CBSE Class 11 Business Studies Chapter 1 Notes, Solved Questions: Business, Trade and Commerce

Class 11 Business Studies Notes for Chapter 1: Business, Trade and Commerce
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Chapter Definitions and Short Notes

Chapter 1: Business, Trade and Commerce – Short Notes and Definitions

Understanding Business

Business refers to the economic activity concerned with the production, sale, and distribution of goods and services to meet the needs and wants of people. It involves a series of steps from production to consumption, including various activities such as manufacturing, distribution, and exchange. The term encompasses Industry (production of goods), Trade, and Commerce (related activities), which play a central role in our daily lives alongside other societal institutions.

Short Pointers:

  • Business: Economic activity involving goods and services.
  • Purpose: To satisfy human needs and wants.
  • Steps: From production to consumption.
  • Includes: Industry (production), Trade, and Commerce (distribution, exchange).
  • Importance: Central to daily life, alongside institutions like schools and hospitals.

The Role of Business in Economic Development

Business, encompassing trade and commerce, has been crucial to economic development historically. In India, ancient trading activities, such as the Silk Route and maritime trade, significantly contributed to prosperity by facilitating both internal and international trade. This trading led to diverse economic activities like agriculture, handicrafts, and cottage industries, which further supported the economy through the creation of surplus income.
This income fueled investments and the growth of an indigenous banking system, including instruments like Hundi and Chitties for secure money transfers, fostering further trade. The advent of credit, loans, and advances expanded commercial operations, helping India enjoy a trade surplus. The British colonial period shifted India’s economy from being a processed goods exporter to a raw material supplier.
Post-independence, India aimed for a self-reliant society, facing challenges like capital formation and infrastructure. The economic liberalisation in 1991 introduced reforms leading to stabilisation, restructuring, and globalisation, positioning India as a fast-growing economy and attractive destination for Foreign Direct Investment (FDI), supported by initiatives like ‘Make in India’.

Example: The ancient use of Hundi and Chitties for secure financial transactions in trade exemplifies the innovative financial practices contributing to business and economic development.

Short Pointers:

  • Business’s historical role in economic development, especially trade and commerce.
  • Ancient India’s prosperity was due to trade routes like the Silk Route and maritime trade.
  • Economic diversification through agriculture, handicrafts, and the emergence of banking.
  • Use of Hundi and Chitties for secure money transfers.
  • British colonial impact: shift to raw material export.
  • Post-independence focuses on a self-reliant economy, facing challenges in capital and infrastructure.
  • Economic liberalisation in 1991 led to reforms in fiscal, monetary, and trade policies.
  • India’s current status as a growing economy and FDI destination is supported by initiatives like ‘Make in India’.

Concept of Business

Business is a significant economic activity, primarily aimed at earning profits through the production, purchase, sale, or exchange of goods and services that fulfil human needs. The term “business” originates from the word “busy,” implying activities where people are actively engaged in generating income. It falls under the broader category of economic activities, which are activities people engage in to earn their livelihood, as opposed to non-economic activities that are driven by love, sympathy, or sentiment. Economic activities are further classified into business, profession, and employment, with business specifically focusing on transactions that serve society’s needs with the goal of profit-making.

Short Pointers:

  • Business is a major economic activity aimed at profit.
  • Derived from “busy,” indicating active engagement in income-generating tasks.
  • Involves production, purchase, sale, or exchange of goods/services.
  • Fulfils human needs and contributes to societal welfare.
  • Part of economic activities, distinct from non-economic activities like actions out of love or sympathy.
  • Economic activities include business, profession, and employment.
  • The focus of business: Satisfying human needs profitably.

Characteristics of Business

Business, as an economic activity, is characterised by its aim to earn profits through the production, procurement, sale, or exchange of goods and services that satisfy human needs.
It originates from the intent to generate income rather than emotional motivations like love or affection. Business activities include both small-scale individual transactions and large-scale operations in more formal and organised settings.
Key characteristics of business encompass its regularity in transactions, the inherent uncertainty of returns, and the risks involved due to various external factors. The ultimate goal is profit-making, which is crucial for the sustainability of the business.
These characteristics differentiate business from non-economic activities and other forms of economic activities such as professions and employment.

Short Pointers:

  • Economic activity aimed at earning profits.
  • Involves the production, procurement, and exchange of goods/services.
  • Transactions must be regular, not one-off, to be considered business.
  • Profit is the primary goal; survival without it is challenging.
  • Returns are uncertain; profit amounts are not guaranteed.
  • Business carries inherent risks due to external factors (e.g., market competition, natural disasters).
  • Differentiates between non-economic (e.g., cooking for family) and other economic activities (professions/employment).

Comparison of Business, Profession, and Employment

Economic activities are categorised into Business, Profession, and Employment, each with distinct characteristics. Business involves the provision of goods and services to the public, initiated by an entrepreneur’s decision and possibly requiring legal formalities, with profit as the reward and involving risk and capital investment.
A Profession is characterised by rendering personalised, expert services, requiring membership in a professional body, specific qualifications, and adherence to a professional code of conduct, with a professional fee as the reward. Employment involves performing work according to a service contract or rules, necessitating an appointment letter, qualifications set by the employer, a salary or wages as the reward, and minimal to no risk involved.

Short Pointers:

  • Business: Provision of goods/services, profit-driven, involves risk and capital, and transfer of interest is possible.
  • Profession: Expert services, requires professional qualifications and membership, professional fee, follows a code of conduct, transfer of interest not possible.
  • Employment: Work as per contract/rules, requires qualifications set by the employer, salary/wages, fixed pay, minimal risk, transfer of interest not possible.
  • Examples: Business (Shop, factory), Profession (Legal, medical profession, chartered accountancy), Employment (Jobs in banks, insurance companies, government departments).

Classification of Business Activities

Business activities involve all tasks related to the production, processing, and distribution of goods and services from the point of production to consumption. These activities are broadly categorised into two main types: Industry and Commerce. Industry focuses on the production or processing of goods and materials, encompassing various sectors such as manufacturing, construction, and mining. Commerce, on the other hand, includes all activities necessary for facilitating the exchange of goods and services, covering trade, banking, insurance, advertising, warehousing, and transportation. This classification helps in distinguishing business firms into industrial enterprises, which produce goods, and commercial enterprises, which facilitate the goods and services exchange.

Short Pointers:

  • Business activities: Tasks related to production, processing, and distribution.
  • There are two main categories: Industry and Commerce.
  • Industry: Focuses on the production or processing of goods (e.g., manufacturing, construction).
  • Commerce: Includes activities for facilitating exchange (e.g., trade, banking, insurance).
  • Classification helps distinguish between industrial and commercial enterprises.


Industry encompasses all business activities involved in the conversion of raw materials into useful products, whether goods or services. This conversion process typically involves the use of mechanical appliances and technical skills, ranging from the production and processing of goods to the breeding and raising of animals.
The term “industry” can also refer to a collective group of firms producing similar or related goods, for instance, the cotton textile industry includes all units that transform cotton into textile goods.
Additionally, some service sectors, such as banking and insurance, are colloquially referred to as industries. Industries are broadly classified into three categories: primary (extraction of raw materials), secondary (conversion of raw materials into finished products), and tertiary (provision of services).

Short Pointers:

  • Industry: Conversion of raw materials into products.
  • Involves mechanical appliances and technical skills.
  • Includes production, processing of goods, and breeding of animals.
  • Can refer to a group of firms producing similar goods (e.g., the cotton textile industry).
  • Some services (e.g., banking, insurance) are also called industries.
  • Categories: Primary (extraction), Secondary (manufacturing), Tertiary (services).

Classification of Industries

Industries are organised into three main categories: Primary, Secondary, and Tertiary.

  • Primary industries involve the extraction of raw materials from the natural environment, such as mining and agriculture. 
  • Secondary industries are concerned with transforming these raw materials into finished products, through manufacturing and processing activities. 
  • Tertiary industries, also known as service industries, do not produce goods but provide services to consumers and other businesses, such as retail, education, and healthcare.

Short Pointers:

  • Primary Industries: Extraction of raw materials (e.g., mining, agriculture).
  • Secondary Industries: Transformation of raw materials into finished goods (e.g., manufacturing, processing).
  • Tertiary Industries: Provision of services rather than goods (e.g., retail, education, healthcare).

Primary Industries:

Primary industries encompass all activities related to the extraction of natural resources and the reproduction and development of living organisms. These industries are pivotal as they provide the fundamental raw materials required for various economic activities. Primary industries are classified into two main categories: Extractive Industries and Genetic Industries.
Extractive industries are those that extract resources directly from the earth, water, and air, including activities such as mining, farming, lumbering, and fishing.
These industries supply raw materials that are often used by manufacturing industries to produce goods. Genetic industries focus on the breeding and reproduction of plants and animals, which is crucial for agriculture and food production. This includes seed and nursery companies, cattle breeding, poultry farms, and fish hatcheries, among others.

Short Pointers:

  • Primary Industries: Concerned with the extraction of natural resources and breeding of living organisms.
  • Extractive Industries: Include mining, farming, lumbering, hunting, and fishing – providing raw materials for manufacturing.
  • Genetic Industries: Involve breeding and reproduction of plants and animals, e.g., seed companies, poultry farms, and fish hatcheries.

Secondary Industries:

Secondary industries are those that transform raw or semi-finished materials obtained from primary industries into finished goods. These industries play a crucial role in the economy by adding value to raw materials.
Secondary industries are divided into two main categories:

Manufacturing industries and construction industries. 

  • Manufacturing industries take raw materials or semi-finished products and convert them into finished products. These can be further divided into Analytical (separating different elements from one material), Synthetic (combining materials to create a new product), Processing (involving successive stages of production), and Assembling (assembling different parts to create a final product) industries. 
  • The construction Industry, on the other hand, focuses on building structures like buildings, bridges, and roads, requiring engineering and architectural expertise.

Short Pointers:

  • Secondary Industries: Transform raw materials into finished goods.
  • Categories: Manufacturing and Construction Industries.
  • Manufacturing is divided into:
    • Analytical: Separates different elements from one material.
    • Synthetic: Combines materials to create a new product.
    • Processing: Successive stages of production.
    • Assembling: Assembling different parts into a final product.
  • Construction: Builds structures such as buildings and bridges.
  • Adds value to raw materials, which is crucial for economic development.

Tertiary Industries:

Tertiary industries are key sectors focused on providing a wide range of support services to both primary and secondary industries, as well as facilitating trade activities. These industries do not produce goods but offer essential services that enable the smooth functioning of the economy.
Key services provided by tertiary industries include transportation and communication, banking, insurance, warehousing, advertising, and packaging. These industries are crucial for the distribution of goods, financial transactions, risk management, storage of goods, promotion of products, and efficient communication.
As auxiliaries to trade, tertiary industries play a vital role in supporting commerce by facilitating the exchange of goods and services.

Short Pointers:

  • Tertiary Industries: Provide support services, not goods.
  • Key Services: Transportation, banking, insurance, warehousing, advertising, communication, and packaging.
  • Role: Facilitate trade and support primary and secondary industries.
  • Importance: Essential for the economy’s smooth functioning and efficient distribution of goods and services.


Commerce encompasses all activities that directly or indirectly facilitate the distribution of goods from producers to ultimate consumers. It includes two main types of activities: trade (buying and selling of goods) and auxiliaries to trade (services that support trade, such as transportation, banking, insurance, communication, advertisement, packaging, and warehousing). Commerce serves as a vital link between producers and consumers, ensuring the free flow of goods and services. It involves activities that remove various hindrances in the process of exchange, including those related to persons, place, time, risk, finance, and information, thereby making goods and services readily available and accessible to consumers.

Short Pointers:

  • Commerce: Facilitates distribution of goods to consumers.
  • Includes: Trade (buying/selling) and auxiliary trade (support services).
  • Services: Transport, banking, insurance, communication, advertisement, packaging, warehousing.
  • Role: Removes hindrances in exchange (persons, place, time, risk, finance, information).
  • Objective: Ensures a free flow of goods and services, linking producers with consumers.

Auxiliaries to Trade

Auxiliaries to Trade encompass all activities that support or assist the process of trade, which is the sale, transfer, or exchange of goods. These auxiliary services are fundamental to commerce and overall business activities, facilitating the large-scale production and distribution of goods by overcoming various hindrances.
Key auxiliaries include transport (movement of goods), banking (financial assistance), insurance (risk coverage), warehousing (storage facilities), and advertising (information to consumers). These services ensure that goods produced on a large scale reach consumers efficiently, supporting not just the trade but also the industry, thereby playing a crucial role in the business ecosystem.

Short Pointers:

  • Auxiliaries to Trade: Services supporting the process of trade.
  • Essential for: Overcoming hindrances in production and distribution.
  • Includes: Transport, banking, insurance, warehousing, and advertising.
  • Role: Facilitates movement, storage, financing, risk coverage, and sales promotion of goods.
  • Importance: Integral to commerce and business activity, enabling large-scale production and distribution.

Transportation and Communication:

Transportation involves the movement of raw materials, semi-finished, and finished goods, as well as passengers, from one location to another, effectively overcoming the geographical barrier of distance and creating place utility. This function is critical for ensuring that products produced in specific locations, such as tea from Assam or cotton from Gujarat and Maharashtra, reach consumers across different parts of the country.
Similarly, communication is essential for the seamless exchange of information among producers, traders, and consumers, facilitating business operations. Services such as postal, telephonic, and internet facilities are considered vital auxiliaries to trade and commerce, supporting the business ecosystem by allowing timely and efficient information exchange.

Short Pointers:

  • Transportation: Moves goods and passengers, overcoming distance barriers.
  • Creates place utility: Making goods available where needed.
  • Communication: Facilitates information exchange among business parties.
  • Essential services: Postal, telephone, internet.
  • Role in commerce: Transportation and communication are crucial auxiliaries to trade and business activities, enabling the distribution of products and information nationwide.

Banking and Finance:

Banking and finance refer to the essential services provided by banks and financial institutions to support business activities through credit facilities, loans, and other financial services.
These services are crucial for acquiring assets, purchasing raw materials, and covering various business expenses. By offering overdrafts, cash credits, loans, and advances, banks play a vital role in ensuring a smooth flow of funds within the economy, thereby overcoming the hindrance of finance for businesses.
Additionally, banks facilitate the collection of cheques, remittance of funds, discounting of bills for traders, and assist in foreign trade by helping exporters collect payments from importers. They also support company promoters in raising capital from the public, highlighting their integral role in the functioning and expansion of business activities.

Short Pointers:

  • Purpose: Provide financial support for business activities.
  • Services: Credit facilities, loans, overdrafts, cash credits.
  • Functions: Collection of cheques, fund remittance, discounting of bills.
  • Role in Trade: Assist in foreign trade and capital raising.
  • Importance: Overcome finance hindrances, facilitating asset acquisition and covering expenses.


Insurance is a financial service that provides protection against various types of risks that businesses may face, such as fire, theft, accidents, and other unforeseen events.
It covers assets including factory buildings, machinery, furniture, and goods in stock or transit, and also offers protection for employees against accidents and occupational hazards. Businessmen pay a nominal premium to an insurance company, and in return, they are compensated for any loss or damage incurred.
This system of insurance effectively removes the hindrance of risk in business activities, allowing businesses to operate with greater security and stability.

Short Pointers:

  • Purpose: Protects against various business risks.
  • Coverage: Includes fire, theft, accidents, damage to assets, and employee protection.
  • Premium: A nominal fee paid for insurance coverage.
  • Compensation: Recovery of loss or damage from the insurance company.
  • Role: Removes risk hindrances, and enhances business security and stability.


Warehousing refers to the service of storing goods to manage the gap between production and consumption efficiently. Warehouses are specially designed structures that accommodate goods, keeping in mind their nature, to protect them from loss or damage.
They play a crucial role in ensuring that goods are available to meet demand at any given time, thus overcoming the hindrance of time. Additionally, warehousing contributes to the stabilisation of prices by maintaining a continuous supply of goods, preventing price fluctuations that may result from supply shortages.

Short Pointers:

  • Purpose: Facilitates storage and protection of goods post-production.
  • Function: Bridges the gap between production and consumption.
  • Availability: Ensures goods are available when needed, overcoming time hindrances.
  • Price Stabilisation: Helps maintain steady prices by ensuring continuous supply.
  • Design: Warehouses are designed according to the nature of stored goods.

Advertising and Public Relations:

Advertising and Public Relations (PR) are essential tools used by businesses to communicate with potential customers and promote their products, services, or ideas. Advertising involves paid efforts to disseminate information about goods and services, including their features, prices, and benefits, to a broad audience through various media channels. It aims to inform, persuade, and induce customers to make purchases.
On the other hand, Public Relations focuses on building a positive image and a mutually beneficial relationship between businesses and their audiences. PR activities, often unpaid, include press releases and social media engagement to promote accomplishments, product features, quality, and competitive advantages without direct payment for media space.
Both advertising and PR remove the hindrance of information by making it possible for producers and traders to reach out to potential customers, thus facilitating the promotion and sale of products and services in the marketplace.

Short Pointers:

  • Advertising: Paid promotion of products/services through media.
  • Public Relations: Builds positive business image; involves unpaid media engagement.
  • Objectives: Inform, persuade, and induce purchases; build a positive brand image.
  • Methods: Advertisements (paid), PR activities (unpaid, like press releases, and social media).
  • Role: Overcomes information barriers, promotes sales and fosters positive business relationships.

Objectives of Business

The objectives of a business define its purpose and direction, highlighting what business people aim to achieve through their activities. While profit generation is commonly perceived as the primary objective, modern understanding acknowledges multiple objectives essential for a business’s long-term survival and prosperity. These objectives include not only earning profit but also fulfilling social responsibilities.
Profit serves various critical functions: it provides income for business owners, funds for expansion, evidence of business efficiency, approval from society regarding the business’s utility, and enhances the business’s reputation. However, prioritising profit above all else can lead to neglect of responsibilities towards customers, employees, investors, and society, potentially resulting in practices that harm these stakeholders. Such an approach can jeopardise a business’s reputation, lead to opposition, and ultimately impact its ability to generate profit and sustain itself.

Short Pointers:

  • Primary aim: Achieving specific objectives, with profit as a major but not sole focus.
  • Profit importance: Income, expansion funding, efficiency indicator, societal approval, reputation enhancer.
  • Beyond profit: Acknowledging social responsibilities is crucial for long-term success.
  • Risks of profit focus: Neglect of broader responsibilities can harm relationships with stakeholders and business sustainability.
  • Balanced approach: Necessary for survival, reputation, and prosperity.

Objectives of Business – Classification

The objectives of a business delineate its goals and aspirations, aiming for a future state that the organisation seeks to achieve. These objectives are dual-faceted, encompassing both Economic and Social aspects. Economically, businesses strive to earn profit, enhance market standing, innovate, efficiently utilise physical and financial resources, improve productivity, develop managerial skills, and foster positive worker performance and attitudes. Socially, businesses aim to provide high-quality products at reasonable prices, abstain from unfair trade practices, promote employee welfare, generate employment, and protect the environment.
While profit remains a crucial motive for sustainability and growth, fulfilling social responsibilities is increasingly recognised as vital for long-term success. Businesses must balance these objectives, as focusing solely on one at the expense of others can jeopardise their standing and effectiveness in society.

Short Pointers:

  • Economic Objectives: Profit, market standing, innovation, resource efficiency, productivity, manager and worker development.
  • Social Objectives: Quality products, fair practices, employee welfare, job creation, environmental protection.
  • Balancing Act: Achieving a harmonious balance between economic gain and social contribution is essential for long-term business success.
  • Importance of Profit: While crucial for survival and growth, it’s not the sole objective.
  • Role in Society: Businesses must act responsibly, acknowledging their impact on society and the environment.

Business Risk

Business risk is the potential for experiencing inadequate profits or even losses due to unforeseeable, unpredictable, and unfavourable events. These risks stem from uncertainties and the dynamic nature of market conditions, such as changes in consumer tastes, competition, or fluctuations in the cost of raw materials.
Business risks are categorised into two main types: Speculative Risk and Pure Risk. Speculative Risk carries both the possibility of gain and the potential for loss, primarily resulting from changes in market conditions like demand and supply fluctuations, price changes, or shifts in consumer preferences. Pure Risk, on the other hand, only involves the possibility of experiencing loss or no loss, with examples including fire, theft, or strikes, where the occurrence leads to loss and non-occurrence means no loss, but no potential for gain.

Short Pointers:

    • Business Risk: Potential for losses due to uncertainties.
  • Types of Risk:
    • Speculative Risk: Involves the possibility of gain or loss due to market fluctuations.
    • Pure Risk: Only possibility of loss or no loss, e.g., fire, theft.
  • Causes: Changes in consumer preferences, competition, and cost of raw materials.
  • Impact: This can affect profits, operational costs, and market standing.
  • Managing Risk: Essential for business sustainability and growth.

Nature/Features of Business Risks

Business risks are an inevitable part of conducting business, characterised by their inherent uncertainty and potential impact on operational success. These risks arise from various sources, including natural disasters, changes in market demand, technological advancements, and shifts in government policy. The nature and extent of these risks are primarily determined by the type and size of the business, with larger and more complex businesses generally facing higher levels of risk.
The fundamental nature of business risk includes its inevitability in all business activities, the variability based on business size and nature, and the direct correlation between the level of risk undertaken and the potential for profit.
Entrepreneurs accept risks with the expectation of earning higher profits, adhering to the principle that greater risk can lead to greater reward. Therefore, risk-taking is not only a challenge but also an opportunity for achieving substantial returns, making it a critical aspect of strategic business planning and decision-making.

Short Pointers:

  • Inevitable in all businesses, regardless of type or size.
  • It arises from uncertainties like natural calamities, market changes, and technological advancements.
  • The amount of risk varies based on the business’s nature and size.
  • Higher risk can lead to higher potential profit.
  • Risk is both a challenge and an opportunity for entrepreneurs.

Causes of Business Risks

Business risks stem from various sources and can be categorised into natural, human, economic, and other causes. Natural causes include calamities like floods, earthquakes, and droughts that can result in significant losses of life, property, and income.
Human causes encompass negligence, carelessness, dishonesty by employees, strikes, and management inefficiencies that lead to operational disruptions. Economic causes are related to market fluctuations, changes in consumer demand and preferences, competition, financial challenges such as increased interest rates or taxes, and technological advancements that may affect profitability.
Other causes include political disturbances, mechanical failures, and fluctuations in exchange rates. These diverse causes highlight the multifaceted nature of business risks, underscoring the importance of comprehensive risk management strategies to mitigate their potential impact on business operations.

Short Pointers:

  • Natural Causes: Calamities like floods and earthquakes affect business.
  • Human Causes: Negligence, dishonesty, and management inefficiencies.
  • Economic Causes: Market fluctuations, demand changes, competition.
  • Other Causes: Political disturbances and mechanical failures.
  • Risk Management: Essential to mitigate the impacts of these risks.

Starting a Business — Basic Factors

Starting a business involves the process of entrepreneurship, where an individual (entrepreneur) utilises resources to establish a business enterprise aimed at achieving specific objectives. Entrepreneurship is not only about providing self-employment but also plays a significant role in creating and expanding employment and professional opportunities, contributing to the economic development of a nation. As an entrepreneur, one shifts from being a job-seeker to a job-provider, gaining financial and psychological rewards.
Entrepreneurship is defined as a systematic, purposeful, and creative activity focused on identifying a need, mobilising resources, and organising production to deliver value to customers, generate returns for investors, and secure profits for oneself, all within the realm of business risks and uncertainties.
This initiative is the result of an individual’s interaction with the business environment, emphasising that becoming an entrepreneur is a choice influenced by personal aspiration and the ability to navigate and capitalise on opportunities within the external environment.

Short Pointers:

  • Entrepreneurship involves establishing a business to achieve objectives.
  • Entrepreneurs contribute to economic development and job creation.
  • Transition from job-seeker to job-provider, with financial and psychological benefits.
  • Entrepreneurship requires identifying needs, mobilising resources, and organising production.
  • Success depends on delivering customer value, investor returns, and personal profits amid risks.
  • The decision to become an entrepreneur is influenced by personal aspirations and the business environment.

Starting a Business — Key Considerations

Starting a business involves a series of strategic decisions and preparations, including assessing both environmental factors and personal aspirations regarding the desirability and feasibility of the business venture.
Key considerations for an entrepreneur include the selection of the business type, which is influenced by market demand and the entrepreneur’s skills and interests; determining the size of the business based on potential market demand and available capital; choosing a suitable location considering factors like raw material availability, labour, and access to services; and financing the business to cover both fixed and current assets, as well as operating expenses; ensuring availability of physical facilities and resources necessary for production; recruiting a competent and committed workforce; planning for taxes to comply with laws and minimise liabilities; and finally, launching the enterprise by mobilising resources, completing legal formalities, and beginning production and sales efforts. These steps are fundamental to the establishment and success of a new business venture, laying the groundwork for its operation and growth.

Short Pointers:

  • Selection of Business Type: Based on market demand and personal expertise.
  • Size of Business: Influenced by demand forecast and capital availability.
  • Location: Chosen based on access to raw materials, labour, and services.
  • Financing: Securing capital for both setup and operational costs.
  • Physical Facilities: Ensuring necessary equipment and infrastructure.
  • Workforce: Hiring skilled employees and planning for their training and motivation.
  • Tax Planning: Preparing for tax obligations and impacts on the business.
  • Launching the Enterprise: Mobilising resources, legal formalities, starting production, and sales activities.
  • Each consideration is crucial for the sustainable success and growth of the business.

NCERT Solutions

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

Short Answer Type Questions

  1. Why is business considered as economic activity?

Answer: Business is considered an economic activity because it involves the production, purchase, sale, or distribution of goods and services with the objective of earning profit. Businesses aim to fulfil people’s needs and wants, which include providing essential products and services. The primary focus of a business is to earn a profit, making it an economic activity rather than one driven by emotion or affection.

Mindmap to remember this answer:

  • Economic Activity:
    • Production
    • Purchase
    • Sale
    • Distribution
  • Goods and Services:
    • Products required by people
    • Services needed by people
  • Profit Objective:
    • Aim to earn profit
    • Different from non-economic activities
  • Examples:
    • Shopkeeper selling products
    • Company manufacturing goods
  • Textbook Reference:
    • Production and sale of goods/services
    • Business starts with production and ends with consumption
  1. How does business contribute to the economic development of a country?

Answer: Business contributes to the economic development of a country in several ways. First, businesses are involved in the production and sale of goods and services, which helps meet the needs of people and creates jobs. By providing employment opportunities, businesses improve people’s livelihoods and increase their purchasing power. Second, businesses contribute to the government’s revenue through taxes, which can be used for development projects like building infrastructure, schools, and hospitals.
Moreover, businesses often require support services like transport, banking, and insurance. This promotes the growth of these sectors, which further supports the economy. In addition, businesses that export goods bring foreign currency into the country, improving the balance of trade and encouraging international trade relationships. In short, business is essential for creating jobs, generating income, and promoting overall economic development.

Mindmap to remember this answer:

  • Production and Sale:
    • Goods and services
    • Meeting needs of people
  • Employment Opportunities:
    • Create jobs
    • Improve livelihoods
    • Increase purchasing power
  • Government Revenue:
    • Taxes
    • Development projects (infrastructure, schools, hospitals)
  • Support Services:
    • Transport, banking, insurance
    • Promote growth in related sectors
  • International Trade:
    • Export goods
    • Foreign currency
    • Balance of trade
  • Overall Impact:
    • Create jobs
    • Generate income
    • Promote economic development
  1. State the different types of economic activities.

Answer: The different types of economic activities are:

  • Business: This involves producing and selling goods or services to earn a profit. For instance, a shopkeeper selling products or a manufacturer making and selling items.
  • Profession: This refers to offering personalised, expert services like those provided by doctors, lawyers, or architects. These professionals need specific qualifications and expertise.
  • Employment: This means working for others and earning a salary or wages in return. Jobs in banks, government offices, or private companies fall under this category.

Mindmap to remember this answer:

  • Business
    • Production & sale of goods/services
    • Motive: Profit
  • Profession
    • Personalised, expert services
    • Examples: Doctor, Lawyer
    • Requires qualifications
  • Employment
    • Working for others
    • Earning salary/wages
    • Examples: Jobs in banks, government offices
  1. State the meaning of business.

Answer: Business is an economic activity focused on the production, purchase, selling, or distribution of goods and providing services. Its main goal is to earn profit by fulfilling the needs of people in society.

Mindmap to remember this answer:

  • Business
    • Economic activity
    • Production, purchase, sale, distribution
    • Goods & services
    • Main goal: Profit by meeting societal needs
  1. How would you classify business activities?

Answer: Various business activities can be classified into two broad categories: industry and commerce.

  1. Industry: Industry is concerned with the production or processing of goods and materials. It can be further divided into:
    • Primary Industry: Focuses on the extraction and production of natural resources like farming, mining, and fishing.
    • Secondary Industry: Involves processing raw materials to produce finished goods, such as manufacturing and construction.
    • Tertiary Industry: Provides services supporting primary and secondary industries, like transportation and banking.
  2. Commerce: Commerce includes all activities necessary for facilitating the exchange of goods and services. It involves:
    • Trade: Buying and selling of goods, both domestic and international.
    • Auxiliaries to Trade: Services like transportation, banking, insurance, warehousing, and advertising that help trade.

Mindmap to remember this answer:

  • Industry
    • Primary Industry
      • Extraction of natural resources
      • Examples: Farming, mining, fishing
    • Secondary Industry
      • Processing of raw materials
      • Examples: Manufacturing, construction
    • Tertiary Industry
      • Support services
      • Examples: Transportation, banking
  • Commerce
    • Trade
      • Buying & selling of goods
      • Domestic & international
    • Auxiliaries to Trade
      • Facilitate trade
      • Examples: Transportation, banking, insurance, advertising
  1. What are the various types of industries?


Answer: Industries are the business activities that are involved in producing goods and services by converting raw materials into useful products. 

They can be classified into three categories:

  1. Primary Industry:
    • Focuses on the extraction and production of natural resources.
    • Extractive Industry: Extracts products from natural sources, like farming, mining, and fishing.
    • Genetic Industry: Breeds plants and animals for reproduction, like seed and nursery companies and cattle breeding farms.
  2. Secondary Industry:
    • Processes raw materials to produce goods for consumption or further processing.
    • Manufacturing Industry: Produces goods by processing raw materials.
      • Analytical Industry: Separates elements from the same material, like oil refining.
      • Synthetical Industry: Combines ingredients into new products, like cement.
      • Processing Industry: Involves stages of manufacturing, like sugar and paper.
      • Assembling Industry: Assembles different parts into a new product, like cars and computers.
    • Construction Industry: Involves construction of buildings, bridges, roads, and tunnels.
  3. Tertiary Industry:
    • Provides support services to primary and secondary industries and trade.
    • Examples: Transport, banking, insurance, warehousing, packaging, and advertising.

Mindmap to remember this answer:

  • Primary Industry
    • Extractive
      • Extraction of natural resources
      • Examples: Farming, mining, fishing
    • Genetic
      • Breeding plants & animals
      • Examples: Seed and nursery companies, cattle breeding farms
  • Secondary Industry
    • Manufacturing
      • Produces goods from raw materials
      • Analytical: Oil refining
      • Synthetical: Cement
      • Processing: Sugar, paper
      • Assembling: Cars, computers
    • Construction
      • Building roads, bridges, dams
      • Examples: Buildings, bridges
  • Tertiary Industry
    • Support services to primary & secondary
    • Examples: Transport, banking, insurance, advertising
  1. Explain any two business activities which are auxiliaries to trade.

Answer: Two business activities that are auxiliaries to trade include transportation and communication, and warehousing:

  1. Transportation and Communication: Transportation refers to the conveyance of raw materials, semi-finished goods, and finished products from one place to another. It helps to overcome the barrier of distance, creating place utility by moving goods from the place of production to the place of consumption. Transport also facilitates the movement of raw materials to factories and finished goods to markets. Additionally, communication services such as postal and telephone services are essential for producers, traders, and consumers to exchange information.
  2. Warehousing: There’s often a time gap between the production and consumption of goods, requiring special storage arrangements to prevent deterioration in quality. Warehouses help solve the storage problem by storing goods safely until they’re needed. They ensure the availability of goods whenever required, thus eliminating the hindrance of time and stabilising prices.

Mindmap to remember this answer:

  • Transportation and Communication:
      • Movement of raw materials, semi-finished, and finished goods
      • Overcomes distance barrier, creates place utility
      • Communication (postal, telephone) for information exchange
  • Warehousing:
    • Time gap between production and consumption
    • Prevents quality loss, safe storage
    • Eliminates time hindrance, stabilises prices
  1. What is the role of profit in business?

Answer: The role of profit in a business is significant because:

  1. Source of Income: Profit is the excess of revenue over cost and provides a source of income for business owners.
  2. Indicator of Efficiency: If a business is managed efficiently, it will earn profits, making profit a measure of success and performance.
  3. Reinvestment for Growth: Profit can be reinvested into the business to finance its expansion and growth.
  4. Builds Reputation and Creditworthiness: A profitable business can honour its liabilities on time, enhancing its creditworthiness and building its reputation.
  5. Society’s Approval: Earning profits implies that society approves the utility of the business.

Mindmap to remember this answer:

  • Source of Income:
      • Excess of revenue over cost
      • Income for business owners
  • Indicator of Efficiency:
      • Efficient management = profit
      • Measure of business success
  • Reinvestment for Growth:
      • Finance expansion
      • Business growth
  • Builds Reputation and Creditworthiness:
      • Honours liabilities on time
      • Builds creditworthiness
  • Society’s Approval:
    • Society approves business utility
  1. What is meant by business risk?

Answer: Business risk, in my perspective, refers to the chance that a business might make inadequate profits or even suffer losses due to unexpected events. For example, if there’s a sudden change in customer preferences or new competitors enter the market, the demand for a particular product might drop, leading to decreased sales and lower profits. Additionally, the rising cost of raw materials can increase production costs, which could also reduce profits. Thus, business risk is the uncertainty a business faces in its pursuit of profits.

Mindmap to remember this answer:

  • Definition: Risk of inadequate profits/losses
  • Causes of Business Risks:
    • Natural: Floods, earthquakes, lightning, etc.
    • Human: Dishonesty, negligence, strikes, etc.
    • Economic: Demand changes, competition, price fluctuations
    • Others: Political disturbances, mechanical failures
  • Types of Risks:
    • Speculative: Possibility of gain or loss
    • Pure: Only loss or no loss
  • Characteristics of Business Risks:
    • Essential in every business
    • Arise due to uncertainties
    • Depend on nature and size of business
    • Profit is the reward for risk-taking
  1. State the causes of risks involved in business?

Answer: Business risks are the chances of inadequate profits or even losses due to uncertainties and unexpected events. These risks can arise from various causes:

  • Natural Causes: These include natural calamities like floods, earthquakes, heavy rains, and famines that are beyond human control. Such events can damage property and income in business.
  • Human Causes: Unexpected events like dishonesty, negligence, or carelessness of employees, strikes, power failures, and management inefficiency can result in business risks.
  • Economic Causes: Changes in consumer demand, competition, technology, and prices lead to economic uncertainties. Financial problems like higher borrowing interest rates and increased taxes can also raise business costs.
  • Other Causes: Political disturbances, mechanical failures like boiler bursts, and fluctuations in exchange rates are unforeseen events that can also lead to business risks.

Mindmap to remember this answer:

  • Natural Causes
    • Floods, earthquakes, heavy rains, famines
  • Human Causes
    • Dishonesty, negligence, strikes, power failures
  • Economic Causes
    • Demand changes, competition, technology shifts, financial issues
  • Other Causes
    • Political disturbances, mechanical failures, exchange rate fluctuations

Long Answer Type Questions

  1. Discuss the development of indigenous banking system in Indian


Answer: Indian indigenous banking has a fascinating history and boosted economic growth. India prospered from water and land trade. Sea and Silk Route trade moved goods across regions. Surplus income from internal and international trade boosted agriculture, animal domestication, weaving, pottery, and handicrafts.

Indigenous banking developed as people invested surplus income in economic growth. Workshops (karkhanas) became important in manufacturing. Hundis and Chitties safeguarded long-distance money transfers and encouraged trading.

Hundis—“to collect,” in local languages—enabled safe money transfers. Valid negotiation can transfer unconditional payment promises or orders. Chitties ruled the south.

Credit and loans grew businesses. The indigenous banking system gave manufacturers, traders, and merchants capital, creating a trade surplus. This surplus boosted Patliputra, Taxila, Surat, Ujjain, and Indraprastha trade and industries. Horses, silks, linen, and precious metals were imported, while spices, cotton, wheat, and indigo were exported.

Trade increased as transportation, communication, and commerce improved. Many travellers called India “Swaran Bhoomi” and “Swaran Deep,” meaning “Golden Land,” due to its prosperity.

From raw materials to planned development, India invested in modern industries, technology, and infrastructure after independence. Even with low capital formation, population growth, and deficits, the indigenous banking system laid the groundwork for modern banks and financial institutions that support India’s growing economy.

Mindmap to Remember This Answer:

  • Prosperity and Trade:
    • Maritime trade, Silk Route
    • Internal and foreign trade
    • Surplus income → economic activities
  • Indigenous Banking System:
    • Karkhanas (workshops)
    • Hundis (“to collect”)
      • Safe money transfer
      • Written in local languages
      • Unconditional payment promises
    • Chitties (south)
  • Role of Credit:
    • Loans, advances → expand commerce
    • Additional capital funds
  • Balance of Trade:
    • Exports > imports
    • Growth of trade centres: Patliputra, Taxila, Surat
  • Commerce and Development:
    • Development of transportation, communication
    • “Swaran Bhoomi,” “Swaran Deep”
  • Modern Banking Evolution:
    • Post-independence focus
    • Planned development
    • Challenges faced: capital, population, deficits
  1. Define business. Describe its important characteristics.

Answer: Business is fundamentally an occupation where individuals engage in activities such as the production, purchase, or sale of goods and services with the intent to make a profit. It is considered an economic activity, meaning it is performed to earn an income or livelihood, not out of personal affection or social obligations.

The essential characteristics of a business include:

  1. Economic Activity: Business is conducted with the primary aim of earning money, distinguishing it from non-economic activities like hobbies or volunteer work.
  2. Production or Procurement of Goods and Services: Every business either makes its own goods or procures them from other producers to sell to consumers, thus fulfilling the needs of society.
  3. Sale or Exchange of Goods and Services: There must be a transaction, a sale or exchange, which means no business activity is considered such without the intent of trade between two parties.
  4. Regular Dealings: Business operations involve regular transactions of goods and services. A one-time sale does not qualify as a business activity.
  5. Profit Earning: The primary motive of a business is to generate profit. This is essential for sustainability and growth, prompting businesses to either boost sales or cut costs.
  6. Uncertainty of Return: Returns on investment in business are never guaranteed; there is always the possibility of earning less than expected or incurring losses.

Understanding these characteristics helps clarify the nature of business activities and distinguishes them from other types of human actions.

Mindmap to Remember This Answer:

  • Economic Activity: Aimed at earning money, not driven by personal affection.
  • Goods and Services: Production or procurement essential for consumer needs.
  • Transaction Necessary: Sale or exchange must involve buyers and sellers.
  • Regular Transactions: Ongoing dealings, more than a one-time activity.
  • Profit Motive: Essential for sustainability, drives business decisions.
  • Uncertainty and Risk: Returns not guaranteed, potential for profits or losses.
  1. Compare business with profession and employment.

Answer: When comparing business with profession and employment, it’s essential to understand the fundamental differences and similarities between them. 

Here is a detailed comparison:

Mode of EstablishmentDecision of an entrepreneur, including necessary legal formalities.Completion of a course and obtaining a degree from an institute.By entering into a service agreement or receiving an appointment letter.
QualificationNo minimum qualification is required.Qualification, expertise, and training in a specific field, as prescribed by the professional body, are required.Depends on the nature of the job and employer requirements.
Capital InvestmentDepends on the scale of business.Limited capital investment required.No capital investment required.
RiskAlways involves risk and uncertainty.Little risk involved.No risk involved for the employee.
Main ObjectiveTo earn profit.To provide service.To earn income in the form of salary by satisfying the employer.
Code of ConductNo prescribed code of conduct.Prescribed by professional associations.Terms and conditions of the service contract are applicable.
RewardProfit is the reward of business.Fee is the reward for the profession.Salary or wages is the reward for employment.
Nature of WorkProvision of goods and services to the public.Rendering personalised and expert services.Performing work as per service contract.
Transferability of OwnershipPossible after following necessary legal formalities.Not possible.Not possible.

Mindmap to Remember This Answer:

  • Business: Entrepreneurial decision, no minimum qualification, scale-dependent capital investment, high risk, profit motive, flexible code of conduct.
  • Profession: Degree and certification required, limited capital, low risk, service-oriented, fee-based reward, professional code of conduct.
  • Employment: Appointment letter, qualification depends on job, no capital investment, risk-free, salary-based reward, service contract rules.
  1. Define Industry. Explain various types of industries giving examples.

Answer: Industry refers to all those business activities concerned with the production of goods and services by converting raw materials into useful products. For instance, the cotton textile industry produces textile goods from cotton. Industries are generally divided into three categories: primary, secondary, and tertiary.

Primary Industries: These include all activities related to extracting natural resources, reproduction, and development of living organisms and plants.

  1. Extractive Industries: Extract products from natural resources such as soil, water, air, etc.
    • Examples: Farming, mining, lumbering, hunting, and fishing operations.
  2. Genetic Industries: Involve breeding and reproduction of plants and animals.
    • Examples: Cattle breeding farms, poultry farms, fishing hatchery, and seeds and nursery companies.

Secondary Industries: These are concerned with using materials already extracted at the primary stage to produce finished goods.

    1. Manufacturing Industries: Convert raw materials or semi-finished products into finished products.
  • Examples:
      • Analytical Industry: Separates basic raw materials into different finished products.
        • Example: Crude oil is separated into petrol, diesel, and lubricating oils.
      • Synthetical Industry: Combines two or more raw materials to produce a new product.
        • Example: Cement production requires mixing lime, clay, and mortar.
      • Processing Industry: Produces goods through successive stages.
        • Example: Sugar and paper industries.
      • Assembling Industry: Assembles different components to produce a finished product.
        • Example: TV, car, and computer assembly.
  1. Construction Industry: Engaged in the construction of buildings, roads, dams, and bridges.
    • Example: Civil engineering projects like dams and bridges.

Tertiary Industries: These industries provide services that facilitate a smooth flow of goods and services.

  • Examples:
    • Insurance
    • Warehousing
    • Banking
    • Transportation and Communication
    • Advertising

Mindmap to Remember This Answer:

  • Industry: Converts raw materials into useful products.
  • Primary Industries: Extractive (Mining, fishing, farming), Genetic (Cattle breeding, poultry farms).
  • Secondary Industries: Manufacturing (Analytical: Oil refining, Synthetical: Cement production, Processing: Sugar, paper industries, Assembling: TV, car assembly), Construction (Dams, bridges).
  • Tertiary Industries: Insurance, Warehousing, Banking, Transportation and Communication, Advertising.
  1. Describe the activities relating to commerce.

Answer: Commerce encompasses two primary activities: trade and auxiliaries to trade.

  1. Trade: Trade involves the sale, transfer, or exchange of goods. Its purpose is to make goods produced by manufacturers available to ultimate consumers or users. Trade can be internal or external.
  2. Auxiliaries to Trade: Auxiliaries to trade are activities that assist in the smooth flow of trade. They help remove barriers in the production and distribution of goods. Key auxiliaries include:
    1. Transport and Communication: Transport eliminates place-based hindrances by moving raw materials to production sites and finished goods to markets. Communication allows producers, traders, and consumers to exchange vital information.
    2. Banking and Finance: Banks provide capital to businesses to purchase assets and cover daily expenses. They offer loans, collect cheques, transfer funds, and discount bills. In international trade, they facilitate payments between importers and exporters.
    3. Insurance: Insurance mitigates risks such as theft, fire, or accidents. Businesses can recover potential losses by paying a nominal premium.
    4. Warehousing: Warehousing tackles the hindrance of time by holding stock until needed. It ensures a continuous supply of goods, thereby stabilising prices.
    5. Advertising: Advertising bridges the gap of information by promoting goods and services to consumers. It provides details about features, pricing, and induces customers to buy specific items.

Mindmap to remember this answer:

  • Trade: Sale, transfer, exchange; Internal, external
  • Auxiliaries to Trade: Transport & Communication: Transport: Movement of raw materials and finished goods; Communication: Exchange of information
  • Banking & Finance: Loans, collection, transfer, bill discounting; International payments (import/export)
  • Insurance: Risk mitigation (fire, theft, accidents); Premium, loss recovery
  • Warehousing: Holding stock until needed; Continuous supply, price stabilisation
  • Advertising: Promotion, information, features, pricing; Customer induction
  1. Explain any five objectives of business.

Answer: Business objectives are essential as they guide the operations and strategic decisions of an enterprise. 

Here are five important objectives of a business:

  1. Profit Maximisation: The primary economic objective of any business is to maximise profits. This means earning the highest possible profit under given market conditions by effectively managing costs and revenues. Profit acts as a vital indicator of the business’s success and sustainability.
  2. Market Standing: A business aims to maintain a strong position in the market compared to its competitors. This involves enhancing its reputation and visibility to attract and retain customers, which is crucial for long-term success.
  3. Innovation: Innovation involves introducing new ideas, products, or methods, which is vital for staying relevant and competitive in the market. It helps a business adapt to changes and discover new opportunities for growth.
  4. Supply Good Quality Products: As a social objective, businesses strive to provide products that meet consumer expectations in quality and price. This not only fulfils consumer needs but also builds trust and loyalty among customers.
  5. Employee Welfare: Recognizing employees as valuable assets, businesses focus on their welfare. Providing favourable working conditions, fair wages, and growth opportunities ensures productivity and morale, contributing to the business’s overall success.

Mindmap to remember this answer:

  • Economic Objectives:
    • Profit Maximisation: Increase profits, manage costs.
    • Market Standing: Enhance reputation, retain customers.
    • Innovation: New ideas, stay competitive.
  • Social Objectives:
    • Quality Products: Meet consumer expectations, build trust.
    • Employee Welfare: Good conditions, fair wages, growth opportunities.
  1. Explain the concept of business risk and its causes.

Answer: Business risk refers to the possibility of loss due to unforeseen, unpredictable, or unfavourable events in the future. It is the uncertainty that a business may face, potentially leading to inadequate profits or even losses.

Causes of Business Risk:
Business risks arise from various causes, which can be classified as follows:

  1. Natural Causes: Natural disasters like floods, earthquakes, heavy rains, and famines are beyond human control. These events can result in significant loss of life, property, and income.
  2. Human Causes: Human factors include carelessness, negligence, or dishonesty of employees. Additionally, strikes, riots, management inefficiency, and power failures also contribute to business risks.
  3. Economic Causes: These include economic uncertainties such as changes in demand, competition, pricing, and collection of dues from customers. Economic factors like rising interest rates and higher taxes can unexpectedly raise operational costs, impacting business profitability.
  4. Other Causes: Other unforeseen events, like political disturbances, mechanical failures (e.g., boiler breakdown), and fluctuations in exchange rates, also lead to business risks.

Mindmap to remember this answer:

    • Concept of Business Risk: Unpredictable, unfavourable events; Loss or inadequate profits
  • Causes:
    • Natural Causes: Floods, earthquakes, heavy rains, famine
    • Human Causes: Carelessness, negligence, dishonesty; Strikes, riots, management inefficiency
    • Economic Causes: Demand fluctuations, competition, pricing; Interest rates, taxation, technology changes
    • Other Causes: Political disturbances; Mechanical failures; Exchange rate fluctuations
  1. What factors are to be considered while starting a business? Explain.

Answer: When starting a business, it’s essential to consider several factors that influence its success. 

Here are the key factors to consider:

  • Selection of Type of Business: The first decision is to choose the line and type of business. This depends on what customers need and the entrepreneur’s technical knowledge and interests.
  • Size or Scale of Business: After deciding on the business type, the next step is to choose whether to set up a large-scale or small-scale business. This choice is influenced by market demand and available capital.
  • Choice of Form of Business Organization: The form of business organisation must be selected, whether it’s a sole proprietorship, partnership, or joint-stock company.
  • Location of Business Enterprise: Selecting the business location is crucial. Factors like the availability of raw materials, labour, banking, power, and transportation services should be considered.
  • Financial Requirement: It’s important to analyse the amount of capital required for fixed and working assets. Proper financial planning ensures sufficient funds.
  • Physical Facilities: This includes machinery, equipment, and buildings. The choice of physical facilities depends on the size and type of business.
  • Plant Layout: Planning the physical arrangement of machinery and equipment for manufacturing products is necessary for efficient production.
  • Competent and Committed Workforce: Finding skilled and unskilled workers and managerial staff is important. Plans should be made to train and motivate employees.
  • Tax Planning: Understanding tax laws and analysing the impact of various taxes on business operations helps in effective tax planning.
  • Setting Up the Enterprise: After considering all the above points, the entrepreneur can start the business by mobilising resources and completing legal formalities.

Mindmap to remember this answer:

  • Type of Business: Line and type; Customer needs, technical knowledge
  • Scale of Business: Large-scale or small-scale; Market demand, available capital
  • Form of Organization: Sole proprietorship, partnership, joint-stock
  • Location: Raw materials, labour, power, banking, transportation
  • Financial Requirement: Fixed and working assets; Capital planning
  • Physical Facilities: Machinery, equipment, buildings; Size and type
  • Plant Layout: Physical arrangement of machinery
  • Workforce: Skilled, unskilled workers; Training and motivation
  • Tax Planning: Impact of taxes on business operations
  • Setting Up: Mobilising resources; Legal formalities

MCQ Questions

Chapter 1: Business, Trade and Commerce – MCQ Questions

  1. Business is primarily an economic activity because it is undertaken to:
A. Provide emotional satisfactionB. Earn profits or livelihood
C. Establish social relationshipsD. Promote cultural heritage

Answer: B. Earn profits or livelihood

  1. In the ancient Indian economy, trading activities were carried out via:
A. Silk route and maritime tradeB. Air transportation
C. Railways and airlinesD. Landlocked routes only

Answer: A. Silk route and maritime trade

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  1. Which of the following refers to acquiring resources like machinery and equipment needed to start a business?
A. Competent and committed workforceB. Physical facilities
C. Financing the propositionD. Innovation

Answer: B. Physical facilities

Very Short Answer Type Questions

Chapter 1: Business, Trade and Commerce– Very Short Answer Type Questions

  1. Define business.
    Answer: Business is the production and sale of goods and services for earning profit.
  2. What is the primary objective of a business?
    Answer: The primary objective of business is to earn profit by satisfying human needs.
  3. Give any two examples of non-economic activities.
    Answer: Examples: Cooking for family and helping an old man cross the road.
  4. What are the two categories of economic activities?
    Answer: Economic activities are classified into business and non-business categories.
  5. State any one characteristic of business activities.
    Answer: Business involves the regular exchange of goods and services for profit.
  6. Identify the concept that involves both the possibility of gain and loss.
    Answer: Speculative risks involve the possibility of both gain and loss.
  7. Name the economic activity that involves rendering specialised personal services.
    Answer: The profession involves rendering specialised personal services.
  8. Which economic activity has limited risk?
    Answer: Employment has limited risk due to fixed and regular pay.
  9. What is the nature of work in a profession?
    Answer: A profession involves personalised, expert services following a code of conduct.
  10. Give one example each of an extractive industry and a genetic industry.
    Answer: Extractive: Mining; Genetic: Poultry farming.
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Short Answer Type Questions

Chapter 1: Business, Trade and Commerce – Short Answer Type Questions

  1. What role does business play in the development of an economy according to historical evidence from India?
    Answer: Business, including trade and commerce, fostered economic growth in ancient India, financing trade routes, developing banking systems, and establishing vibrant trade centres like Patliputra, Peshawar, and Indraprastha.
    Mindmap to remember this answer:
  • Trade routes: Silk Route, Maritime trade
  • Financial systems: Indigenous banking, Hundi, Chitties
  • Trade centres: Patliputra, Taxila, Mithila
  1. How does commerce remove the hindrance of time in the exchange of goods and services?
    Answer: Commerce removes the hindrance of time by using warehousing to store goods until they are required, ensuring their availability to consumers when needed.
    Mindmap to remember this answer:
  • Warehousing: Stores goods until required
  • Availability: Ensures continuous supply
  • Prevents spoilage, maintains reasonable prices
  1. Describe the relationship between industry, trade, and commerce as outlined in your textbook.
    Answer: Industry involves production; trade is the buying and selling of goods; commerce includes both and provides support services like transport, banking, and insurance to facilitate the exchange.
    Mindmap to remember this answer:
  • Industry: Production of goods
  • Trade: Buying and selling
  • Commerce: Trade + Auxiliaries (transport, banking, insurance)
  1. What are the primary industries and what subcategories do they include according to the classification in your textbook?
    Answer: Primary industries focus on extracting and producing natural resources, including:
  • Extractive industries: Mining, lumbering, fishing
  • Genetic industries: Breeding plants and animals (nursery farms, cattle breeding)

Mindmap to remember this answer:

  • Primary industries
    • Extractive: Mining, lumbering, fishing
    • Genetic: Nursery farms, cattle breeding
  1. Explain the concept of “business risk” and list the types of risks mentioned.
    Answer: Business risk is the possibility of inadequate profits or losses due to uncertainties. Risks include:
  • Natural causes: Flood, earthquake
  • Human causes: Employee strikes, negligence
  • Economic causes: Competition, price changes
  • Other causes: Political disturbances, mechanical failures

Mindmap to remember this answer:

  • Business risk: Inadequate profits or losses
  • Types:
    • Natural: Flood, earthquake
    • Human: Strikes, negligence
    • Economic: Competition, prices
    • Other: Political issues, mechanical failures
  1. What are the main objectives of a business as discussed in your textbook?
    Answer: The main objectives of a business include:
  • Market standing
  • Innovation
  • Productivity
  • Physical and financial resources
  • Earning profits
  • Social responsibility

Mindmap to remember this answer:

  • Objectives
    • Market standing: Reputation, goodwill
    • Innovation: New ideas, competitive edge
    • Productivity: Efficient output
    • Resources: Physical, financial
    • Profits: Capital employed
    • Social responsibility: Solving social issues
  1. Discuss the significance of ‘innovation’ as an objective for businesses.
    Answer: Innovation helps businesses grow and gain a competitive edge by introducing new products, services, or improving existing ones. It is crucial for staying relevant in a dynamic market.
    Mindmap to remember this answer:
  • Innovation significance
    • Growth and competitive edge
    • New products, services
    • Improve existing products
  1. Identify and describe the types of industries classified as tertiary industries.
    Answer: Tertiary industries provide support services to primary and secondary industries, including:
  • Transport and communication: Movement of goods, exchange of information
  • Banking and finance: Provide funds, loans
  • Insurance: Protects against risks
  • Warehousing: Stores goods until needed
  • Advertising: Promotes products

Mindmap to remember this answer:

  • Tertiary industries
    • Transport and communication: Goods movement, information exchange
    • Banking and finance: Funds, loans
    • Insurance: Risk protection
    • Warehousing: Goods storage
    • Advertising: Product promotion
  1. What does the textbook describe as the essential characteristics of business activities?
    Answer: Business activities have the following characteristics:
  • Economic activity: Earning money
  • Production or procurement: Manufacturing or obtaining goods/services
  • Sale or exchange: Selling for value
  • Regular dealings: Continuity in transactions
  • Profit earning: Aim to make a profit
  • Uncertainty of return: No guaranteed profits
  • Element of risk: Exposure to loss

Mindmap to remember this answer:

  • Characteristics
    • Economic activity: Earning money
    • Production/procurement: Manufacturing or obtaining goods
    • Sale/exchange: Selling for value
    • Regular dealings: Continuity
    • Profit earning: Aim to make a profit
    • Uncertainty of return: No guarantee
    • Element of risk: Exposure to loss
  1. Explain the role of ‘transport and communication’ as auxiliaries to trade.
    Answer: Transport and communication facilitate trade by moving goods efficiently and enabling producers, traders, and consumers to exchange information, ensuring smooth business operations.
    Mindmap to remember this answer:
  • Transport and communication
    • Transport: Movement of goods
    • Communication: Information exchange
    • Efficiency and connectivity
  1. How do banking and finance support business activities according to the textbook?

Answer: According to the textbook, banking and finance support business activities by providing necessary funds for acquiring assets, purchasing raw materials, and meeting other expenses. Banks offer overdraft and cash credit facilities, loans and advances, and collect cheques and remit funds for businesses.

Mindmap to remember this answer:

  • Funds: Acquire assets, raw materials, expenses
  • Banks: Overdraft, cash credit, loans, advances
  • Services: Cheques collection, fund remittance
  1. What is the function of insurance in business as detailed in the textbook?

Answer: The function of insurance in business is to provide protection against various risks such as fire, theft, accidents, and occupational hazards. By paying a nominal premium, businesses can recover losses or damage from the insurance company.

Mindmap to remember this answer:

  • Protection: Risks (fire, theft, accidents)
  • Premium: Nominal payment
  • Recovery: Losses, damage, compensation
  1. Describe the process and considerations for starting a business as outlined in the textbook.

Answer: The process of starting a business involves selecting the type of business, deciding on the size and location, arranging financing, securing physical facilities, assembling a competent workforce, planning for taxes, and launching the enterprise.

Mindmap to remember this answer:

  • Selection: Type of business
  • Size & Location: Scale, place
  • Financing: Capital, investment
  • Facilities: Machines, equipment, buildings
  • Workforce: Skilled/unskilled staff
  • Tax Planning: Liability, impact
  • Launch: Resources, legal formalities, sales
  1. How did the British East India Company influence the Indian economy during its rule?

Answer: The British East India Company influenced the Indian economy by shifting it from being an exporter of processed goods to a supplier of raw materials and a buyer of manufactured goods. They used revenues from provinces under their rule to purchase Indian raw materials, spices, and goods.

Mindmap to remember this answer:

  • Shift: Processed goods exporter to raw materials supplier
  • Revenue: Used for purchasing Indian materials
  • Economy: Importing manufactured goods
  1. What are the distinguishing features between economic and non-economic activities according to the textbook?

Answer: Economic activities are those aimed at earning a livelihood, like working in a factory or running a shop. Non-economic activities are done out of love, sympathy, or sentiment, like a housewife cooking for her family or a boy helping an old man cross the road.

Mindmap to remember this answer:

  • Economic: Livelihood, factory work, shop
  • Non-economic: Love, sympathy, family cooking
  1. Compare business, profession, and employment based on their characteristics.

Answer: Business involves providing goods/services to earn a profit, requiring capital investment and facing uncertain risks. Professions offer specialised, personalised services for fees, needing qualifications and a professional code. Employment is contractual work for a salary with minimal risk.

Mindmap to remember this answer:

  • Business: Profit, goods/services, capital, risk
  • Profession: Fee, expert services, qualifications, code
  • Employment: Salary, contractual work, minimal risk
  1. Define the concept of “business” as given in the textbook.

Answer: The textbook defines “business” as an economic activity involving the production and sale of goods and services regularly to earn profits. It involves regular transactions, profit-making, and risk-taking.

Mindmap to remember this answer:

  • Economic Activity: Production, sale
  • Goods & Services: Regular transactions
  • Profit: Earning profits
  • Risk: Uncertainty, loss
  1. What are the characteristics of business activities highlighted in the textbook?

Answer: The characteristics include being an economic activity, production or procurement of goods/services, sale/exchange of goods/services, regular dealings, profit earning, uncertainty of returns, and risk-taking.

Mindmap to remember this answer:

  • Economic Activity: Money, livelihood
  • Production/Procurement: Goods, services
  • Sale/Exchange: Regular transactions
  • Profit: Earnings
  • Uncertainty: Returns, losses
  • Risk: Losses, uncertainty
  1. Describe the secondary industries and their subcategories.

Answer: Secondary industries are involved in using materials already extracted in the primary sector to produce goods. They include manufacturing (analytical, synthetical, processing, assembling) and construction industries.

Mindmap to remember this answer:

  • Manufacturing:
    • Analytical: Separate elements
    • Synthetical: Combine ingredients
    • Processing: Successive stages
    • Assembling: Component parts
  • Construction: Buildings, bridges, roads
  1. What is the purpose of warehousing in commerce?

Answer: The purpose of warehousing is to store goods and ensure their continuous availability to prevent loss or damage, maintain stable prices, and facilitate a steady supply of goods.

Mindmap to remember this answer:

  • Storage: Prevent loss/damage
  • Availability: Continuous supply
  • Prices: Maintain stability
  1. Discuss the role of advertising and public relations in business as stated in the textbook.

Answer: Advertising and public relations inform and persuade potential customers about products and services. Advertising is paid, while public relations rely on strategic communication to build beneficial relationships.

Mindmap to remember this answer:

  • Advertising: Paid promotion, media
  • Public Relations: Strategic communication, relationships
  • Objectives: Inform, persuade, promote
  1. Explain the nature of business risks according to the textbook.

Answer: Business risks are uncertainties that can lead to inadequate profits or losses. They are essential to every business, arise due to uncertainties, vary based on business size/nature, and offer profit as a reward for risk-taking.

Mindmap to remember this answer:

  • Essential Part: In every business
  • Uncertainties: Natural calamities, market changes
  • Variation: Size, nature of business
  • Profit: Reward for risks
  1. What are the main causes of business risks, and how are they classified?

Answer: Business risks are classified into natural (floods, earthquakes), human (strikes, negligence), economic (demand changes, competition), and other causes (political unrest, mechanical failure).

Mindmap to remember this answer:

  • Natural: Floods, earthquakes
  • Human: Strikes, negligence
  • Economic: Demand changes, competition
  • Other: Political unrest, mechanical failure
  1. What factors need to be considered before starting a business?

Answer: Factors to consider include selecting the type of business, size, and location, arranging financing, securing physical facilities, assembling a workforce, planning taxes, and launching the enterprise.

Mindmap to remember this answer:

  • Type: Nature, interest
  • Size: Scale of operation
  • Location: Raw materials, services
  • Financing: Capital, investment
  • Facilities: Equipment, building
  • Workforce: Skilled/unskilled staff
  • Tax Planning: Liability, impact
  • Launch: Resources, legal formalities
  1. What is meant by market standing, and how does it relate to a business’s objectives?

Answer: Market standing refers to maintaining goodwill and reputation in the market by offering competitive products at reasonable prices and satisfying customers. It’s crucial for businesses to build a distinct identity and stand stronger than competitors.

Mindmap to remember this answer:

  • Goodwill: Reputation
  • Competitive: Products, prices
  • Identity: Distinct, stronger footing
  1. What is meant by “entrepot trade,” and how is it different from other types of trade?

Answer: Entrepot trade involves importing goods for the purpose of re-exporting them without significant processing. It differs from other trade types as goods don’t undergo any substantial transformation before being exported.

Mindmap to remember this answer:

  • Importing: For re-export
  • Processing: No substantial change
  • Difference: No transformation
  1. How does commerce assist in overcoming the hindrance of persons in trade?

Answer: Commerce removes the hindrance of persons by facilitating trade between producers and consumers through activities like transportation, banking, and communication.

Mindmap to remember this answer:

  • Facilitate Trade: Producers, consumers
  • Activities: Transport, banking, communication
  1. What is the meaning of productivity, and how is it related to business objectives?

Answer: Productivity measures efficiency by comparing the value of output to input. Higher productivity ensures greater profitability and helps achieve business objectives like growth and customer satisfaction.

Mindmap to remember this answer:

  • Efficiency: Output vs input
  • Profitability: Greater profit
  • Objectives: Growth, satisfaction
  1. How do physical and financial resources influence a business’s functioning according to the textbook?

Answer: Physical resources like plants, machinery, and offices, and financial resources like funds for production and supply are essential for efficient functioning. Efficient use of these resources enables the business to produce and supply goods/services effectively.

Mindmap to remember this answer:

  • Physical Resources: Plants, machinery, offices
  • Financial Resources: Funds, production, supply
  • Efficiency: Effective functioning
  1. Why is tax planning important for new businesses?

Answer: Tax planning is important for new businesses because it helps anticipate tax liabilities, understand the impact of different tax laws, and ensure compliance while maximising profitability.

Mindmap to remember this answer:

  • Anticipate: Tax liabilities
  • Impact: Tax laws, compliance
  • Maximise: Profitability

Case Based Questions

Chapter 1: Business, Trade and Commerce – Case Based Questions

Case 1: Features of Business and Objectives

Four friends, Shreya, Raj, Anil, and Meera, recently met at their friend’s house to discuss their career plans. Shreya, who is considering starting a business, is confused about whether business is solely about making money. Anil opines, “The only objective of business is to earn profit.” Meera disagrees and says, “No, business is about more than just making money.” Raj, interested in the conversation, says, “What are the key features and objectives of business?”


  1. Based on your understanding of business, describe the key features that differentiate business activities from other activities.
    Answer: Business activities are primarily economic activities, focused on production or procurement of goods and services to satisfy human needs. They are continuous, involve risk, and aim to generate profit. Unlike non-economic activities, they are organised and legally structured.
  2. Is Anil correct in stating that the sole objective of business is to earn profit? Support your answer by explaining the different objectives of business.
    Answer: Anil isn’t entirely correct. While profit is a primary objective, business also aims to ensure customer satisfaction, provide quality products, create employment, contribute to societal welfare, and innovate for sustainability. Balancing profit with social and economic goals is crucial for long-term success.

Case 2: Types of Economic Activities and Comparison

Ravi is a certified public accountant who practises independently. He has two friends, Suman and Amit. Suman works at a manufacturing firm as an engineer, while Amit runs his own business of selling electronic gadgets. They often discuss their career paths and the differences in their work styles.


  1. Identify the types of economic activities represented by Ravi, Suman, and Amit.
    Answer: Ravi practises a profession as a public accountant, Suman is employed as an engineer, and Amit runs a business selling electronic gadgets.
  2. Differentiate between business, profession, and employment based on any three points of comparison.
  • Business:
      • Requires investment of capital
      • Main objective is profit
      • No specific qualifications required
  • Profession:
    • Requires specialized knowledge and training
    • Main objective is service
    • Membership in a professional body is needed


  • Work under an employer
  • Main objective is salary/wages
  • Qualifications depend on job requirements

Case 3: Industrial Classification

After completing his MBA, Aakash decided to start a manufacturing business. He chose to establish a factory to assemble smartwatches using components imported from different countries. Initially, he plans to sell these smartwatches only within India. To finance the factory and procure machinery, Aakash obtains a loan from a local bank.


  1. In which category of industry did Aakash venture into? Justify your answer.

Answer: Aakash ventured into a secondary industry, specifically a manufacturing industry, as he assembles smartwatches using imported components to produce a final product.

  1. Aakash needs to ensure smooth business operations. Identify and explain any three auxiliaries to trade that he would require.


  • Banking: Provides loans and credit facilities to finance machinery and daily operations.
  • Transport: Facilitates movement of components from suppliers and delivery of smartwatches to customers.
  • Advertising: Promotes the smartwatches and informs customers about their features.
  1. If Aakash expands his business globally, what forms of trade would be involved?

Answer: If Aakash expands globally, he would engage in international trade, specifically import and export. He would import components and export finished smartwatches.

Case 4: Commerce and Auxiliaries to Trade

Sheetal is the owner of a clothing store that sells high-quality apparel. To ensure a steady supply of goods, she partners with local manufacturers. Sheetal promotes her store through online advertising and delivers the goods to customers using reliable courier services.


  1. Explain the role of commerce in Sheetal’s business by distinguishing between trade and auxiliaries to trade.
    Commerce in Sheetal’s business includes trade and auxiliaries to trade. Answer: Trade involves buying high-quality apparel from manufacturers and selling it to customers. Auxiliaries to trade, like advertising and courier services, help promote her store and deliver goods.
  2. Identify any two auxiliaries to trade used by Sheetal in her business and explain their significance.


  • Advertising: Promotes her store online and attracts more customers, increasing sales.
  • Transport (Courier services): Ensures timely delivery of clothing to customers, improving customer satisfaction and loyalty.

Case 5: Business Risks

Pranav runs a spice trading business, where he sources raw spices from local farmers and sells them to exporters. However, his business faces several risks due to unpredictable weather conditions, fluctuating prices, and government policies on exports.


  1. Identify and explain any three types of business risks that Pranav may face.


  • Natural Risks: Unpredictable weather conditions like floods or droughts can affect spice production and reduce supply.
  • Economic Risks: Fluctuating spice prices can impact Pranav’s profit margins.
  • Political Risks: Changes in government export policies could restrict or tax spice exports.
  1. Describe the nature of business risks based on their characteristics.


  • Risk is an essential part of every business: No business can avoid risk, but it can be minimised.
  • Business risks arise due to uncertainties: Changes in prices, weather, and policies are unpredictable.
  • Degree of risk depends on the nature and size of the business: Larger businesses often face higher risks due to their scale of operations.

Case 6: Starting a Business

After completing her studies, Ananya decided to start a business of manufacturing eco-friendly stationery items. She plans to set up her factory in a rural area with ample availability of raw materials and cheap labour. However, she is uncertain about several factors related to starting the business.


  1. Outline any five basic factors Ananya should consider while starting her business.

Answer: Ananya should consider the following factors:

  1. Type of Business: Choosing the right industry that promises profitability and aligns with her skills and interests.
  2. Location: Ensuring accessibility to raw materials, affordable labour, and services like transportation for cost-effectiveness.
  3. Financing: Arranging sufficient capital for initial setup and ongoing operations, crucial for both fixed and current assets.
  4. Physical Facilities: Securing necessary infrastructure, machinery, and equipment tailored to the business’s scale and nature.
  5. Workforce: Hiring skilled and committed employees to efficiently convert resources into desired outputs.
  1. Discuss the importance of financing for starting and continuing the proposed business.

Answer: Financing is vital as it supports all phases of the business, from inception to daily operations. Initially, it helps in acquiring essential fixed assets like machinery and buildings, and funds current assets such as raw materials and stock. Continuous financing ensures smooth operation, aiding in expansion and sustainability, thus driving the business towards profitability and growth.

Case 7: Industry and Commerce Interconnection

Sahil and Rohit are partners in a business that manufactures organic health supplements. They source their raw materials directly from farmers and supply the finished goods to local retailers. To reach more customers, they are planning to advertise their products online and seek advice from a financial consultant for expanding their business.


  • Identify and classify the type of industry that Sahil and Rohit are involved in.

Answer: Sahil and Rohit are involved in the manufacturing industry. This industry type is focused on the production or processing of goods, which in their case involves creating organic health supplements from raw materials sourced directly from farmers.

  • Describe how commerce plays an integral role in connecting the production and consumption of organic health supplements.

Answer: Commerce facilitates the connection between production and consumption through activities like advertising, online selling, and distribution to local retailers. This ensures that the organic health supplements produced by Sahil and Rohit reach consumers efficiently and effectively.

  • List and explain any three auxiliaries to trade that could assist them in expanding their business.


  • Advertising: To increase market reach and consumer awareness about their health supplements.
  • Banking and Finance: To secure necessary funding for expansion and streamline transactions for increased scale.

Transportation: To distribute their products more broadly and ensure timely delivery to various retailers or directly to consumers.


Long Answer Type Questions

Chapter 1: Business, Trade and Commerce – Long Answer Type Questions

  1. Explain the role of business in the development of the economy in ancient India. Discuss the factors that contributed to the prosperity of trade and commerce in ancient India.

Answer: Business played a significant role in shaping ancient India’s economy. Trade and commerce were pivotal, conducted through well-established land and water routes like the Silk Route and maritime networks. Ancient India thrived as it traded both domestically and internationally, generating surplus income that fueled various economic activities such as agriculture, pottery, and textile manufacturing. The use of instruments like Hundis and Chitties facilitated safe money transfers and expanded credit availability, promoting commercial growth. Numerous trade hubs, such as Patliputra and Taxila, served as epicentres of import-export activities. India’s favourable balance of trade, where exports exceed imports, ensured prosperity. This prosperity was chronicled by foreign travellers who highlighted India’s affluence. However, colonial rule later shifted India’s economy from an exporter of processed goods to one of raw materials. Today, India’s economy continues to grow due to initiatives like “Make in India” and “Skill India.”

Mindmap to remember this answer:

  • Key trade routes: Silk Route, maritime networks
  • Trade hubs: Patliputra, Taxila, Mithila
  • Economic activities: agriculture, textiles, pottery
  • Instruments: Hundis, Chitties
  • Favourable balance of trade: surplus income
  • Foreign travellers: Megasthenes, Faxian, Al Beruni
  • Colonial impact: shift to raw material exports
  1. Compare and contrast the concepts of industry, commerce, and trade. Illustrate their interdependence using examples.

Answer: Industry, commerce, and trade are interconnected components of business. Industry involves the production of goods and services. For example, a cotton textile factory producing fabric exemplifies an industry. Commerce encompasses activities facilitating the exchange of these goods, such as transport and banking. For instance, shipping cotton fabric to different markets is part of commerce. Trade specifically refers to buying and selling, which could be local (wholesalers to retailers) or international (export-import). A cotton wholesaler selling fabric to retail stores illustrates trade.

The interdependence is clear: industries produce goods, commerce ensures their distribution, and trade brings them to consumers. For example, a cotton textile factory (industry) requires transport (commerce) to ship fabric to wholesalers (trade), who then sell it to retailers (trade).

Mindmap to remember this answer:

  • Industry: production, cotton textile factory
  • Commerce: distribution, transport, banking
  • Trade: buying/selling, wholesaler to retailer
  • Interdependence:
    • Industry → Commerce → Trade
    • Example: cotton textile factory → shipping fabric → selling to wholesalers
  1. Discuss the characteristics of business activities. How does business differ from other economic activities?

Answer: Business activities have several distinguishing characteristics:

  1. Economic Activity: Aimed at earning money, unlike non-economic activities driven by emotions.
  2. Production or Procurement: Goods and services are produced or procured for sale.
  3. Sale/Exchange: Involves the sale or exchange of goods and services.
  4. Regular Basis: Deals occur regularly, not as a one-off.
  5. Profit Earning: Focused on making a profit.
  6. Uncertainty of Return: Profits are uncertain and can lead to losses.
  7. Risk Element: Every business faces risks like changing consumer preferences or economic downturns.

Business differs from other economic activities like professions and employment. A business involves risk and aims at profit, while professions (like a doctor) provide personalised services for a fee and employment (like a bank manager) offers fixed wages without risk.

Mindmap to remember this answer:

  • Characteristics of Business:
    • Economic activity, production/procurement
    • Sale/exchange, regular basis
    • Profit earning, uncertainty of return
    • Risk element
  • Differences from other economic activities:
    • Profession: personalised services, fee
    • Employment: fixed wages, no risk
  1. Describe the role of commerce in removing various hindrances in the exchange of goods and services. Provide examples for each type of hindrance.

Answer: Commerce plays a crucial role in removing hindrances in the exchange of goods and services:

  1. Person (Trade): Eliminates hindrance of person by transferring goods from producers to consumers via trade. Example: Retailers selling products to consumers.
  2. Place (Transport): Removes place hindrance by moving goods from production centres to markets. Example: Shipping tea from Assam to Delhi.
  3. Time (Warehousing): Overcomes time hindrance by storing goods for future sales. Example: Warehousing seasonal fruits for offseason sales.
  4. Risk (Insurance): Mitigates risk hindrance through insurance policies. Example: Insuring goods against theft during transport.
  5. Finance (Banking): Provides capital to fund business operations. Example: Banks offering loans to entrepreneurs.
  6. Information (Advertising): Removes information hindrance by informing customers about products. Example: TV commercials promoting new smartphones.

Mindmap to remember this answer:

  • Hindrances & Commerce Solutions:
    • Person: trade, retailer to consumer
    • Place: transport, shipping tea
    • Time: warehousing, storing fruits
    • Risk: insurance, theft protection
    • Finance: banking, business loans
    • Information: advertising, smartphone ads
  1. Discuss the different types of industries. Provide examples for each and explain how they contribute to the economy.

Answer: Industries are classified into three main types:

  1. Primary Industries: Extraction and production of natural resources.
    • Extractive: Mining, fishing. Example: Coal mining provides raw materials for power generation.
    • Genetic: Breeding plants and animals. Example: Poultry farming supplies eggs and meat.
  2. Secondary Industries: Processing raw materials into finished goods.
    • Manufacturing: Producing goods through processing. Example: Automobile manufacturing generates employment and exports.
    • Construction: Building infrastructure. Example: Road construction enhances connectivity.
  3. Tertiary Industries: Support services for primary and secondary industries.
    • Transport and Communication: Moving goods and information. Example: Logistics improves distribution networks.
    • Banking and Insurance: Financing and risk management. Example: Banks fund new industries, and insurance mitigates risks.

Each industry type contributes to the economy by creating jobs, boosting exports, and improving infrastructure.

Mindmap to remember this answer:

  • Primary Industries: Extractive (mining, coal for power generation) and Genetic (poultry farming, eggs and meat)
  • Secondary Industries: Manufacturing (automobile production, jobs/exports) and Construction (road building, connectivity)
  • Tertiary Industries: Transport/Communication (logistics, distribution) and Banking/Insurance (financing, risk management)
  1. Elaborate on the objectives of business. Discuss why profit cannot be the sole objective of business in the current context.

Answer: The primary objective of a business is to earn profits, providing income for owners and financing expansion. However, focusing solely on profit isn’t enough today. Other objectives include market standing, innovation, productivity, and social responsibility. Market standing ensures a strong reputation and customer satisfaction. Innovation helps businesses stay competitive by introducing new ideas or improving existing products. Productivity focuses on efficient use of resources to increase output.

Social responsibility is crucial, as businesses must contribute positively to society, like providing quality products and fair wages. Ignoring other objectives for profit can lead to exploitation and harm a business’s reputation. For instance, neglecting product quality or environmental concerns may result in legal issues and customer loss.

Mindmap to remember this answer:

  • Profit: Income for owners, financing expansion
  • Market Standing: Reputation, customer satisfaction
  • Innovation: New ideas, product improvements
  • Productivity: Efficient resource use
  • Social Responsibility: Quality products, fair wages, environmental care
  1. Identify and explain the various causes of business risks. How do businesses address and manage these risks?

Answer: Business risks arise due to uncertainties and unexpected events, including:

  1. Natural Causes: Natural calamities like floods or earthquakes.
  2. Human Causes: Employee dishonesty, strikes, power failure.
  3. Economic Causes: Fluctuating demand, competition, changing technology.
  4. Other Causes: Political instability, mechanical failures.

Businesses address and manage risks through:

  1. Insurance: Protects against natural disasters and theft.
  2. Diversification: Reduces impact by spreading risk across products or markets.
  3. Research and Development: Helps adapt to changing consumer preferences.
  4. Employee Training: Improves efficiency and reduces human errors.
  5. Contingency Plans: Preparedness for unexpected events.

Mindmap to remember this answer:

  • Causes: Natural (floods, earthquakes), Human (dishonesty, strikes), Economic (demand fluctuation, competition), Other (political instability, mechanical failure)
  • Risk Management: Insurance, diversification
  • Research & Development: Employee training, contingency plans
  1. Differentiate between business, profession, and employment on the basis of their key characteristics. Give examples to highlight the differences.


  1. Business:
    • Establishment: Entrepreneur’s decision.
    • Nature of Work: Producing and selling goods or services.
    • Reward: Profit.
    • Example: Retail store, textile factory.
  2. Profession:
    • Establishment: Professional body membership.
    • Nature of Work: Providing specialised services.
    • Reward: Fee.
    • Example: Doctor, lawyer.
  3. Employment:
    • Establishment: Appointment letter.
    • Nature of Work: Performing tasks as per contract.
    • Reward: Salary/wages.
    • Example: Bank manager, school teacher.

Mindmap to remember this answer:

  • Business: Establishment – entrepreneur, Work – goods/services production, Reward – profit, Example – retail store
  • Profession: Establishment – professional body, Work – specialised services, Reward – fee, Example – doctor
  • Employment: Establishment – appointment letter, Work – tasks as per contract, Reward – salary/wages, Example – bank manager
  1. Analyse the basic factors involved in starting a business. How does the selection of the type of business influence other decisions related to starting a business?

Answer: Starting a business involves the following factors:

  1. Selection of Business Type: Determines industry and nature of business.
  2. Size of Business: Micro, small, medium, or large scale.
  3. Location: Influences production costs and customer accessibility.
  4. Financing: Sources of capital for investment and expenses.
  5. Physical Facilities: Machinery, buildings, and equipment.
  6. Workforce: Skilled and unskilled labour requirements.
  7. Tax Planning: Understanding tax implications.
  8. Launching the Enterprise: Mobilising resources and legal formalities.

The selection of business types influences other decisions. For instance, a manufacturing business requires significant financing and machinery, while a service-based business may focus more on skilled labour and location.

Mindmap to remember this answer:

  • Factors: Business Type, Size, Location, Financing, Facilities, Workforce, Tax Planning, Launching
  • Influence of Business Type:
    • Manufacturing: financing, machinery
    • Service: skilled labour, location
  1. Discuss the significance of auxiliaries to trade in facilitating commerce. How do they support the production and distribution of goods and services?

Answer: Auxiliaries to trade are vital in facilitating commerce. They include:

  1. Transport and Communication: Move goods and share information efficiently. Example: Shipping tea from Assam to other states.
  2. Banking and Finance: Provide funds for production and distribution. Example: Business loans for expansion.
  3. Insurance: Protect against risks like theft or natural disasters. Example: Insuring factory machinery against fire.
  4. Warehousing: Store goods to ensure availability throughout the year. Example: Warehousing wheat for offseason sale.
  5. Advertising and Public Relations: Inform customers about new products. Example: TV ads promoting smartphones.

These services collectively support production and distribution by removing barriers like time, place, and risk.

Mindmap to remember this answer:

  • Transport and Communication: Example: Shipping tea, information sharing
  • Banking and Finance: Example: Business loans
  • Insurance: Example: Factory machinery insurance
  • Warehousing: Example: Storing wheat for offseason
  • Advertising and PR: Example: Smartphone TV ads
  1. Examine the impact of economic reforms introduced in 1991 on the business environment in India. Discuss the changes in fiscal, monetary, and trade policies.

Answer: The economic reforms of 1991 transformed India’s business environment. Key impacts include:

  1. Liberalisation: Reduced government control, encouraging private sector growth.
  2. Globalisation: Opened Indian markets to global trade and investments.

Fiscal Policy Changes:

  1. Reduced import duties, encouraging imports and foreign competition.
  2. Streamlined tax structure to boost compliance.

Monetary Policy Changes:

  1. Interest rate deregulation, improving credit access.
  2. Reformed banking sector, enhancing efficiency.

Trade Policy Changes:

  1. Removed export-import restrictions, encouraging foreign trade.
  2. Established SEZs, attracting foreign investments.

These reforms made India a preferred FDI destination, leading to a rapid rise in exports and increased domestic consumption.

Mindmap to remember this answer:

  • Impacts: Liberalisation (reduced controls), Globalisation (open markets)
  • Fiscal Policy Changes: Import duty reduction, tax structure
  • Monetary Policy Changes: Interest rate deregulation, banking reform
  • Trade Policy Changes: Export-import liberalisation, SEZs
  1. What are the primary, secondary, and tertiary industries? Provide detailed explanations and examples for each type. How do they contribute to the overall economy?

Answer: Industries are classified into three main categories based on their activities:

  1. Primary Industries: These focus on extracting and producing natural resources.
    • Extractive Industries: Mining, lumbering, fishing.
    • Genetic Industries: Plant nurseries, cattle breeding farms.
  2. Secondary Industries: They process materials from primary industries into finished goods.
    • Manufacturing Industries:
      • Analytical: Oil refining (crude oil to various fuels).
      • Synthetical: Cement production.
      • Processing: Sugar and paper production.
      • Assembling: Making cars, computers.
    • Construction Industries: Building bridges, dams, roads.
  3. Tertiary Industries: Provide services that support primary and secondary industries.
    • Examples: Banking, transport, warehousing, insurance.

Contribution to the Economy:

  • Primary: Provides raw materials, employment.
  • Secondary: Adds value through manufacturing.
  • Tertiary: Facilitates distribution and commerce.

Mindmap to remember this answer:

  • Primary Industries: Extractive (Mining, lumbering), Genetic (Nurseries, cattle breeding)
  • Secondary Industries: Manufacturing (analytical, synthetical, processing, assembling), Construction (bridges, dams)
  • Tertiary Industries: Banking, transport, warehousing
  1. Explore the concept of business risk. Explain the nature of business risks and discuss how profit serves as a reward for risk-taking.

Answer: Concept of Business Risk: Business risk is the possibility of inadequate profits or even losses due to uncertainties and unexpected events.

Nature of Business Risks:

  1. Risk is Essential: Every business faces some risk.
  2. Arise Due to Uncertainties: Market demand, government policies, natural disasters.
  3. Vary by Nature and Size: Larger and innovative businesses face higher risks.
  4. Profit as Reward: Greater the risk, higher the potential profit.

Types of Business Risks:

  1. Natural Causes: Floods, earthquakes.
  2. Human Causes: Strikes, employee dishonesty.
  3. Economic Causes: Market competition, changing prices.
  4. Other Causes: Political instability, exchange rate fluctuations.

Profit as a Reward for Risk-Taking: Entrepreneurs undertake risks expecting higher returns. Profit acts as a reward for these risks and encourages further investment.

Mindmap to remember this answer:

  • Nature: Essential, Uncertainties, Varies by Size
  • Profit as Reward
  • Types: Natural (floods, earthquakes), Human (strikes, dishonesty), Economic (competition, prices), Other (political instability)
  1. Discuss the emergence of credit transactions in ancient Indian trade. How did instruments like Hundi and Chitties facilitate commerce?

Answer: Emergence of Credit Transactions: In ancient India, trade and commerce flourished through both land and water routes. Credit transactions emerged as a solution to the risk of carrying large sums of money during travel.

Instruments of Credit:

  • Hundi: A written document for transferring money. Provided safe money transfer, reducing theft risk. Used vernacular language, valid negotiation.
  • Chitties: Promissory notes used in southern regions. Similar purpose as Hundi.

Facilitating Commerce:

  1. Risk Reduction: Enabled safe and efficient long-distance trading.
  2. Contractual Trust: Helped create trust between trading parties.
  3. Boosted Trade Efficiency: Traders could focus on commerce without worrying about theft.

Mindmap to remember this answer:

  • Hundi: Safe money transfer, vernacular, valid negotiation
  • Chitties: Promissory notes, southern regions
  • Benefits: Risk reduction, contractual trust, efficient trade
  1. Outline the major policy changes in the Indian economy since 1991. How have these reforms influenced the growth trajectory of the Indian economy?

Answer: Major Policy Changes Since 1991:

  1. Fiscal Policy:
    • Reduced import duties, streamlined tax structure.
  2. Monetary Policy:
    • Deregulated interest rates, reformed banking sector.
  3. Trade Policy:
    • Liberalised exports and imports, established SEZs.
  4. Industrial Policy:
    • Deregulated industries, promoted FDI.

Impact on Growth Trajectory:

  1. Increased FDI: India became a preferred FDI destination.
  2. Export Growth: Opened new markets, increasing exports.
  3. Higher GDP Growth: Rapid growth due to liberalisation and globalisation.
  4. Improved Infrastructure: Better banking, communication, and transportation.

Mindmap to remember this answer:

  • Policies: Fiscal (import duties, tax structure), Monetary (interest rates, banking), Trade (SEZs, liberalisation), Industrial (deregulation, FDI)
  • Impacts: Increased FDI, Export growth, GDP growth, Improved infrastructure
  1. Examine the concept of business in detail. How does it relate to economic activities like production, distribution, and exchange?

Answer: Concept of Business: Business is an economic activity involving regular production and sale of goods or services for profit.

Characteristics of Business:

  1. Economic Activity: Earns livelihood, not out of emotion.
  2. Production/Procurement: Goods must be produced or procured.
  3. Sale/Exchange: Involves transferring goods/services for value.
  4. Regular Basis: Single transactions do not count.
  5. Profit Earning: Primary aim is to earn profits.
  6. Uncertainty of Return: Profits are not guaranteed.
  7. Element of Risk: Exposure to loss.

Relation to Economic Activities:

  1. Production: Manufacturing or procuring goods.
  2. Distribution: Ensures availability through transport and warehousing.
  3. Exchange: Facilitates transfer of ownership via trade.

Mindmap to remember this answer:

  • Characteristics: Economic, Production, Sale/Exchange, Regular, Profit, Uncertainty, Risk
  • Economic Activities: Production (manufacturing, procurement), Distribution (transport, warehousing), Exchange (trade)
  1. Discuss the characteristics of primary, secondary, and tertiary industries. Provide examples and elaborate on their role in economic development.

Answer: Characteristics of Primary Industries:

  1. Extraction and Production: Draws resources from nature.
  2. Genetic Breeding: Plants and animals for reproduction.
  3. Examples: Mining, farming, fishing.

Characteristics of Secondary Industries:

  1. Processing and Manufacturing: Transforms raw materials into finished goods.
  2. Construction: Builds infrastructure like dams, bridges.
  3. Examples:
    • Manufacturing: oil refining, steel production.
    • Construction: road building, tunnels.

Characteristics of Tertiary Industries:

  1. Support Services: Facilitates primary and secondary industries.
  2. Examples: Banking, insurance, advertising, warehousing.

Role in Economic Development:

  1. Primary: Provides raw materials and employment.
  2. Secondary: Adds value and generates industrial jobs.
  3. Tertiary: Facilitates commerce and distribution.

Mindmap to remember this answer:

  • Primary: Extraction (mining, farming), Genetic (breeding farms)
  • Secondary: Manufacturing (refining, steel), Construction (roads, dams)
  • Tertiary: Support (banking, insurance)
  • Economic Role:
    • Primary: raw materials, jobs
    • Secondary: value addition, jobs
    • Tertiary: commerce, distribution
  1. Explain the concept of business risk and its different types. How does uncertainty play a role in business risks?

Answer: Concept of Business Risk: Business risk refers to the possibility of inadequate profits or losses due to uncertainties.

Types of Business Risks:

  1. Natural Causes: Earthquakes, floods, fires.
  2. Human Causes: Employee dishonesty, strikes.
  3. Economic Causes: Market competition, changing technology.
  4. Other Causes: Political instability, exchange rate fluctuations.

Role of Uncertainty:

  1. Market Uncertainty: Changes in consumer preferences.
  2. Political Uncertainty: Government policies impacting businesses.
  3. Natural Uncertainty: Unpredictable natural disasters.
  4. Technological Uncertainty: Rapid technological changes.

Mindmap to remember this answer:

  • Types: Natural (earthquakes, floods), Human (dishonesty, strikes), Economic (competition, technology), Other (political instability, exchange rates)
  • Uncertainty: Market, Political, Natural, Technological

  1. Discuss the comparison of business, profession, and employment in terms of establishment, work nature, qualifications required, and risks involved.

Answer: Comparison of Business, Profession, and Employment:

  1. Business:
    • Establishment: Entrepreneur’s decision, legal formalities.
    • Nature of Work: Producing and selling goods/services.
    • Qualifications Required: None.
    • Risks: High uncertainty, profit varies.
    • Example: Retail shop, textile factory.
  2. Profession:
    • Establishment: Membership in a professional body.
    • Nature of Work: Providing specialised services.
    • Qualifications Required: Specific expertise.
    • Risks: Moderate risk, steady income.
    • Example: Doctor, lawyer.
  3. Employment:
    • Establishment: Appointment letter and service agreement.
    • Nature of Work: Task execution as per rules.
    • Qualifications Required: Prescribed by employer.
    • Risks: Low risk, fixed salary.
    • Example: Bank manager, teacher.

Mindmap to remember this answer:

  • Business: Establishment (entrepreneur), Work (goods/services production), Qualifications (none), Risk (high), Example (retail shop)
  • Profession: Establishment (professional body), Work (specialised services), Qualifications (expertise), Risk (moderate), Example (doctor)
  • Employment: Establishment (appointment letter), Work (task execution), Qualifications (employer prescribed), Risk (low), Example (bank manager)
  1. Analyse the process of launching a business enterprise. Discuss the factors that influence the choice of business location and financing decisions.

Answer: Process of Launching a Business:

  1. Type Selection: Decide the nature/type of business.
  2. Size Decision: Choose between small or large scale.
  3. Location Selection: Find a suitable place to operate.
  4. Financing: Secure funds for operations.
  5. Physical Facilities: Arrange buildings, equipment.
  6. Workforce Planning: Skilled and unskilled labour.
  7. Tax Planning: Understand tax implications.
  8. Launch: Fulfil legal formalities, promote products.

Factors Influencing Business Location:

  1. Availability of Raw Materials: Nearby sources reduce transport costs.
  2. Labour Availability: Skilled workforce improves productivity.
  3. Transport Facilities: Efficient logistics are crucial.
  4. Support Services: Banking, communication, warehousing.

Factors Influencing Financing Decisions:

  1. Initial Capital Requirement: Fixed and working capital needs.
  2. Sources of Capital: Self-financing, loans, equity.
  3. Interest Rates: Lower rates improve affordability.
  4. Repayment Period: Longer periods provide flexibility.

Mindmap to remember this answer:

  • Launch Process: Type, Size, Location, Financing, Facilities, Workforce, Tax, Launch
  • Location Factors: Raw materials, Labor, Transport, Support services
  • Financing Factors: Capital requirement, Sources, Interest rates, Repayment period
  1. What is innovation in the business context? Discuss its significance as a business objective and provide examples of product and process innovation.

Answer: Innovation in business refers to introducing new ideas or methods in the way something is done or made. It can be classified into two main types:

  1. Product Innovation:
    • Involves creating new or improved products.
    • Example: Introduction of electric cars by Tesla.
  2. Process Innovation:
    • Refers to enhancing production or delivery methods.
    • Example: Toyota’s Just-in-Time manufacturing system.

Significance as a Business Objective:

  • Competitive Edge: Helps differentiate from competitors.
  • Growth and Expansion: Leads to new markets and customer segments.
  • Efficiency Improvement: Reduces costs and increases profitability.

Mindmap to remember this answer:

  • Innovation:
    • Product: electric cars, smartphones
    • Process: Just-in-Time, assembly line
  • Significance:
    • Competitive Edge
    • Growth and Expansion
    • Efficiency Improvement
  1. Define the concept of productivity in a business context. Why is productivity an important business objective? How can businesses achieve higher productivity?

Answer: Concept of Productivity: Productivity is a measure of efficiency that compares the value of output to the value of inputs used.

Importance as a Business Objective:

  1. Resource Optimization: Ensures the best use of available resources.
  2. Profitability: Higher productivity leads to increased profitability.
  3. Competitive Advantage: Enables businesses to compete effectively in the market.

Achieving Higher Productivity:

  1. Training and Development: Improve employee skills.
  2. Automation and Technology: Implement efficient machinery.
  3. Efficient Processes: Streamline workflows and reduce waste.

Mindmap to remember this answer:

  • Productivity:
    • Concept: output/input, efficiency
    • Importance: Resource Optimization, Profitability, Competitive Advantage
  • Achieving Higher Productivity:
    • Training and Development
    • Automation and Technology
    • Efficient Processes
  1. Discuss the significance of tax planning for businesses. How does it influence various business decisions? Provide examples.

Answer: Significance of Tax Planning: Tax planning involves minimising tax liabilities through sound financial planning and tax law knowledge.

Influence on Business Decisions:

  1. Choice of Business Structure:
    • Sole proprietorship vs. partnership vs. company.
    • Example: Companies may opt for LLPs due to favourable tax benefits.
  2. Investment Decisions:
    • Timing and nature of investments.
    • Example: Investments in infrastructure bonds for tax deductions.
  3. Location Selection:
    • Consideration of tax incentives.
    • Example: Setting up factories in SEZs for tax exemptions.

Mindmap to remember this answer:

  • Tax Planning:
    • Concept: minimise tax, financial planning
    • Influence:
      • Business Structure: sole proprietorship, LLP
      • Investment Decisions: bonds, shares
      • Location Selection: SEZs, tax incentives
  1. Discuss the importance of social responsibility as a business objective. How does it contribute to the overall success and sustainability of a business?

Answer: Importance of Social Responsibility: Social responsibility refers to a business’s obligation to contribute positively to society.

Contribution to Success and Sustainability:

  1. Reputation and Goodwill:
    • Enhances brand image and customer loyalty.
    • Example: TATA’s reputation for ethical practices.
  2. Compliance and Legal Benefits:
    • Meets legal requirements and avoids penalties.
    • Example: CSR spending in India is mandated by law.
  3. Employee Engagement:
    • Increases employee morale and productivity.
    • Example: Companies like Infosys emphasise employee well-being.

Mindmap to remember this answer:

  • Social Responsibility:
    • Concept: positive contribution, ethical practices
    • Importance:
      • Reputation and Goodwill: brand image, loyalty
      • Compliance and Legal Benefits: CSR law
      • Employee Engagement: morale, productivity
  1. What are the various physical facilities required when starting a business? How do these facilities impact the initial and ongoing operations of a business?

Answer: Physical Facilities Required:

  1. Land and Building:
    • For office, factory, or warehouse space.
  2. Machinery and Equipment:
    • Essential for production or service delivery.
  3. Supportive Services:
    • Power, water supply, and communication facilities.

Impact on Initial and Ongoing Operations:

  1. Initial Operations:
    • Capital Requirement: High investment in machinery and land.
    • Setup Time: Time-consuming setup process.
  2. Ongoing Operations:
    • Production Efficiency: Good equipment leads to efficient production.
    • Cost Management: Adequate facilities reduce maintenance costs.

Mindmap to remember this answer:

  • Physical Facilities: Land and Building (office, factory), Machinery and Equipment (production, service), Supportive Services (power, water, communication)
  • Impact: Initial (capital requirement, setup time), Ongoing (production efficiency, cost management)
  1. Examine the nature and significance of warehousing in business activities. How does warehousing create time utility for businesses?

Answer: Nature of Warehousing: Warehousing refers to storing goods until they are required for sale or consumption.

Significance in Business Activities:

  1. Storage:
    • Prevents loss or damage to goods.
    • Maintains stock levels for regular supply.
  2. Risk Protection:
    • Insurance against fire, theft, or other risks.
  3. Financing:
    • Inventory can be used as collateral for loans.

Time Utility Creation:

  1. Continuous Supply:
    • Goods are stored and supplied as needed.
  2. Seasonal Demand Management:
    • Seasonal products are stored to meet year-round demand.

Mindmap to remember this answer:

  • Warehousing: Nature (storage, risk protection, financing)
  • Significance: Storage (loss prevention, stock levels), Risk Protection (insurance), Financing (inventory collateral)
  • Time Utility: Continuous Supply (regular stock), Seasonal Demand Management (year-round)
  1. Analyse the role of advertising and public relations in promoting business activities. How do these tools impact customer perception and business sales?

Answer: Role of Advertising and Public Relations:

  1. Advertising:
    • Paid promotion via print, TV, and digital media.
  2. Public Relations:
    • Building a positive image through unpaid strategic communication.

Impact on Customer Perception and Sales:

  1. Customer Awareness:
    • Informs potential customers about products/services.
    • Example: Coca-Cola’s global advertising campaigns.
  2. Brand Image and Loyalty:
    • Positive PR strengthens brand loyalty.
    • Example: TATA’s focus on ethical business practices.
  3. Sales Promotion:
    • Encourages trial and purchase through promotional offers.
    • Example: Festive season sales in retail stores.

Mindmap to remember this answer:

  • Advertising and Public Relations:
  • Advertising: paid, print/TV/digital
  • PR: unpaid, strategic communication
  • Impact: Customer Awareness (products/services, Coca-Cola), Brand Image and Loyalty (TATA, ethical practices), Sales Promotion (trial, festive sales)
  1. Describe the historical development of banking and finance in India. How have commercial and agricultural banks evolved over time to meet the needs of businesses?

Answer: Historical Development of Banking in India:

  1. Ancient Era:
    • Indigenous banking system with instruments like Hundi and Chitties.
  2. Colonial Era:
    • The British established the Presidency Banks.
    • Reserve Bank of India (RBI) founded in 1935.
  3. Post-Independence:
    • Nationalisation of banks in 1969 and 1980.
    • Emergence of Regional Rural Banks (RRBs).

Evolution to Meet Business Needs:

  1. Commercial Banks:
    • Focused on trade and commerce financing.
    • Liberalisation in 1991 opened up to private and foreign banks.
  2. Agricultural Banks:
    • Co-operative banks and NABARD cater to farmers’ needs.
    • Provide short-term and long-term agricultural credit.

Mindmap to remember this answer:

  • Historical Development:
    • Ancient: indigenous banking, Hundi, Chitties
    • Colonial: Presidency Banks, RBI
    • Post-Independence: nationalisation, RRBs
  • Commercial Banks:
    • Trade and Commerce, liberalisation
  • Agricultural Banks:
    • Co-operative, NABARD, short/long-term credit
  1. Discuss the emergence of aids to trade in ancient India. How did aids like transportation, banking, and insurance contribute to the growth of commerce?

Answer: Emergence of Aids to Trade:

  1. Transportation:
    • Development of water and land routes like the Silk Route.
    • Facilitated internal and external trade.
  2. Banking:
    • Indigenous banking system using Hundi and Chitties.
    • Provided credit and facilitated money transfer.
  3. Insurance:
    • Risk management through informal community insurance.
    • Protection against theft and natural disasters.

Contribution to Growth of Commerce:

  1. Transportation:
    • Trade Expansion: Enabled traders to access distant markets.
  2. Banking:
    • Credit Availability: Helped merchants expand business.
    • Money Transfer: Secured fund movement over long distances.
  3. Insurance:
    • Risk Mitigation: Reduced the impact of theft and calamities.

Mindmap to remember this answer:

  • Aids to Trade:
    • Transportation: Silk Route, water/land routes
    • Banking: Hundi, Chitties, credit
    • Insurance: community, theft/natural disaster
  • Growth of Commerce:
    • Trade Expansion: distant markets
    • Credit Availability: business expansion
    • Risk Mitigation: theft, calamities
  1. Examine the characteristics of economic and non-economic activities. Provide examples to illustrate the differences between the two.

Answer: Characteristics of Economic Activities:

  1. Purpose: To earn money or livelihood.
  2. Nature: Production, distribution, and exchange of goods/services.
  3. Examples:
    • Factory worker producing goods.
    • Doctor treating patients for fees.

Characteristics of Non-Economic Activities:

  1. Purpose: Performed out of love, sympathy, or sentiment.
  2. Nature: Charity, hobbies, and social service.
  3. Examples:
    • Housewife cooking for family.
    • Boy helping an old man cross the road.

Mindmap to remember this answer:

  • Economic Activities:
    • Purpose: earn money/livelihood
    • Nature: production, distribution, exchange
    • Examples: factory worker, doctor
  • Non-Economic Activities:
    • Purpose: love, sympathy, sentiment
    • Nature: charity, hobbies, social service

Examples: housewife, boy helping

Sample Questions Paper

Chapter 1: Business, Trade and Commerce – Value Based Questions

  1. Rahul donates a significant amount of his business profits to a local NGO that provides education to underprivileged children. Identify the kind of activity and state one value exhibited by Rahul.
    Answer: The activity Rahul is engaging in is a form of social responsibility. He demonstrates the value of compassion by supporting education for underprivileged children.
  2. Priya decides to start a business focused on producing organic skincare products. What possible risks might she face in this business, and if successful, what values will it add to society?
    Answer: Priya might face risks such as competition, supply chain challenges for organic ingredients, and changing consumer preferences. If successful, her business will promote the values of sustainability and health by providing natural and eco-friendly skincare products.
  3. Ramesh, a shopkeeper, sells defective goods to customers knowingly and refuses to refund or exchange them. What values is he violating, and how can such practices impact his business in the long run?
    Answer: Ramesh is violating the values of honesty and customer trust. Such unethical practices can harm his business in the long run by damaging his reputation and leading to a loss of customer loyalty.
  4. Sneha establishes a company that offers sustainable packaging solutions for e-commerce businesses. What risks can she face in this venture, and how will her business contribute positively to society if it succeeds?
    Answer: Sneha might face risks like high production costs, competition, and fluctuating demand for sustainable packaging. If her business succeeds, it will contribute positively to society by reducing plastic waste and promoting eco-friendly practices.

  1. Aditya runs a textile factory and employs children to reduce labour costs. Identify the unethical practice and discuss two values lacking in his business approach.
    Answer: The unethical practice is child labour. Aditya’s business approach lacks the values of integrity and respect for human rights.
  2. Manav wants to start a business in renewable energy by setting up solar power plants in rural areas. Discuss the potential challenges he might face and the values his business will promote if it succeeds.
    Answer: Manav might face challenges like high initial costs, finding skilled labour, and government regulations. If successful, his business will promote the values of environmental sustainability and social responsibility.
  3. Ananya charges customers exorbitant prices for essential medicines, exploiting their lack of alternatives. Is this behaviour justified? Which business objectives does she ignore, and what values should she embody instead?
    Answer: This behaviour is not justified as Ananya ignores the business objectives of customer satisfaction and social responsibility. Instead, she should embody the values of fairness and compassion.
  4. Meeta, an entrepreneur, provides fair wages and safe working conditions to all her employees in the garment manufacturing unit she owns. Identify the values she upholds in her business practices.
    Answer: Meeta upholds the values of fairness, respect for workers’ rights, and social responsibility.
  5. Sandeep believes that profit maximisation should be the only objective of his electronics business. Critically analyse his viewpoint by considering the various objectives of business, and suggest values he should incorporate.
    Answer: Sandeep’s viewpoint ignores other important business objectives like customer satisfaction, innovation, and social responsibility. He should incorporate values such as integrity, customer focus, and social welfare.
  6. Kavita is committed to sourcing raw materials from sustainable and eco-friendly suppliers for her skincare business. Discuss how her commitment reflects her values and how it can positively influence her business.
    Answer: Kavita’s commitment reflects her values of environmental sustainability and social responsibility. This can positively influence her business by building a loyal customer base that values ethical and eco-friendly products.
  7. Rohit sets up a social enterprise to provide affordable healthcare to rural communities. What potential challenges might he face in achieving his goals, and what societal values does his initiative promote?
    Answer: Rohit might face challenges like funding issues, lack of infrastructure, and reaching remote areas. His initiative promotes the societal values of equality and social welfare.
  8. Naveen wants to start a construction company focused on building eco-friendly homes. What are the potential risks involved, and what values does he need to maintain throughout his business journey?
    Answer: Naveen might face risks like high construction costs and regulatory challenges. He needs to maintain values like environmental sustainability, quality, and customer satisfaction.
  9. Meena, a marketing manager, decides to run a misleading advertisement campaign to boost her company’s sales. Identify the ethical issues in her decision and discuss the values she should embrace instead.
    Answer: Meena’s decision raises ethical issues of dishonesty and customer deception. She should embrace values like transparency and integrity instead.
  10. Rajiv, an entrepreneur, believes in giving back to the community by offering scholarships to bright students from low-income families. What business risks might he face, and how does his initiative reflect his values?
    Answer: Rajiv might face business risks like financial strain and reduced profits. His initiative reflects the values of generosity and social responsibility.
  11. Tarun aims to revolutionise the banking sector by offering micro-financing solutions to small-scale farmers. What challenges might he encounter, and how will his business add value to society if successful?
    Answer: Tarun might encounter challenges like loan default risks and regulatory hurdles. If successful, his business will add value to society by promoting financial inclusion and rural development.
  12. Tanya adopts an innovative approach to business by developing biodegradable packaging materials. Discuss how innovation is important for business success and the values her approach embodies.
    Answer: Innovation is important for business success as it helps in staying competitive and meeting changing customer needs. Tanya’s approach embodies the values of creativity and environmental sustainability.
  13. Ajay decides to expand his business by establishing a network of supply chain partners. How should he approach this task while upholding ethical business practices, and what values should guide his decisions?
    Answer: Ajay should approach this task by selecting partners with similar ethical standards and maintaining transparency in agreements. Values like integrity, fairness, and mutual respect should guide his decisions.
  14. Shruti, a financial advisor, prioritises her clients’ needs over her commission. How does this reflect her values, and what impact might it have on her business success?
    Answer: Shruti’s prioritisation reflects her values of honesty and client welfare. This can positively impact her business success by building long-term trust and loyalty with clients.
  15. Karan imports low-quality, cheap products and sells them at higher prices without disclosing their origins. What values does he lack as a rational businessman, and how could his actions affect customer trust?
    Answer: Karan lacks the values of transparency and honesty. His actions could erode customer trust and lead to reputational damage.

20. Aditi, a manager, ensures the welfare of her employees by offering them career growth opportunities and healthcare benefits. Discuss how her practices embody certain values and positively impact business objectives.
Answer: Aditi’s practices embody the values of employee welfare and social responsibility. These practices positively impact business objectives by improving employee satisfaction and productivity, leading to better business performance.

Sample Questions Paper

Chapter 1: Business, Trade and Commerce – Sample Questions Paper

Sample Question: 1

Time allowed: 2 hours Maximum Marks: 40

General Instructions:
(i) The question paper contains 14 questions.
(ii) All questions are compulsory.
(iii) Section A: Question numbers 1 and 2 are 1 mark source-based questions. Answers to these questions must not exceed 10-15 words.
(iv) Section B: Question numbers 3 to 9 are 2 marks questions. These are very short answer type questions. Answers should not exceed 30 words.
(v) Section C: Question numbers 10 to 12 are 4 marks questions. These are short answer type questions. Answers should not exceed 80 words.
(vi) Section D: Question numbers 13 and 14 are 6 marks questions. These are long answer type questions. Answers should not exceed 200 words.

Section A

  1. What facilitated the safe transfer of money for trading activities in ancient India?
  2. State the meaning of ‘business’ as per the definition given in the textbook.

Section B

  1. Define the term ‘business’.
  2. State any two characteristics of business activities.
  3. Give two examples of secondary industries.
  4. Mention two auxiliary services to trade.
  5. What do you understand by ‘sovereignty’ in the context of modern states?
  6. Differentiate between power and authority.
  7. Why are business enterprises considered a part of society?

Section C

  1. Explain any three objectives of business enterprises. OR Discuss three factors that need to be considered before starting a business.
  2. Distinguish between profession and employment. Give examples.
    How are various business activities classified into industry and commerce?
  3. Elaborate on the role of business in the development of the Indian economy.
    Why did economic liberalisation in 1991 take place in India? Explain briefly.

Section D

  1. What do you understand by the term ‘business risk’? Explain the nature and causes of business risks.
    Discuss the importance of auxiliaries to trade in business activities.
  2. How do business enterprises fulfil their social responsibility nowadays? Explain with examples.
    Examine the role of education as a social institution and how it contributes to the progress of society.

Sample Question: 2

Time allowed: 2 hours Maximum Marks: 40

General Instructions:
(i) The question paper contains 14 questions.
(ii) All questions are compulsory.
(iii) Section A: Questions 1 and 2 are 1 mark source-based questions. Answers should not exceed 10-15 words.
(iv) Section B: Questions 3 to 9 are 2 mark questions. Answers should not exceed 30 words.
(v) Section C: Questions 10 to 12 are 4 mark questions. Answers should not exceed 80 words.
(vi) Section D: Questions 13 and 14 are 6 mark questions. Answers should not exceed 200 words.

Section A

  1. The term ‘business risk’ refers to the possibility of ______________
  2. Business activities led to the growth of which aids to trade?

Section B

  1. What is productivity? How is it measured?
  2. State any two objectives of business other than earning profits.
  3. Differentiate between power and authority.
  4. What do you understand by the term “innovation” in business?
  5. Give two examples of primary industries.
  6. Name any two auxiliaries to trade.
  7. What is meant by the term ‘work’ according to the textbook?

Section C

  1. Explain any four characteristics of business risk.
    Discuss the various causes that lead to business risks.
  2. Discuss the role of business activities in the development of the Indian economy during ancient times.
    What were the major export and import items during ancient times in India?
  3. Distinguish between formal and informal education. What are the two main forms of formal education?
    How does education help in transmitting culture and promoting social change? Explain.

Section D

  1. Classify industries into different categories and explain each type briefly.
    Explain the concepts of commerce and trade. How does commerce facilitate the removal of various hindrances?
  2. What basic factors need to be considered while starting a business? Explain any six factors. OR Discuss the objectives that a business enterprise should have besides earning profits.
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