This page contains the CBSE Business Studies class 11 chapter 1 BUSINESS, TRADE AND COMMERCE from Part 1 Foundations of Business. You can find the solutions for the chapter 1 of CBSE class 11 Business Studies, for the Try it yourself, Short Answer Questions and Long Answer Questions in this page. So is the case if you are looking for CBSE class 11 Business Studies related topic BUSINESS, TRADE AND COMMERCE question and answers.
Try it yourself:
State whether each of the following is an economic activity:
1.
Farmer growing rice for her own consumption.
❌ No
2.
A factory owner producing school bags for sale in the market.
✔ Yes
3.
Person begging at a busy traffic intersection.
❌ No
4.
Services of a domestic help doing household chores at an employer’s house.
✔ Yes
5.
Services of a housewife doing household chores at home.
❌ No
Short Answer Questions
1. List any five major commercial cities of ancient India?
The following are five major commercial cities of ancient India.
1.
Pataliputra
2.
Peshawar
3.
Taxila
4.
Indraprastha
5.
Mathura
2. What is Hundi?
Hundi was a prominent instrument of exchange in the subcontinent for carrying out transactions in which money is passed from hand to hand. It involved a contract which
(i)
unconditionally warrant the payment of money, the promise or order
(ii)
capable of change through transfer by valid negotiation.
3. List the major exports and imports in ancient India.
The following is the list of the major exports and imports in ancient India.
Major Exports:
●
spices
●
wheat
●
sugar
●
indigo
●
opium
●
sesame oil
●
cotton
●
parrot
●
animal products like hides, skin, furs, horns tortoise shells
●
pearls
●
saphires
●
quartz
●
crystal
●
lapis
●
granites
●
turquoise
●
and copper etc.
Major Imports:
●
horses
●
animal products
●
Chinese silk, flax and linen
●
wine
●
gold
●
silver
●
copper
●
tin
●
lead
●
rubies
●
coral
●
glass
●
amber etc.
4. What were the different types of Hundi in use by traders in ancient times?
The following were the different types of Hundi in use by traders in ancient times.
1.
Darshani Type
a.
Dhani-jog: Payable to any person.
b.
Sah-jog: Payable to a specific person.
c.
Firman-jog: Payable to order.
d.
Dekhan-har: Payable to the presenter or bearer.
2.
Muddati Type
a.
Dhani-jog: Payable to any person over a fixed term.
b.
Firman-jog: Payable to order following a fixed term.
c.
Jokhmi: Drawn against dispatched goods.
5. What do you understand by maritime trade?
Maritime trade refers to the trading done where-in the goods are primarily transported or shipped through the sea or other water bodies. In the ancient India, the maritime routes linked the east and the west by sea and were used for the trade of spices and were also known as ‘spice route’. Malabar Coast, on which Muziris is situated, has a long history of International maritime trade going back to the era of Roman Empire.
6. State the different types of economic activities.
The different types of economic activities are stated below.
1.
Business: It involves providing goods and services to the public with the primary objective of earning profits. Example: manufacturing concerns
2.
Profession: It involves rendering of personalised and expert services for a professional fee. Ex: Doctors, Lawyers etc.
3.
Employment: It involves performing work as per service contract or rules of services for a specific salrary or wage. Example: Employees in a company, supermarket etc.
7. Why is business considered as economic activity?
Economic activity is defined as that activity by which we earn our livelihood. A business is considered as economic activity because it involves the production and sale of goods and services undertaken with the primary motive of earning profit by satisfying human needs in society. This is consistent with the definition of the economic activity. So, the business can be considered as economic activity.
8. State the meaning of business.
The term Business is derived from the word busy indicating that it refers to the state of being busy. In a specific sense, it denotes an occupation where in people engage in regular activities related to purchase, production and/or sale of goods and services with the primary motive of earning profits. Business thus consists of production or purchase of goods for sale or exchange goods or supply of services to satisfy the human needs in the society.
9. How would you classify business activities?
The business activities can be classified into the following two broad categories:
1
Industry: Industry is concerned with the production or processing of goods and materials there by converting resources into usable goods. Generally it is refers to the activities in which mechanical appliances and technical skills are involved.
2
Commerce: Commerces includes all those activities which are necessary to facilitate the exchange of goods and services. It is again classified as
a.
Trade: Trade involves buying and selling of goods.
b.
Auxiliaries to trade: It involves the activities that are required to facilitate the purchase and sale of goods. They are also called as services or auxiliaries to trade.
10. What are the various types of industries?
The following are the various types of industries at a broad level:
(i)
Primary Industries: They include all those activities which are concerned with the extraction and production of natural resources as well as the reproduction and development of living organisms, plants etc. This is again classified as Extractive and Genetic industries.
(ii)
Secondary Industries: It includes all those activities which are concerned with using the materials that are already extracted in the primary industries. They process the materials to produce goods for final consumption or for further processing by other industrial units. They are further classified into manufacturing and construction industries.
(iii)
Tertiary Industries: It includes all those activities which are concerned with providing support to the primary and secondary industries as well as the activities that are related to the trade. They provide services facilities.
11. Explain any two business activities which are auxiliaries to trade.
The following are the two business activities which are auxiliaries to trade:
1.
Transport and Communication: Transport facilitates the movement of raw material to the place of production. It is also facilitates the movement of the finished products from factories to the place of consumption. Communication facilitates the exchange of information among the producers, traders and consumers.
2.
Banking and Finance: Banking provides the businessmen the funds that are required for acquiring assets, purchasing raw materials and meeting other expenses. So, banking helps the businessmen to overcome the problem of finance. They also provide various banking services like remittance of funds, discounting of bills etc. They help the promoters to raise the required capital from the public.
12. What is the role of profit in business?
The following is the role of profit in business:
a.
Profit is the source of income for business persons and is regarded as the reward for the risk taken by them.
b.
Profit is the source of finance for meeting survival and expansion requirements of business.
c.
Profit is an indicator of the efficient working of the business.
d.
Profit can be taken as the society’s approval of the utility of the business.
d.
Profit builds the reputation of the business enterprise.
13. What is business risk? What is its nature?
Business Risk: It refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. It can be broadly classified into two types namely Speculative risks and Pure Risks.
Nature of Business Risk:
(i)
Business risks arise due to uncertainties.
(ii)
Risk is an essential part of every business.
(iii)
Degree of risk depends mainly upon the nature and size of business.
(iv)
Profit is the reward for risk taken.
Long Answer Questions
1. Discuss the development of indigenous banking system in Indian subcontinent.
The following are the developments of indigeneous banking system in Indian subcontinent.
1.
Metal as Money: With the progress of the economic life, metals started to supplement other commodities as money owing to the fact that the metals are durable as well as divisible. As money is the medium of exchange and as people started to use metallic money, its use accelerated the economic activities.
2.
Hundi and Chitti: These documents came into use for carrying out the transactions which require the money to be transferred from hand to hand. Hundi is an instrument of exchange and gained prominence in the subcontinent. It involved a contract which
(i)
warrant the payment of money, the promise or order which is unconditional
(ii)
capable of change through transfer by valid negotiation.
3.
Banking System: The indigenous banking system played a prominent role in lending the money and financing domestic and foreign trade with currency and letter of credit. As banking developed, people began to deposit precious metals with lending individuals who acted as bankers or Seths. Money become an instrument for sypplying the manufacturers with a means of producing more goods.
4.
Agriculture and Domestication of animals: For ancient people, Agriculture and domestication of animals were economically very important components of their economic life. The climatic conditions were favourable. So, they were able to raise two or sometimes even three crops in a year. In addition to this, they were able to generate surpluses and save for further investments by resorting to
●
cotton weaving
●
fabric dying
●
making clay pots, utensils and handicrafts
●
scultpting
●
cottage industries
●
masonry
●
manufacturing
●
transports (example carts, boats and shipts) etc,.
5.
Rise of Intermediaries: The intermediaries comprising the commission agents, brokers and distributors played a prominent role in the promotion of trade. This provided considerable financial securities to the manufactureres by assuming the responsibility for the risks involved, especially in foreign trade. The intermediary institutions like Jagat Seths also developed and exercised great influence during the Mughal period and also during the days of the East India Company. Bankers started to play the role of trustees and executors of endowments.
6.
Availability of Credit: With the start and rise of credit transactions and availability of loans and advances, the commercial operations started to flourish. The exports started to exceed the imports with large margins and the Indian subcontinent enjoyed the fruits of of favourable balance. Thus the indigenous banking system benefitted the manufacturers, traders and merchants with additional capital funds for expansion and development.
7.
Evolution of Banks: With the evolution of commercial and industrial banks, it became easier to finance the trade and commerce. On the otherhand, agricultural banks provided both short-term and long-term loans to finance the agriculatural activities.
2. Define business. Describe its important characteristics.
Definition of Business: The term business is derived from the word ‘busy‘ there by implying that busines means being busy. In a specific sense, the term business refers to an ocuppation in which people regularly engage in activities related to purchase, production and/or sale of goods and services with the primary objective of earning profits. The activity might involve production or purchase of goods for sale, or exchange of goods or providing services to cater to the needs of the people.
The following are the characteristics of business activities:
(i)
An economic activity: Business is undertaken with the primary objective of earning money or livelihood and not out of
●
love
●
affection
●
sympathy
●
or any other emotion.
So, it is considered as an economic activity. This activity may be undertaken in
●
small and individual level e.g. purchase and sale of goods by a shopkeeper
●
or on large scale in a more formal and organised way e.g. purchase and sale by a co-operative society or company.
(ii)
Production or procurement of goods and services: The goods should be either produced or procured by the business enterprise before offering them to the public for consumption. This implies that every business enterprise either manufactures the goods it deals in or procures them from the producers to sell them to the consumers or goods. Goods may consist of consumable items of daily use such as
●
sugar
●
ghee
●
stationery
or capital goods like
●
machinery
●
furniture etc.
Services include facilities offered to
●
consumers
●
other businessses and organisations
in the form of
●
transportation
●
banking
●
electricity etc.
(iii)
Sale or exchange of goods and services: Businesses deal with the transfer or exchange of goods and services for value either directly or indirectly. In otherwords, there should be sale or exchange of goods or services between the buyer and the seller. It should not be for personal consumption. This is one of the essential characteristics of the business.
(iv)
Dealing in goods and services on a regular basis: The business should deal in goods or services on a regular basis. If there is a one time purchase or sale, it does not constitute a business, even if the transaction is done for profit.
(v)
Profit earning: The business should earn income in the form of profit. Profit is required for the survival of the business. Every business should make all possible effots to earn maximum profits either
●
by increasing the volume of sales
●
or reducing costs.
(vi)
Uncertainty of return: Uncertainty of return refers to the lack of knowledge regarding the revenue the business is going to generate in a given period of time. Capital is invested in every business to run its activities with the objective of generating profits. However, it can not be decided to what extent the business is going to generate the profits. It is also possible that the business might end up making losses in a given period of time even after putting the best efforts.
(vii)
Element of Risk Risk is uncertainty associated with an exposure to loss. Any unfavourable or undesirable event might put the business on the verge of risk. Risk is associated with factors like
●
Changes in consumer taste and fashion
●
changes in methods of production
●
strike or lockout at the firm
●
heavy competition in the market
●
fire, theft, accidents, natural calamities etc.
Every business is exposed to risk factors.
3. Compare business with profession and employment.
Business: Business refers to those economic activities where in people regularly engage in activities related to purchase, production and/or sale of goods and servies with the primary objective of earning profits by satisfying the needs of other people. Examples include Grocery store, mobile shop, dairy farm etc.
Profession: Profession refers to those activities practiced by people with special qualification/expertise. These individuals are called as professionals. They generally need to comply with the code of conduct laid down by professional governing bodies. Examples include lawyers, doctors, chartered accountants etc.
Employment: Employment refes to those activities required by the employers and work for a compensation. They earn wages/salaries and should follow the code of conduct as laid down by the employer. Examples include clerks, software developers, salesmen etc.
The following is the comparison among business, profession and employment.
Basis
Business
Profession
Employment
1. Mode of establishment
Entrepreneur or businessman’s decision and other legal formalities, as required.
Membership of a professional body and certificate of practice.
Appointment letter and service agreement.
2. Nature work
Provision of goods and services to the public who needs them.
Rendering of personalised, expert services.
Performing work as per service contract and rules of service.
3. Qualification
No minimum qualification is necessary
Qualifications, expertise and training in specific field as prescribed by the professional body is a must.
Qualififcation and training as prescribed by the employer.
4. Reward or return
Profts earned.
Professional fee
Salary or wages
5. Capital investment
Capital investment required as per size and nature of business
Limited capital needed for establishment
No capital required
6. Risk
Profits are uncertain and irregular; risk is present
Fee is generally regular and certain; some risk
Fixed and regular pay; no or little risk
7. Transfer of interest
Transfer possible with some formalities
Not possible
Not possible
8. Code of conduct
No code of conduct is prescribed.
Professional code of conduct is prescribed.
Norms of behaviour laid down by the employer are to be followed.
9. Example
Shop, factory
Legal, medical profession, charterred accountancy
Jobs in banks, insurance companies, software companies, goverment sector.
4. Define Industry. Explain various types of industries giving examples.
Industry: Industry refers to those economic activities that are connected with the production or processing of goods and materials. In otherwords, it deals with the conversion of resources into useful goods and generally comprises those activities in which mechanical appliances and technical skills are involved. These include the activities related
●
producing or processing of goods
●
raising of animals
On a different note, the term industry is also used to refer to all the manufacturing units producing similar or related goods. For instance, pharma industry, IT industry, Finance and Banking industry etc.
On a broader perspective, industries may be divided into the following three categories:
1.
Primary Industries: It includes all those activitis which are concerned with the extraction and production of natural resources and also reproduction and development of living organisms, plants etc. They are further divided into:
(a)
Extractive industries: They are primarily engaged in extraction or drawing products from natural resources. They mainly deal with the few basic raw materials that are mostly derived from geographical or natural environment. The output of the extractive industries is used by the manufacturing industries to produce goods. Farming, mining, lumbering, hunting and fishing are few examples of the extractive industries.
(b)
Genetic industries: They breed plants and animals for their use in further reproduction. Seeds and nursery companies, cattle brreding farms, poultry farms and fish hatchery are few examples of genetic industries.
2.
Secondary Industries: The secondary industries deal with using materials, which have already been extracted in the primary industries. They process the materials from the primary industries and produce goods for final consumption or for further processing by other industrial units. For instance the steel manufacturing industry uses the iron ore mined from the primary industry to process it and produce steel products. The secondary industries are further classified into
(a)
Manufacturing industries: These industries are engage in producing goods through processing of raw materials and there by turning them into utilities. They produce different finished products that are consumed in daily life. They also produce partly finished products that are used in other industries’ manufacturing operations. They are further categorised as
(i)
Analytical industries which analyses and separates different elements from the same raw materials. Example is oil refinery which uses crude oil and the output is petroleum products, oil etc.
(ii)
Synthetical industries which creates new products by combining various ingredients. For instance cement industries which combines calcium, silicon, aluminum, iron and other ingredients to produce cement.
(iii)
Processing industries which produces the finished products in successive statges. Examples include sugar and paper industries.
(iv)
Assembling industries which produces new products by assembling different component parts. Examples are motor cycle, television, computer, home appliances industries.
(b)
Construction Industris: They construct buildings, dams, bridges, roads, tunnels, canals etc. This industry heavily relies on the engineering and architectural skills.
3.
Teritiary industries: They mainly deal with providing support services to primary and secondary industries as well as trade related activities. They provide the service facilities and hence are often referred to as service sector. Their auxiliary activities assist to trade. Examples include transport, banking, insurance, warehousing, communication, packaging and advertising industries.
5. Describe the activities relating to commerce.
There are two types of main activities related to commerce.
1.
Trade: Trade refers to the sale, transfer or exchange of goods and is an essential part of commerce. It is through trade that the goods are made available to the consumers or users. Now-a-days, with the advancement of production methodogies, the goods are mass produced. As it is difficult to reach out to the individual buyers, the business relies on different markets to make the goods available to the consumers. In otherwords, they rely on the third parties like wholesalers and retailers to reach out to the end-users. Trade can again be sub-categorised as
a.
Internal: Also referred to as domestic or home trade, internal trade deals with the purchase and sale of goods and services within the geographical boundaries of a country. Internal trade is further sub-divided into
(i)
wholesale trade where-in the goods are purchased and sold in large quantities.
(ii)
and retail trade where-in the goods are purchased and sold in comparitively smaller quantities for final consumption.
b.
External: Also referred to as foreign trade, it consists of the exchange of goods and services between individuals or organisations operating in two or more countries. This is again further sub-divided as
(i)
Import trade where-in the goods are purchased from another country
(ii)
Export trade where-in the goods are sold to another country
(iii)
Entrepôt trade where-in the goods are imported for exporting them to other countries.
2.
Auxiliaries to trade: They comprise the activities which are meant for assisting trade, industry and the entire business activity. They are generally referred to as services as they facilitate the activities related to the industry and trade. Examples include transport, banking, insurance, warehousing, advertising etc which play supportive role. They are integral to the commerce in particular and business activity in general. They easy out the complexities associated with the production and distribution of goods. For instance transport helps in movement of goods from one location to the other. The following are the various auxiliaries to trade.
(i)
Transport and communication: Transportation helps in movement of goods from the place of production to the place of consumption and hence helps in overcoming the obstacle of place. They help in movement of raw materials to the place of production and the movement of finished products from factories to the place of consumption. Examples include road, rail and water-ways. Communication facilitates the exchange of information among producers, traders and consumers. Examples include postal, telephone and internet services.
(ii)
Banking and Finance: Businesses need funds to acquire assets, purchase of raw material and to meet other expenses. Banks provides these necessary funds to the business there by helping them to overcome the problem of finance.
●
They provide overdraft and cash credit facilities, loans and advances
●
they also undertake services like collection of cheques, remittance of funds to different places, and discounting of bills on behalf of traders.
●
They also help exporters to collect payments from the importers.
●
Commercial banks help promoters of companies to raise capital from the public.
(iii)
Insurance: Business is likely to be subjected to various risks. The asssets must be protected from fire, theft and other risks. Materials or goods in transit are subject to loss or gamage. Employees are subject to risk of accidental and occupational hazards. Insurance provides protection from these kinds of risks. Companies pay a nominal premium and get the insurance coverage against the risks.
(iv)
Warehousing: Generally there is a time gap between the production of goods and by the time they’re actually consumed by the end user. To meet the demands, the goods are kept in stock. These goods require special arrangements for storage to protect them from loss or damage. Wahouses provide the storage and facilities to help the businesses to store their goods as per their requirement. As the goods are continuously available to meet the demands, the prices do not vary much.
(v)
Advertising: Advertising is one of the most important methods of promoting the products. Especially, the consumer goods like electronic and automobile goods, soaps, detergents etc. rely heavily on advertising. Businesses rely on advertising to reach out to a large number of potential buyers as they can not reach out to each and every individual in-person. Advertising also persuades the users about the goods or services informing them the importance of
●
use
●
quality
●
price
●
their product being competitive
there by pursuading the customers to buy the products.
7. Explain the concept of business risk and its causes.
Concept of Business Risk: Business risk refers to the possibilities of insufficient profits or even losses due to uncertainties or unexpected events. For instance
●
drop in demand for the products due to change in consumer preferences resulting in lower sales and lower profits.
●
intense competition from other competitors forcing the business to lower the prices
●
increased production costs due to rise in raw material prices owing to shortages in raw materials, resulting in increased cost of production.
Risks faced by the business can be majorly classified as
1.
Speculative Risk: It involves the possibility of either gain or loss. They arise due to changes in the market environment like
(i)
fluctuations in demand and supply
(ii)
changes in prices
(iii)
changes in consumer preferences and trends
Favourable market conditions result in gain where as unfavourable market conditions result in losses.
2.
Pure Risk: It involves only the possibility of loss or no loss. Examples include risks due to
●
fire
●
theft
●
or employee strike
The occurrence of pure risk results in loss where as non-occurrence results in absense of loss (or no-loss), instead of gain.
The following are the various causes of risk
1.
Natural Causes: They include natural calamities like
●
flood
●
earthquake
●
lightning
●
heavy rains
●
famine etc.
Humans have little control over these natural causes. When they occur, both the property and income of the business are at risk
2.
Human Causes: They comprise unexpected events like
●
inefficiency of management
●
dishonesty, carelessness or negligence of employees
●
power failure causing disruption of work
●
strikes
●
riots
3.
Economic Causes: They include uncertainties related to
●
demand for goods
●
competition
●
price
●
recover the dues from the customers
●
changes in the technology or methods of production etc.
Apart from these, financial problems like
●
rise in interest rate for borrowings
●
levy of higher taxes etc.
also fall under economic causes of risk as they result in increase in the cost of operation unexpectedly.
4.
Other causes: They comprise of unforeseen events like
●
political disturbances
●
mechanical failures like bursting of the boiler
●
fluctuations in exchange rates etc.
They can possibly cause a business risk.
8. What factors are to be considered while starting a business? Explain.
Starting a business can be considered, just like any other human effort, where in the resources are employed to achieve an objective. When an entrepreneur wants to start a start-up or a businessman wants to start a new business, the success of the business depends majorly on the ability of the business owner(s) to anticipate the problems and solve them economically at the lowest possible cost. In today’s modern environment when someone wants to start a business, they have to face intense competition. Their business is exposed to high risks. There are few problems which are commonly encountered by a person who wants to start a business. For instance, when someone wants to start a small factory they have to solve the problem associated with
a.
chosing the location of the business
b.
possible number of customers
c.
equipment required
d.
capital required
e.
factory and shop layouts
f.
purchasing and finance requiremnets
g.
employing the right personnel
to effectivly setup the factory. If they want to setup a big business these problems will still be the same but with a bit more complexity associated with them.
In general, the following are the factors that need to be considered while starting a business.
1. Selection of line business: When an entrepreneur wants to start a business they must first decide the nature and type of business they want to start. They will be most likely inclined to start a business in that branch of the industry and commerce that gives more profits to them. The other factors that influence their decision regarding which product need to be produced are
●
the customer requirements in the market
●
the technical knowledge and interest of the entrepreneur
2. Size of the firm: Another important factor that needs to be taken into account while starting a business is the size of the firm or the scale of the operations. When the estimated demand for the proposed product is more likely to increase over a period of time they can procure the required capital and start the operations at a large scale. On the other hand, if the market conditions are uncertain and the associated risk is high, it is better to start the operations at a smaller scale.
3. Choice of form of ownership: The business owner has the choice to choose
●
sole proprietorship
●
partnership
●
or a joint stock company
with respect to the ownership of the company. Each of these forms of organisations have their own advantages and disadvantages. The following factors influence the choice regarding the form of ownership.
●
line of business
●
capital requirements
●
liability of owners
●
division of profit
●
legal formalities
●
continuity of business
●
transferability and so on
4. Location of business enterprise: The location of the business is another important factor that need to be considered to start a business. If a wrong location is chosen it results in
●
high cost of production
●
inconvenience in getting the right kind of production inputs
●
or providing the best possible service to the customers.
Important factors like
●
availability of raw materials and labour
●
power supply
●
and services like banking, transportaion, communication, warehousing etc
should be taken into consideration when deciding about the choice of location
5. Financing the proposition: Financing deals with providing the required capital for starting as well as for continuing the proposed business. Busines requires capital for
●
fixed assets like land, building machinery and equipment
●
and current assets like raw materials, books, debtors, stock of finished goods etc.
The day to day operations of the business also require capital. The entrepreneur should perform a good financial planning to come up with
a.
the required capital
b.
sources of raising the capital
c.
the best possible ways of utilising the capital in the firm.
6. Physical facilities: It is very important to consider the availability of the physical facilities like
●
machiness and equipment
●
building
●
and supportive services
The decision related to these factors depends on
●
the nature and size of business
●
availability of funds
●
and the process of production
7. Plant layout: Once the requirement of physical facilities has been decided, the layout showing the arrangement of these facilities should be prepared. Here, the layout refers to the physical arrangement of machines and equipment needed to manufacture a product.
8. Competent and committed work force: Competent and committed work force is needed to convert the physical and financial resources into the desired outputs. An entrepreneur should identify the requirement of
●
skilled workers
●
unskilled workers
●
and managerial staff
Proper planning must be done to train and motivate all the employees so that they give the best performance.
9. Tax Planning: Now-a-days, a business has to comply with a number of tax laws and these laws influence almost all the aspects of the functioning of the business. So, the tax planning is very important. The entrepreneuer should take into account the tax liability under various tax laws and their impact on the business decisions.
10. Launching the enterprise: Once all the above factors are considered and decisions are made, it is time for the entrepreneur to go ahead and lauch the enterprise. This requires
●
the mobilisation of the various resources
●
fulfilling necessary legal formalities
●
starting the production process
●
initiating the sales promotion campaign