skilled staff, changes in demand, or heavy rent.
3. Link each reason to the factors for starting a business (line of business, location, finance, size, staff, etc.).
4. Conclude with a checklist of factors to study before starting a business.

Project report: reasons for closure mapped to the factors in LA Q8 (line, size, location, finance, staff, etc.).

Question Activity – Q2

‘Make in India’ is an initiative launched by the Government of India on 25 September 2014, to encourage national, as well as multinational companies to manufacture their products in India. The major objectives behind the ‘Make in India’ initiative are job creation and skill enhancement in 25 sectors of the economy. Collect information on any five such sectors of the economy that Make in India focuses on. Find out the amount of investment in these sectors in the past two years. What were the possible reasons that led to an interest of investors in these sectors? Present your report in the given format.

Answer

This is a data-collection activity; the figures must be taken from the latest government sources (such as the DPIIT and Make in India website). Format and approach:

Possible reasons for investor interest: a large domestic market, government incentives (PLI schemes, tax benefits), ease of doing business, skilled and low-cost labour, improving infrastructure, and rising exports.

Choose five sectors, fill in investment figures from official data, and explain interest through market size, incentives and ease of doing business.

Question Case – Q1

(Case of Dipak Bharali and the ‘Chaneki’ machine for silk weaving in Sualkuchi, Assam.) Which objective of business is discussed in the above case?

Answer

The objective discussed is innovation. Dipak did not just buy more looms; he developed a new machine, ‘Chaneki’, to automate weft insertion (buta weaving), after 80 attempts. It also improved productivity.

Innovation (with improved productivity).

Question Case – Q2

How has the identified objective of business contributed to the growth of business unit? Give reasons.

Answer

Innovation has contributed to growth in these ways:

1. Higher productivity: the device made the weaving machine run 40 times faster than manual weft insertion.
2. Better quality and lower effort: weavers could do the work without mental and physical exhaustion and could take more work.
3. Eco-friendly: it was made of recyclable material, which earned goodwill.
4. Competitive advantage and growth: more output at lower cost let the business expand without buying more looms, and pleased both owners and weavers.

Innovation raised speed (40 times), quality and output, lowered cost and gave a competitive edge, leading to growth.

Question Case – Q3

Why does business require multiple objectives for its sustainable growth?

Answer

1. Profit alone is not enough: a business focusing only on profit may neglect customers, employees and society, and lose in the long run.
2. Different areas of the business need targets: market standing, innovation, productivity, resources, people and social responsibility all affect survival.
3. Balance and sustainability: many objectives keep the business balanced, support long-term goodwill and protect it from risk.
4. Interests of all stakeholders: owners, employees, customers, suppliers and society all have expectations that must be met.

Multiple objectives keep all areas of the business balanced and the stakeholders satisfied, which makes growth sustainable.

Topic checklist

• ☒ Meaning and characteristics of business (SA Q1, Q4; LA Q2)
• ☒ Economic and non-economic activities, business vs profession vs employment (SA Q3; LA Q3)
• ☒ Industry and commerce, auxiliaries to trade (SA Q5 – Q7; LA Q4, Q5)
• ☒ Objectives, role of profit and risk (SA Q8 – Q10; LA Q6, Q7)
• ☒ Starting a business and indigenous banking (LA Q1, Q8)
• ☒ Activities and case study

Total questions answered: 23 of 23