Nature And Purpose Of Business | Important Questions | Business Studies | 1st Year / Class 11 – Commerce | AHSEC (Assam)

Nature And Purpose Of Business | Important Questions | Business Studies | 1st Year / Class 11 – Commerce | AHSEC (Assam)

Q. What is business risk? Explain its causes. (2+6=8) (2017/2019)

-> Business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. No business can run without some element of risk in it. The nature of business and the volume of operations determine the degree of risk. Business enterprises constantly face two types of risk: speculative and pure. Speculative risks involve both the possibility of gain as well as the possibility of loss. Speculative risks arise due to changes in market conditions including fluctuations in demand and supply, changes in price or changes in fashion and tastes of customers. Pure risks involve only the possibility of loss or no loss. The chance of fire, theft or strike is an example of pure risks. 

Causes of business risks may be classified as follows:-

1. Natural causes- Human beings have no control over nature like flood, earthquake, lightning, heavy rains, famine etc. these result in heavy loss of life, property and income in business. 

2. Human causes- Human causes include such as unexpected events like dishonesty, carelessness or negligence of employees, stoppage of work due to power failure, strike, riots, management inefficiency, etc.

3. Economic causes- Economic causes relate to fluctuations in demand and price or changes in the market conditions.

4. Physical causes- These include all technical or mechanical causes, which affect the working of the business. 

Q. Explain any three features of business. (3marks) (2015)

-> Features of business are:-

1. An Economic Activity- Business is considered to be an economic activity which includes the purchase and sale of goods or rendering of services to earn the money. 

2. Sale or Exchange of goods and services- Every business involves transfer or exchange of goods and services to earn value. If goods are produced not for the purpose of sale but say for personal consumption, it cannot be called a business activity.

3. Profit Earning- One of the main purposes of business is to earn income by way of profit. No business can survive for long without earning profit. That is why businessmen make all possible efforts to maximise profits, by increasing the volume of sales or reducing costs.

Q. What are the factors that need to be considered while starting a business? Explain. (8marks) (2017/2019)

-> Following factors are considered while starting a new business:  

1. Selecting the line of business: The first thing to be decided by the entrepreneur is the line and type of business to be undertaken.  

2. Scale or size of business: After deciding the line of business the businessman must decide whether he/she wants to set up large scale or small scale business.  

3. Choice of form of business organization: The next decision must be taken is to finalise the form of business i.e., to set up sale, proprietorship, partnership or joint stock company.  

4. Location of business enterprise: The entrepreneur has to decide the place where the business will be located. Before taking this decision he/she must find out availability of raw materials, power, labour, banking, transportation etc.  

5. Financial requirement: The businessman must analyse the amount of capital he/ she might require to buy for fixed assets and for working assets). Proper financial planning must be done to determine the amount of funds needed.  

6. Physical facilities: It includes machinery, equipment building etc. This decision depends upon the size, scale and type of business activities he/she wants to carry on.  

7. Plant layout: Showing the physical arrangement of machines and equipment needed to manufacture a product. 

 8. Competent and committed workforce: The entrepreneur must find out the requirement of skilled and unskilled workers and managerial staff to perform various activities. 

 9. Tax planning: The entrepreneur must try to analyse the types of taxes, because there are a number of tax laws in the country which affect the functioning of business.  

10. Setting up the enterprise: After analysing the above mentioned points carefully the entrepreneur can start the business which would mean mobilising various resources and completing legal formalities. 

Q. State five points of distinction amongst business, profession and employment. (5marks) (2018)

-> Comparison of Business, Profession and Employment:

QualificationNo minimum qualification required before starting a business. Prescribed and professional qualification and training requiredQualification depends on the nature of the job.
RiskIn business, there is always risk & uncertainty.In the profession, there is little risk present.In employment, there is no risk involved.
Code of conductThere is no prescribed code of conduct for business.Code of conduct is prescribed by the professional associations.The terms & conditions of service contract are applicable to an employee.
Main objectiveThe main objective of business is to earn a profit.The main objective of a profession is to provide service.The main objective of employment is to earn income in the form of salary by satisfying the employer.
Nature of work involvedIt involves production, purchase & sale or exchange of goods & services.It involves the rendering of personalized services of specialized nature.It involves performing the work as assigned by the employer.

Q. Discuss the various types of industries with suitable examples. (8marks) (2017)

-> Industry refers to economic activities which include production or processing of goods and services. Generally, the term industry is used for activities in which mechanical appliances and technical skills are involved. It is concerned with changing the form of the products. It gives form utility to the products.

Types of Industry:-

1. Primary Industry- This includes all those activities which are connected with the extraction and production of natural resources and reproduction and development of living organisms, plants etc. Primary industry is further divided into two parts:

a) Extractive Industry- These industries extract or draw out products from natural sources. E.g. Mining, lumbering, hunting and fishing operations.

b) Genetic Industry- These industries remain engaged in breeding plants and animals for their use in further reproduction. E.g. Breeding plants and animals, Poultry farming and fish hatchery.

2. Secondary Industry- These are concerned with using the materials, which have already been extracted at the primary stage. These industries process such materials to produce goods for final consumption or for further processing by other industrial units. Secondary industries may be further divided as follows:

a) Manufacturing Industry- These industries are engaged in producing goods through processing raw materials and thus creating from utilities. 

b) Construction Industry- These industries are involved in the construction of buildings, dams, bridges, roads as well as tunnel and canals. Engineering and architectural skills are an important part in construction industries.

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