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Senior Secondary Course
[Intermediate (APOSS) Course]
BUSINESS STUDIES
(ENGLISH MEDIUM)
Study Material

Nature and Scope of Business 1
Introduction :
In your day-to-day life you may be engaged in several activities. However, when someone asks you as to what you want to become in your life or what you want to do in future, your answer may be – “I want to join a suitable job or I want to become a doctor, an engineer, a dancer or a musician”, or you may say, “I want to do my own business”. But why do you want to do any of such activities? Obviously, it is mainly to earn your livelihood. Broadly speaking, every human activity in which one is engaged for the purpose of earning one’s livelihood is known as economic activity.

In this lesson we shall learn about all such activities, their categorization and some other related aspects.

Long Answer Type Questions :
1. Describe the importance of business in modern society.
Ans: The term ‘business’ refers to human activities which involve production or exchange of goods and services regularly with the object of earning profit.
Business may be defined as an activity involving regular production or purchase of goods and services for sale, transfer and exchange with an object of earning profit.

Importance of Business
Business is an integral part of modern society. It is an organized and systematic activity for earning profit. It is concerned with activities of people working towards a common economic goal. Modern society cannot exist without business. The importance of business can be described as follows:

i. Improves the standard of living: Business improves the standard of living of the people by providing better quality and large variety of goods and services at the right time and at the right place.

ii. Earn a livelihood: It provides opportunities to work and earn a livelihood. Thus, it generates employment in the country, which in turn reduces poverty.
iii. Utilization of scarce resources: It utilizes the scarce resources of the nation and facilitates mass production of goods and services.
iv. National image: It improves national image by producing and exporting quality goods and services to foreign countries.
v. Quality goods of international standard: It enables the people of a country to use quality goods of international standard. This is possible by way of importing goods from foreign countries.
vi. Better return to the investors: It gives better return to the investors on their capital investment and also provides opportunities to grow and expand the business.

vii. Promotes national integration: It promotes social interest by providing tourist services, sponsoring cultural programmes, trade shows in the country, which enable people of different parts of the country to exchange their culture, traditions and practices. Thus, it promotes national integration.
viii. Development of science and technology: It helps in the development of science and technology. It spends large amount of money on research and development in search of new products and services.

1. Explain the various objectives of business.
Ans: Business objectives are something, which a business organization wants to achieve or accomplish over a specified period of time. It is generally believed that a business has a single objective, i.e. to make profit and safeguard the interests of its owners. However, no business can ignore the interests of its employees, customers as well as the interest of society as a whole. Thus, the objectives of business may be classified asi.
Economic objectives
ii. Social objectives
iii. Human objectives
iv. National objectives
v. Global objectives
Now let us discuss these objectives in detail.

i.Economic objectives: It refers to the objective of earning profit and those which have a direct impact on the profit-earning objective of business. Some of the main economic objectives of business are:
a) Earning of adequate profits;
b) Exploring new markets and creation of more customers;
c) Growth and expansion of business operation;
d) Making innovations and improvements in goods and services; and
e) Making use of available resources in the best possible manner.

ii. Social objectives: Social objectives of business are those, which are desired to be achieved for the benefit of the society. Some of the major social objectives are:
a) Production and supply of quality goods and services to the society;
b) Making goods available at reasonable prices;
c) Avoidance of unfair practices;
d) Contributing towards the general welfare and upliftment of the society; and
e) Conserving natural resources and wild life and protecting the environment.

iii. Human objectives: It refers to the objectives aimed at safeguarding the interest of its employees and their welfare. Some of the major human objectives are:
a) Providing fair remuneration and incentives to the employees;
b) Arrangement of better working conditions and proper work environment for the employees;
c) Providing the employees with more and more promotional opportunities; and
d) Organizing training and development programmes for the growth of the employees.

iv. National objectives: National objectives of the business are the objectives of fulfilling goals and aspirations like:
a) Creation of employment opportunities;
b) Promotion of social justice;
c) Produce and supply goods in accordance with the national interest and priorities;
d) Payment of taxes and other dues honestly and regularly; and
e) Implementing government’s economic and financial policies framed from time to time.

v. Global objectives: Global objectives of business are the objectives of facing the challenges of global market. Some of the global objectives are:
a)Making available globally competitive goods and services; and
b)Reducing disparities among rich and poor nations by expanding its operations.

2. State the meaning of ‘industry’. Explain the various classifications of industry.
Ans: ‘Industry’ primarily refers to all such business activities concerned with production/raising or processing of goods and services. It processes raw materials or semi-finished goods into finished goods. Extracting raw materials from earth’s surface, manufacturing goods and commodities, producing crops, fish, flowers, constructing buildings, dams, and roads are all examples of industry.

These activities are called industrial activities and the units engaged in these activities are known as ‘industrial enterprises.’
Classification of Industries: On the basis of nature of activity
A. Primary industries
B. Secondary industries
C. Tertiary industries
Let us now discuss in detail about the classification of industry based on nature of activity involved.

A. Primary industries: Primary industries refer to the activities of extraction of natural resources.
Primary industries can be categorized as extractive and genetic industries.
i. Extractive industries: It is an industry that extracts oil and natural gas from earth. Ex: Farmers growing crops, extracting material from forest for further processing, extracting items from sea/river.

ii. Genetic industries: The industries engaged in rearing and breeding animals and birds and growing plants or flowers for sale are known as genetic industries. Ex: Horticulture (growing fruits and vegetables), Floriculture (growing flowers), Pisiculture (breeding fish), Dairy farming, Poultry farming etc.

B. Secondary industries: The products of primary industries are normally used as raw materials to produce a variety of finished goods. And it is the secondary industry that uses the products of primary industry as its raw-materials. The activities of secondary industries may be classified as
(i) Manufacturing, and (ii) Construction industries.
(i) Manufacturing industries: These are engaged in producing finished goods out of raw materials or semi-finished products. For example, cotton is used to produce textile, timber to produce furniture, bauxite to produce aluminum. Manufacturing industries may be divided further into the following categories:
a) ‘Analytical industries’ manufacture difference types of products by analyzing and separating different elements from the same product.
b) ‘Synthetic industries’ put together various ingredients and manufacture a new product. For instance, soap is produced by combining potassium carbonate and vegetable oil.
c) ‘Processing industries’ are those in which raw-materials are processed through successive stages to get the final products. Textiles, sugar are the examples.
d) ‘Assembling industries’ put together various manufactured products and make a new product as in the case of car, scooter, bicycle etc.

(ii) Construction industries: The industries engaged in erection of buildings, dams, bridges, roadways, railways, canals, tunnels, etc are known as construction industries. They make use of the products of other industries and construct different types of structures as per the requirements of the customers.

C. Tertiary industries: These industries are basically concerned with generating or processing of various services and facilitate the functioning of primary industries and secondary industries as well as activities of trade. These include service industries like banking, insurance, transport etc.

SHORT ANSWER TYPE QUESTIONS :
1. How would you classify economic activities?
Ans: Economic activity can be a one-shot affair or a continuous one. So, the activities in which individuals engage themselves on a regular basis and earn their livelihood are known as their ‘occupations’. Infact, everyone is engaged in one occupation or the other, and these can be broadly categorized as:
A. Profession
B. Employment, and
C. Business
Let us know a few more details about these occupations.

A. Profession: Any activity, which requires special knowledge and skill to be applied by an individual to earn a living, is known as profession. Ex: Engineers, architects, film-stars, dancers.
B. Employment: The economic activity, rendered by one person to another, under a contract of service, for some remuneration, is called employment. Ex: Teachers, postman, clerk.
C. Business: The term ‘business’ refers to human activities which involve production or exchange of goods and services regularly with the object of earning profit. Ex: Transporters, bankers, traders, tailors.

2. Distinguish between economic and non-economic activities.
Ans: The human activities that are undertaken with an objective to earn money or livelihood are called economic activities. Whereas the other types of activities that are undertaken to derive selfsatisfaction, are called non-economic activities. A farmer growing crops, a worker working in a factory for wage/salary, a businessman engaged in buying and selling of goods are examples of economic activities. While activities like meditation, engaging in sports for physical fitness, listening to music, providing relief to flood victims are examples of non-economic activities.

3. State the characteristics of business.
Ans: Business may be defined as an activity involving regular production or purchase of goods and services for sale, transfer and exchange with an object of earning profit. Characteristics

i. Goods and services: It is an occupation where a person is engaged in manufacturing or buying and selling of goods and services. The goods may be consumer goods or capital goods. Similarly, the services may be in the form of transportation, banking, and insurance.
ii. Continuous activity: The activities must be carried on regularly. A single transaction is usually not treated as a business. For example, if a person sells his old car at a profit, it is not treated as a business activity.
iii. Earning profit: The sole objective of business is to earn profit. It is essential for the survival of business.
iv. Investment: Every business requires some investment in cash or kind or both. It is the life blood of the business. It is usually provided by the owner or is borrowed by him at his own risk.
v. Risk and uncertainty: The earnings are always uncertain, because the future is unpredictable. Thus, every business involves an element of risk and the same is borne by the businessman.

4. How would you classify business activities?
Ans: Business activities are concerned with production and/or processing of goods and services or distribution of goods and services. The former is known as ‘industry’ and latter as ‘commerce’. So, we can classify business as industry and commerce. Let us now know details about these two categories.

i. Industry: ‘Industry’ primarily refers to all such business activities concerned with production/ raising or processing of goods and services. It processes raw materials or semi-finished goods into finished goods. Extracting raw materials from earth’s surface, manufacturing goods and commodities, producing crops, fish, flowers, etc., constructing buildings, dams, and roads are all examples of industry.

ii. Commerce: Commerce performs all functions, which are essential for maintaining a smooth and uninterrupted flow of goods and services to the customers. It provides the necessary link between producers and consumers of goods and services and facilitates the purchase and sale of goods and services.
Thus, Business = Industry + Commerce

5. Explain the different types of trade.
Ans: Trade is an integral part of commerce. It simply refers to sale, transfer or exchange of goods and services. It helps in making the goods and services available to ultimate consumers. On the basis of area of operation, trade can be classified as internal and external trade.

i. Internal trade: When trade takes place within the boundaries of a country, it is called internal trade. It means both buying and selling take place within the country. It can be of two types as follows:
a) Wholesale trade: Buying from manufacturer and selling it to retailers in bulk known as wholesale trade.
b) Retail trade: It can be buying from manufacturer or wholesaler and selling it to consumers known as retail trade.

ii. External trade: Trade that takes place between different countries is known as external trade. In other words, external trade refers to buying and/or selling of goods and services across national boundaries. This may take any of the following forms:

a) Import trade: When goods are purchased from a foreign country, it is known as import trade. Ex: Firms of India purchase goods from firms of America to be sold in India is known as import trade.

b) Export trade: It is the process of selling goods to a foreign country. Ex: Firms of India sell goods produced in their own country to firm of Singapore is known as export trade.

c) Entrepot trade: When goods are bought from one foreign country to be sold in some other foreign country, it is known as entrepot trade. Ex: Firms of India purchase goods from firms of America to be sold to firms of Singapore is known as entrepot trade.