CBSE Class 11th Business Studies Notes
Chapter 1 Nature And Purpose Of Business
1.1 Economic And Non-Economic Activities
Every human being is busy in one activity or the other to satisfy his/her needs. Human activities classified as economic and non economic activities.
1.2 CONCEPTS AND CHARACTERISTICS OF BUSINESS
Meaning and Definitions:
Business may be defined as an economic activity involving the purchase, production and sale of goods and services with a motive of earning profits by satisfying human needs in society.
Characteristics/Features of Business
1. An economic activity: Business is considered to be an economic activity because of the following reasons:
(a) It undertaken with the objective of earning money.
(b) It involves sale,exchange,purchase of goods and services for mutual profit.
(c) Business requires use of scarce economic resources like land, capital and machinery.
2. Production of goods and services: Business either manufactures goods (sugar,pen,furniture) or acquire them from producers. Services include transportation, banking, insurance etc.
3. Sale of goods and services: One of the essential characteristic of business is that there should be sale or exchange of goods and services between the seller and the buyer.
4. Dealings in goods and services on a regular basis: One single transaction of sale or purchase does not constitute business. For example, sale of old newspapers by a housewife to scrap dealer is not business. Because business involves dealings goods and services on a regular basis.
5. Profit earning: One of the main purposes of business is to earn profit. Profit is essential to cover costs and risks of the business. Every business must earn a reasonable profit to survive and grow. A business cannot survive without making profits.
6. Uncertainty of return: There is always uncertainty of return and possibility of loss. Every businessman invests money in his business with the objective of earning profit. However, there is always a possibility of loss.
7. Element of risk: Risk implies the possibility of reward or the possibility of loss. There are always some element of risk present in business. We can minimize the risk through insurance but cannot eliminated. The risks are related to change in consumer taste and fashions, competition, fire, theft accidents etc.
1.3 COMPARISON BETWEEN BUSINESS,PROFESSION AND EMPLOYMENT
Business: Business may be defined as an economic activity involving the purchase, production and sale of goods and services with a motive of earning profits by satisfying human needs in society.
Profession: Profession includes those economic activities which require application of special knowledge and skills in the occupation.
Employment: Employment refers to the occupation in which people work for others and get remuneration in return.
Employment: Employment refers to the occupation in which people work for others and get remuneration in return.
example: 1 People work in a factories receive wages
2 Bank employees get salaries etc.
1.4 OBJECTIVES OF BUSINESS
Objectives of business classified under two category:
1. Economic Objectives
Economic objective of business are centered around the personal profit of the business and are based on one slogan 'to earn maximum profits'.
(a) Profit Making: One of the main purposes of business is to earn profit. Profit is essential to cover costs and risks of the business. Every business must earn a reasonable profit to survive and grow. A business cannot survive without making profits.
(b) Survival: It is the basic objective of any business management must ensure the survival of the organisation. To survive, an organisation must earn enough revenues to cover costs.
(c) Growth: It is important for business to grow. Indicators of growth of a business are- (a) Increase in sale turnover, (b) Increase in the number of products and employees,etc.
2. Social Objectives
Social objective of business are centered around the interests of society and based on the slogan of 'social welfare'.
(a) Production and supply of quality goods and services: Business should produce and supply products of proper quality to satisfy consumer needs and expectations. Quality means durability and purity.
(b) Avoidance of anti-social and unfair trade practices: A businessman should avoid black-marketing, over-charging, misleading advertisement,etc. Such unfair practices destroy the goodwill and image of the business.
(c) Generation of employment: Business should generate employment opportunities to the backward area of the society.
(d) Welfare of employees: Business should provide good working conditions and pay satisfactory salaries/wages to its employees.
(e) Community service: Large business units should undertake community services like setting up charitable dispensaries, schools,etc.
1.5 ROLE OF PROFIT IN BUSINESS
1 Source of income for business persons: Profit is the source of income for the businessmen that provide livelihood.
2 Source of funds for meeting expansion requirements: Profits can be a source of finance for meeting growth and expansion requirements of business.
3 Indication of efficient working of business: Profits indicate the efficiency and a managed business. It is a measure to performance and success of a business.
4 Reward for risk taking: Profit is the reward for risk taking. Profit is essential to cover costs and risks of the business. Every business must earn a reasonable profit to survive and grow. A business cannot survive without making profits.
5 Builds up reputation of business: With increase in profits, a business earns reputation. It is able to rise loans and obtain credit more easily. It is in a better position to pay higher wages and salaries to its employees.
1.6 BUSINESS RISKS
Meaning: Business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events.
Nature Of Business Risks
1 Business risks arise due to uncertainties: Natural calamities, change in demand and prices, change in government policy, improvement in technology,etc. are some example of uncertainty which create risks for business.
2 Risk is an essential part of every business: No business can avoid risk. Risk can be minimized but cannot be eliminated.
3 Degree of Risk depends mainly upon the nature ans size of business: A business dealing in fashionable items has a high degree of risk similarly, a large-scale business has a higher risk than a small-scale business.
4 Profit is the reward for risk taking: "No risk, no gain" is an old principle, which applies to all types of business. Greater the risk, higher is the chance of profit.
Causes Of Business Risks
1 Natural Causes: Natural causes of business risks (Flood, earthquake, heavy rains) are beyond human control. They result in heavy loss of life, property and income.
2 Human causes: Human causes of business risk include carelessness of employees, theft, riots, etc.
3 Economic Causes: Economic Causes such as fluctuations in demand and prices, competition, change in technology etc.
4 Other causes: These include undeclared/unwarranted events like political disturbance, mechanical failures such as bursting of boiler, etc.
Types Of Business Risks
1 Speculative risks: Speculative risks involve both the possibility of gain as well as loss. It arise due to fluctuations in demand and supply, etc.
2 Pure risk: Pure risk involve only the possibility of loss or no loss. Fire, theft, strike are example of pure risk.
3 Insurable risk: Insurable risk are those which can be insured because it is possible to determine the possibility of such risks. example- fire/theft of goods.
4 Uninsurable risks: uninsurable risk are those which cannot be insured because their probability cannot be determined. example- fluctuations in demand and price, change in government policies, etc.
1.7 CLASSIFICATION OF BUSINESS ACTIVITIES
Business activities may be classified into two categories: INDUSTRY and COMMERCE.
INDUSTRY
Meaning: industry means the production and manufacturing of goods. Three types of goods are manufactured in the industry:
(1) Producer's or capital goods: Those things which are used in production by other industries are called capital goods.
(2) Consumer's goods: Those tings which are directly put to use are called consumer;s goods. for example, bread, cloth, medicines, etc.
(3) Intermediate goods: Those gods which are processed in soome other industry to produce some need goods are called intermediate goods. for example: plastic, rubber, aluminium.
TYPES OF INDUSTRY
(1) Primary Industry: The primary industry includes those activities through which the natural resources are used as a raw material to other industries.
The primary industry are of two types:
(a) Genetic industry: Genetic means heredity. These industries involves breeding or reproduction of plants and animals. for example: Cattle breeding farms, poultry farms.
(b) Extractive industries: These industries extract/draw out various products from natural resources such as earth, soil, water, etc.
(2) Secondary Industry: Under the secondary industry, new products are manufactured by using the material extracted at the primary stage.
The secondary industry is two types:
(a) Manufacturing industries: These industries convert raw materials or semi-finished goods into finished products.
Manufacturing industries may be subdivided into four categories:
O Analytical industry: A basic raw material is separated into a number of products. for example, an oil into petrol, diesel etc.
O Synthetical industry: Two or more materials are combined together to manufacturing a new products. for example, cement soap, plastics, paints etc.
O Processing industry: Involves successive stages for manufacturing finished products. for example, sugar and paper.
O Assembling industry: Various parts are bought together to produce a finished products. for example, TV, car, computer, watches, etc.
(b) Construction industries: These industries are engaged in construction of buildings, bridges, roads, dams, canals, etc.
(3) Tertiary Industries: These industries provide services facilities. It includes transport, warehousing, communication, banking, insurance, advertising, etc.
COMMERCE
Meaning: Commerce includes all those activities which are necessary for facilitating the exchange of goods and services.
Commerce includes two types of activities
(1) Trade
(2) Auxiliaries to trade
TYPES OF TRADE
(1) Internal Trade: Trade which takes place within a country.
Internal trade can be classified into two broad categories:
(a) Wholesale trade: Wholesale trade refers to buying and selling of goods and services in large quantities for the purpose of resale.
(b) Retail trade: Retail trade refers to buying of goods and services in small quantity and selling them to the consumers.
(2) External Trade: Trade between two or more countries.
External trade can be classified into three categories.
(a) Import trade: If goods are purchased from another country, it is called import trade.
(b) Export Trade: If goods and services are sold to other countries, it is called export trade.
(c) Entrepot Trade: where goods are imported for export to other countries.
AUXILIARIES TO TRADE
(1) Banking: Business needs funds for acquiring assets, purchasing raw materials and meeting day-to-day expenses. Banking helps business activities overcome the problem of finance.
(2) Insurance: Business involves various types of risks. Insurance makes provision against such risks.
(3) Transportation: Transport facilitates movement of
-raw material to the place of production,
- the finished goods from factories to the place of consumption.
Because of transportation that a producer can sell his goods in different parts of the world. It creates place utility.
(4) Warehousing: Warehousing refers to the holding and preservation of goods until they are finally consumed.
(5) Communication: Communication services are helpful to the business for:
-establishing links with the outside world,
-for quick exchange of information.
The electronic media is mainly responsible for this transformation.
ROLE OF COMMERCE -- TRADE AND AUXILIARIES OF TRADE
(1) Trade removes hindrance of person: By making goods available to the consumers from the producers.
(2) Transportation removes hindrance of place: By moving goods from the places of production to the markets for sale.
(3) Storage and warehousing activities remove the hindrance of time: by facilitating holding of stock of goods to be sold as and when required.
(4) Insurance removes hindrance of risk: Of loss or damage of goods due to theft, fire, accidents, etc.
(5) Banking removes hindrance of finance: By providing funds to a businessman for purchasing raw materials and meeting other expenses.
(6) Advertising removes hindrance of information: By informing consumers about the goods and services available in the market.
Conclusion: Commerce is the backbone of the industry and other business activities.
1.4 OBJECTIVES OF BUSINESS
Objectives of business classified under two category:
1. Economic Objectives
Economic objective of business are centered around the personal profit of the business and are based on one slogan 'to earn maximum profits'.
(a) Profit Making: One of the main purposes of business is to earn profit. Profit is essential to cover costs and risks of the business. Every business must earn a reasonable profit to survive and grow. A business cannot survive without making profits.
(b) Survival: It is the basic objective of any business management must ensure the survival of the organisation. To survive, an organisation must earn enough revenues to cover costs.
(c) Growth: It is important for business to grow. Indicators of growth of a business are- (a) Increase in sale turnover, (b) Increase in the number of products and employees,etc.
2. Social Objectives
Social objective of business are centered around the interests of society and based on the slogan of 'social welfare'.
(a) Production and supply of quality goods and services: Business should produce and supply products of proper quality to satisfy consumer needs and expectations. Quality means durability and purity.
(b) Avoidance of anti-social and unfair trade practices: A businessman should avoid black-marketing, over-charging, misleading advertisement,etc. Such unfair practices destroy the goodwill and image of the business.
(c) Generation of employment: Business should generate employment opportunities to the backward area of the society.
(d) Welfare of employees: Business should provide good working conditions and pay satisfactory salaries/wages to its employees.
(e) Community service: Large business units should undertake community services like setting up charitable dispensaries, schools,etc.
1.5 ROLE OF PROFIT IN BUSINESS
1 Source of income for business persons: Profit is the source of income for the businessmen that provide livelihood.
2 Source of funds for meeting expansion requirements: Profits can be a source of finance for meeting growth and expansion requirements of business.
3 Indication of efficient working of business: Profits indicate the efficiency and a managed business. It is a measure to performance and success of a business.
4 Reward for risk taking: Profit is the reward for risk taking. Profit is essential to cover costs and risks of the business. Every business must earn a reasonable profit to survive and grow. A business cannot survive without making profits.
5 Builds up reputation of business: With increase in profits, a business earns reputation. It is able to rise loans and obtain credit more easily. It is in a better position to pay higher wages and salaries to its employees.
1.6 BUSINESS RISKS
Meaning: Business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events.
Nature Of Business Risks
1 Business risks arise due to uncertainties: Natural calamities, change in demand and prices, change in government policy, improvement in technology,etc. are some example of uncertainty which create risks for business.
2 Risk is an essential part of every business: No business can avoid risk. Risk can be minimized but cannot be eliminated.
3 Degree of Risk depends mainly upon the nature ans size of business: A business dealing in fashionable items has a high degree of risk similarly, a large-scale business has a higher risk than a small-scale business.
4 Profit is the reward for risk taking: "No risk, no gain" is an old principle, which applies to all types of business. Greater the risk, higher is the chance of profit.
Causes Of Business Risks
1 Natural Causes: Natural causes of business risks (Flood, earthquake, heavy rains) are beyond human control. They result in heavy loss of life, property and income.
2 Human causes: Human causes of business risk include carelessness of employees, theft, riots, etc.
3 Economic Causes: Economic Causes such as fluctuations in demand and prices, competition, change in technology etc.
4 Other causes: These include undeclared/unwarranted events like political disturbance, mechanical failures such as bursting of boiler, etc.
Types Of Business Risks
1 Speculative risks: Speculative risks involve both the possibility of gain as well as loss. It arise due to fluctuations in demand and supply, etc.
2 Pure risk: Pure risk involve only the possibility of loss or no loss. Fire, theft, strike are example of pure risk.
3 Insurable risk: Insurable risk are those which can be insured because it is possible to determine the possibility of such risks. example- fire/theft of goods.
4 Uninsurable risks: uninsurable risk are those which cannot be insured because their probability cannot be determined. example- fluctuations in demand and price, change in government policies, etc.
1.7 CLASSIFICATION OF BUSINESS ACTIVITIES
Business activities may be classified into two categories: INDUSTRY and COMMERCE.
INDUSTRY
Meaning: industry means the production and manufacturing of goods. Three types of goods are manufactured in the industry:
(1) Producer's or capital goods: Those things which are used in production by other industries are called capital goods.
(2) Consumer's goods: Those tings which are directly put to use are called consumer;s goods. for example, bread, cloth, medicines, etc.
(3) Intermediate goods: Those gods which are processed in soome other industry to produce some need goods are called intermediate goods. for example: plastic, rubber, aluminium.
TYPES OF INDUSTRY
(1) Primary Industry: The primary industry includes those activities through which the natural resources are used as a raw material to other industries.
The primary industry are of two types:
(a) Genetic industry: Genetic means heredity. These industries involves breeding or reproduction of plants and animals. for example: Cattle breeding farms, poultry farms.
(b) Extractive industries: These industries extract/draw out various products from natural resources such as earth, soil, water, etc.
(2) Secondary Industry: Under the secondary industry, new products are manufactured by using the material extracted at the primary stage.
The secondary industry is two types:
(a) Manufacturing industries: These industries convert raw materials or semi-finished goods into finished products.
Manufacturing industries may be subdivided into four categories:
O Analytical industry: A basic raw material is separated into a number of products. for example, an oil into petrol, diesel etc.
O Synthetical industry: Two or more materials are combined together to manufacturing a new products. for example, cement soap, plastics, paints etc.
O Processing industry: Involves successive stages for manufacturing finished products. for example, sugar and paper.
O Assembling industry: Various parts are bought together to produce a finished products. for example, TV, car, computer, watches, etc.
(b) Construction industries: These industries are engaged in construction of buildings, bridges, roads, dams, canals, etc.
(3) Tertiary Industries: These industries provide services facilities. It includes transport, warehousing, communication, banking, insurance, advertising, etc.
COMMERCE
Meaning: Commerce includes all those activities which are necessary for facilitating the exchange of goods and services.
Commerce includes two types of activities
(1) Trade
(2) Auxiliaries to trade
TYPES OF TRADE
(1) Internal Trade: Trade which takes place within a country.
Internal trade can be classified into two broad categories:
(a) Wholesale trade: Wholesale trade refers to buying and selling of goods and services in large quantities for the purpose of resale.
(b) Retail trade: Retail trade refers to buying of goods and services in small quantity and selling them to the consumers.
(2) External Trade: Trade between two or more countries.
External trade can be classified into three categories.
(a) Import trade: If goods are purchased from another country, it is called import trade.
(b) Export Trade: If goods and services are sold to other countries, it is called export trade.
(c) Entrepot Trade: where goods are imported for export to other countries.
AUXILIARIES TO TRADE
(1) Banking: Business needs funds for acquiring assets, purchasing raw materials and meeting day-to-day expenses. Banking helps business activities overcome the problem of finance.
(2) Insurance: Business involves various types of risks. Insurance makes provision against such risks.
(3) Transportation: Transport facilitates movement of
-raw material to the place of production,
- the finished goods from factories to the place of consumption.
Because of transportation that a producer can sell his goods in different parts of the world. It creates place utility.
(4) Warehousing: Warehousing refers to the holding and preservation of goods until they are finally consumed.
(5) Communication: Communication services are helpful to the business for:
-establishing links with the outside world,
-for quick exchange of information.
The electronic media is mainly responsible for this transformation.
ROLE OF COMMERCE -- TRADE AND AUXILIARIES OF TRADE
(1) Trade removes hindrance of person: By making goods available to the consumers from the producers.
(2) Transportation removes hindrance of place: By moving goods from the places of production to the markets for sale.
(3) Storage and warehousing activities remove the hindrance of time: by facilitating holding of stock of goods to be sold as and when required.
(4) Insurance removes hindrance of risk: Of loss or damage of goods due to theft, fire, accidents, etc.
(5) Banking removes hindrance of finance: By providing funds to a businessman for purchasing raw materials and meeting other expenses.
(6) Advertising removes hindrance of information: By informing consumers about the goods and services available in the market.
Conclusion: Commerce is the backbone of the industry and other business activities.
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