AG

BUSINESS, TRADE
AND COMMERCE
(Evolution and Fundamentals of Business)

❑ History of Trade and Commerce in India: Indigenous Banking System, Rise of Intermediaries,
Transport, Trading Communities: Merchant Corporations, Major Trade Centres, Major Imports
and Exports, Position of Indian Sub-Continent in the World Economy.
❑ Business – meaning and characteristics

❑ Objectives of business
AL
❑ Business, profession and employment-Concept

❑ Classification of business activities-Industry and Commerce

❑ Industry-types: primary, secondary, tertiary-Meaning and subgroups
❑ Commerce-trade; (types-internal, external; wholesale and retail) and auxiliaries to trade; (banking,
insurance, transportation, warehousing, communication, and advertising) – meaning
❑ Business risk-Concept

After studying this chapter, you should be able to:

❍ Explain history of Commerce in India
❍ Identify the various types of economic activities.
❍ Explain the concept of business.
❍ Compare the distinctive features of business, profession and employment.
S.

❍ Explain the objectives of business.

❍ Examine the role of profit in business.
❍ Describe the concept, nature and causes of business risks.
❍ Explain the broad categories of business activities, namely, industry and commerce.
❍ Discuss the various types of industry.
❍ Examine the role of commerce, trade and auuxiliaries to trade.
G.
 INTRODUCTION
Imran, Manpreet, Joseph and Priyanka have been classmates in Class X. After their exams are over, they

AG
happen to meet at a common friend Ruchit’as house. Just when they were sharing their experiences of
examination days, Ruchik’as father Raghuraj Chaudhary intervenes and asks about their well-being. He
also enquires about their career plans. But none of them had a definite reply. Raghuraj who himself is
a successful businessman tells them about business as a career opportunity. Joseph gets excited by the
idea and says “yes, business is really good for making lots of money”. Raghuraj tells them that ‘there
is a lot more to business than merely money’. Business activities lead to growth and development of
any country, he added. He further tells them that the roots of business activities can be traced back to
ancient times and how trading helps in the prosperity of the Indian subcontinent. Priyanka said that
they have read about the Silk Route in their history textbooks. Raghuraj then gets busy with his day-
to-day tasks. However, the four classmates begin raising questions. The conversation of the four
classmates focused on how trading activities were conducted during ancient times. How far can the
roots of trading activities be traced? Why was the Indian subcontinent referred to as ‘Swaran Bharat
and Swaran Dweep’ by the then travellers to India? What made Columbus and Vasco da Gama undertake
journeys to locate India? They decided to meet the commerce teacher of their school to find out answers

1.1 INTRODUCTION
AL
to many such questions about the development, nature and purpose of business.

SECTION-I

All human beings, wherever they may be, require different types of goods and services to satisfy their
needs. If we look around, we observe people require different types of products and services to satisfy
their needs. How do they buy them? They go to the market, either physical or electronic over internet,
where they find variety of shops and sellers offering the required commodities and choose the best which
they require.
Have you ever wondered how these products and services are made available in the market? The
necessity of supplying goods and services is done by different sets of people engaged in various economic
activities such as production, manufacturing and distribution, exchange so that the needs and wants of
customers are satisfied. Business is a major economic
activity which is concerned with the production and
sale of goods and services required by people.
S.

Business is central to our lives. Although our lives

are also influenced by many other institutions in
modern society, such as schools, colleges, hospitals,
political parties and religious bodies; business has a
major influence on our daily lives. It, therefore,
becomes important that we understand the concept,
nature and purpose of business.
Business starts with production and ends with
consumption. Making the finished products reach the
consumer involves a series of steps. The work of
G.

production of goods is covered under Industry and

the remaining activities belong to commerce. In a
nutshell we call them ‘Business’ which is a wider term
and includes Industry, trade and commerce.

Evolution and Fundamentals of Business 2

1.1.1 Role of Business in the Development of Economy
Business which includes trade and commerce has played a vital role since times memorial. You have
studied in your earlier classes that our country, India, had a golden past and the trading activities had a

AG
significant contribution to its prosperity and gains. The archaeological evidence has shown that trading
activities were the mainstay of the economy in ancient time, which were carried out by both water and land
routes. Silk route and maritime trade were quite prominent in transporting goods and commodities for trading
purposes.
The goods were traded both internally and to the foreign lands, which generated surplus income. As
a result, the people were engaged in various economic activities such as agriculture and domestication of
animals, weaving cotton, dyeing fabrics, making clay pots, utensils and handicrafts, sculpting, cottage
industries, masonry, etc. Family based workshops [karkhanas], for manufacturing, were important
components of economic life. This money was channelised into further investment, and led to the dominant
growth of indigenous banking system to finance the trading activities.
An example of it is the use of age old Hundi and Chitties (used in southern region). these were used
as documents to facilitate transfer of money from one hand to another for trading activities. As an instrument
of exchange it involved a contract which — (i) warrant the payment of money, the promise or order which
is unconditional (ii) capable of change through transfer by valid negotiation.

AL
Why was there a need to create an intangible form of exchange of money. It was so because travelling
long distances either by land or sea involved risk of theft and robbery. Hundi which literally means ‘to
collect’ was written in vernacular language and facilitated the safe transfer of money between parties and
helped promotion of trading activities.
The emergence of credit transactions and availability of loans and advances enhanced commercial
operations. The Indian subcontinent enjoyed the fruits of favourable balance of trade, where exports
exceeded imports with large margins and the indigenous banking system benefitted the manufacturers,
traders and merchants with additional capital funds for expansion and development. Commercial and Industrial
banks later evolved to finance, trade and commerce; and agricultural banks to provide both short and long-
term loans to finance agriculturists.
S.
G.

Many leading trade centres were developed in ancient times for the import and export of goods; some
of them being Patliputra, Peshawar, Taxila, Indraprastha, Mithila, Maduram, Surat, Ujjain, Kanchi and Mithila.
Major exports items were spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals and
animal products, etc. Major imports were horses, animal products, Chinese silks, linen, wine, gold, silver,
3 Business Studies
copper, etc. There were all kinds of towns—port towns, manufacturing towns, mercantile towns, the sacred
centres, and pilgrimage towns. Their existence is an index of prosperity of merchant communities and
professional classes.

AG
Business activities led to the growth of different aids to trade such as transportation, banking, finance
and communication which grew the prospects of trading activities. With the active contribution of Indian
traders and other merchant communities, the Indian sub-continent was popularly called ‘Swaran Bhoomi
and Swaran Deep’ in the writings of many travellers, such as Megasthenes, Faxian (FaHien), Xuanzang
(Huen Tasang), Al Beruni (11th century), IbnBatuta (11th century), Frenchman Francois (17th century) and
others. They repeatedly refer to the prosperity of the country.
Between the 1st and the 7th centuries CE, India is estimated to have the largest economy of the ancient
and medieval world, controlling about one-third and one-fourth of the world’s wealth (timeline).

AL
Source: Angus Maddison (2001 and 2003), The World Economy: A Millennial Perspective, OECD, Paris;
Angus Maddison, The World Economy, Historical Statistics.
Major Trade Centres in ancient times
1. Pataliputra: Known as Patna today. It was not only a commercial town, but also a major centre
for export of stones.
2. Peshawar: It was an important exporting centre for wool and for the import of horses. It had a
huge share in commercial transactions between India, China and Rome in the first century A.D.
S.

3. Taxila: It served as a major centre on the important land route between India and Central Asia. It
was also a city of financial and commercial banks. The city occupied an important place as a
Buddhist centre of learning. The famous Taxila University flourished here.
4. Indraprastha: It was the commercial junction on the royal road where most routes leading to the
east, west, south and north converged.
5. Mathura: It was an emporium of trade and people here subsisted on commerce. Many routes
from South India touched Mathura and Broach.
6. Varanasi: It was well placed as it lay both on the Gangetic route and on the highway that linked
North with the East. It grew as a major centre of textile industry and became famous for beautiful
G.

gold silk cloth and sandalwood workmanship. It had links with Taxila and Bharuch.
7. Mithila: The traders of Mithila crossed the seas by boats, through the Bay of Bengal to the
South China Sea, and traded at ports on the islands of Java, Sumatra and Borneo. Mithila estab-
lished trading colonies in South China, especially in Yunnan.
8. Ujjain: Agate, carnelian, muslin and mallow cloth were exported from Ujjain to different centres.
It also had trade relations through the land route with Taxila and Peshawar.

Evolution and Fundamentals of Business 4

 9. Surat: It was the emporium of western trade during the Mughal period. Textiles of Surat were
famous for their gold borders (zari). It is noteworthy that Surat hundi was honoured in far off
markets of Egypt and Iran.

AG
10. Kanchi: Today known as Kanchipuram, it was here that the Chinese used to come in foreign
ships to purchase pearls, glass and rare stones and in return they sold gold and silk.
11. Madura: It was the capital of the Pandayas who controlled the pearl fisheries of the Gulf of Mannar.
It attracted foreign merchants, particularly Romans, for carrying out overseas trade.
12. Broach: It was the greatest seat of commerce in Western India. It was situated on the banks of
river Narmada and was linked with all important marts by roadways.
13. Kaveripatta: Also known as Kaveripatnam, it was scientific in its construction as a city and pro-
vided loading, unloading and strong facilities of merchandise. Foreign traders had their head-
quarters in this city. It was a convenient place for trade with Malaysia, Indonesia, China and the
Far East. It was the centre of trade for perfumes, cosmetics, scents, silk, wool, cotton, corals,
pearls, gold and precious stones; and also for ship building.
14. Tamralipti: It was one of the greatest ports connected both by sea and land with the West and
the Far East. It was linked by road to Banaras and Taxila.
With the emergence of the British Empireroots in India the East India Company used revenues generated

AL
by the provinces under its rule for purchasing Indian raw materials, spices and goods. This changed the
condition of the Indian economy from being an exporter of processed goods to the exporter of raw materials
and buyer of manufactured goods.
After independence the process of rebuilding the economy started and India embarked on planned
development with the objective of achieving a self-reliant socialistic pattern of society. The measures taken
towards the same were characterised by centralised economic planning and emphasis on public investment
in basic and key industries.
Due importance was given to the establishment of modern industries, modern technological and scientific
institutes, space and nuclear programmes. But lack of capital
formation, rise in population, weak financial system, inadequate
infrastructure and high huge expenditure on defence, high fiscal
deficits and continuous deficits in balance of payments were
evident and international community’s confidence in India’s
ability to manage its economy was severely affected. The
balance of payment situation was precarious. As a result, India
S.

agreed to economic liberalisation in 1991.

A three pronged approach of stabilisation, restructuring and
globalisation of Indian economy was adopted to address the
changes in economic and business scenario and its integration
with global economy. Government of India announced major
economic reform packages aimed at restoring the growth
momentum in the economy. Major policy changes were effected
since 1991 w.r.t, fiscal, monetary, trade, industry, agriculture,
infrastructure, foreign exchange and foreign investment since
1991.
G.

The Indian economy is emerging as one of the fastest growing economies in the world today and a
preferred FDI destination. Rising incomes, savings, investment opportunities, increased domestic
consumption and younger population ensure growth for decades to come. The high growth sectors have
been identified, which are likely to grow at a rapid pace and the recent initiatives of the Government of
India such as ‘Make in India’, Skill India’, ‘Digital India’ is expected to help the economy in terms of exports
and imports with steady and sustainable trade balance.
5 Business Studies
1.1.2 Types of Hundis
The most common types of hundis are:
1. Dhani Jog Hundi : The term ‘Dhani’ means ‘owner’ (i.e., the owner of the dhan (amount) of the

AG
hundi. It is a hundi payable to the Dhani or owner — a holder or bearer owner. It is transferable
by mere delivery.
2. Shahjog Hundi : It is a hundi drawn by one merchant on another, asking the latter to pay the
amount to a Shah. Shah is a rich, respectable and responsible person, a man of worth and known
in the bazaar. A shah-jog hundi passes from one hand to another till it reaches a Shah, who after
reasonable enquiries, presents it to the drawee for acceptance of the payment.
3. Firman Jog Hundi : The ‘Firman’ means ‘Order’. This type of Hundi can be paid either to the
person whose name is mentioned in the hundi or to any person so ordered by him. This hundi
is similar to a cheque payable on order and no endorsement is required on such a hundi.
4. Dekhanhar Jog Hundi : The term ‘Dekhanhar’ means the one who sees it. Thus, a Dekhanhar
Jog Hundi is the one which is made payable to its seer or its holder, i.e., it is made payable to the
bearer.
5. Jokhami Hundi : The term ‘Jokham’ means ‘risk’ and the term ‘Jokhami’ means ‘risky’. That is

AL
why a Jokhami Hundi, has been termed by Justice Baley, in the case titled Raisey Amerchand vs.
Jusraj Vizpal (1871), as being in the nature of an insurance policy. But with a difference in that,
in the case of a Jokhami Hundi, the amount mentioned therein is paid in advance, which may,
however be recovered in case the slip is not lost.
There are the following three parties in a Jokhami Hundi:
(i) The drawer or the shipper (consigner) of the goods;
(ii) The hundiwala, i.e., the underwriter, who undertakes the risk; and
(iii) The malwala, i.e., the consignee of the goods.
Such hundi is drawn by the consignor of the goods on the consignee of the goods, and is negotiated
by the underwriter together with the amount of the insurance premium. In the event of the goods arriving
at the destination safely, the underwriter may obtain them to their value as stated in the hundi. But the
underwriter (hundiwala) does not have any legal rights to file a suit against the consignee in the event of
his non-payment of the amount of the hundi, nor in the case of his non-acceptance of the hundi. He has
the right to recover the amount of the bill only from the consignor (the drawer of the hundi). But in case the
goods are lost totally, he cannot claim payment. But in case of a partial loss or damage, the hundiwala is
entitled to full payment. If the loss is a general average loss, then a rebate is made to the extent of the loss.
S.

6. Jawabee Hundi : Jawabee Hundi refers to the hundi which is used as a means of remittance of
money from one place to another, through a banker. It involves the following nature of
transaction:
A person who wants to remit some money to a person residing at another place, writes a letter to the
payee, and delivers this letter to the banker concerned. The banker concerned, in turn, remits the money to
its branch, located near the residence of the payee, named therein. In case the bank does not have a branch
of its own at that place, it will endorse the letter to its correspondent banker with whom it may be an
agency arrangement, and send it to the branch of the correspondent banker located near the residence of
the payee. When the banker receives this letter, he in turn, comes to the branch of such bank and gives his
G.

receipt for having received the money mentioned in the letter. This receipt, given by the payee, is in the
form of a reply (jawab) to the drawer, the original writer of the letter. That is why this type of hundi is
referred to as Jawabee Hundi (Jawab means, in reply).

Evolution and Fundamentals of Business 6

1.1.3 Rise of Intermediaries
Intermediaries played a prominent role in the promotion of trade. They provided considerable financial
security to the manufacturers by assessing responsibility for the risks involved, especially in foreign trade.

AG
It comprised commission agents, brokers and distributers both for wholesale and retail goods. An expanding
trade brought in huge amounts of silver bullion into Asia and a large share of that bullion gravitated towards
India.
The institution of Jagat Seths also developed and exercised great influence during the Mughal period
and the days of the East India Company. Bankers began to act as trustees and executors of endowments.
Foreign trade was financed by loans. However, the role of interest for longer voyages was kept in view of
the huge risk involved.
The emergence of credit transactions and availability of loans and advances enhanced commercial
operations. The Indian subcontinent enjoyed the fruits of favourable balance of trade, where exports
exceeded imports with large margins and the indigenous banking system benefitted the manufacturers,
traders and merchants with additional capital funds for expansion and development. Commercial and Industrial
banks later evolved to finance trade and commerce and agricultural banks to provide both short-term and
long-term loans to finance agriculturists.

1.1.4 Transport

AL
Transport by land and water was popular in the ancient times. Trade was maintained by both land and
sea. Roads as a means of communication had assumed key importance in the entire process of growth,
particularly of the inland trade and for trade over land. The northern roadway route is believed to have
stretched originally from Bengal to Taxila. There were also trade routes in the south spreading east and
west. Trade routes were structurally wide and suitable for speed and safety.
Maritime trade was another important branch of global trade network. Malabar Coast, on which Muziris
is situated, has a long history of international maritime trade going back to the era of the Roman Empire.
Pepper was particularly valued in the Roman Empire and was known as ‘Black Gold’. For centuries, it remained
the reason for rivalry and conflict between various empires and trade powers to dominate the route for this
trade. It was in search for an alternate route to India for spices that led to the discovery of America by
Columbus in the closing years of 15th century and also bought Vasco da Gama to the shores of Malabar in
1498.
Calicut was such a bustling emporium that it was even visited by Chinese ships to acquire items, like
frankincense (essential oil) and myrrh (fragrant resin used in perfumes, medicines) from the Middle East, as
well as, pepper, diamonds, pearls and cotton from India. On the Coromandel Coast, Pulicat was a major port
S.

in the 17th Century. Textiles were the principal export from Pulicat to Southeast Asia.

1.1.5 Trading Communities Strengthened

In different parts of the country, different communities dominated trade.
❑ Punjabi and Multani merchants handled business in the northern region, while the Bhats managed
the trade in the states of Gujarat and Rajasthan.
❑ In Western India, these groups were called Mahajan, Chatt were important traders from the South.
❑ In urban centres, such as Ahmedabad the Mahajan community collectively represented by their
chief called Nagarseth.
G.

❑ Other urban groups included professional classes like hakim and Vaid (physician), wakil (lawyer),
pundit or mulla (teachers), painters, musicians, calligraphers, etc.

7 Business Studies
1.1.6 Merchant Corporations
The merchant community also derived power and prestige from guilds, which were autonomous
corporations formed to protect the interests of the traders. These corporations, organised on formal basis,

AG
framed their own rules of membership and professional code of conduct, which even kings were supposed
to accept and respect.
❑ Trade and industry taxes were also a major source of revenue. Traders had to pay octroi duties
that were levied on most of the imported articles at varying rates. They were paid either in cash
or in kind.
❑ Customs duties varied according to the commodities. Tariffs varied from province to province.
❑ The ferry tax was another source of income generation. It had to be paid for passengers, goods,
cattle and carts. The right to receive the labour tax was usually transferred to the local bodies.
❑ The guild chief dealt directly with the King or tax collectors and settled the market toll on behalf
of its fellow merchants at a fixed sum of money. The guild merchants also acted as custodians
of religious interests. They undertook the task of building temples and made donations by levying
a corporate tax on their members. The commercial activity, thus, enabled big merchants to gain
power in the society.

1.1.7 Major Trade Centres

classes.
AL
There were all kinds of towns — port towns, manufacturing towns, mercantile towns, the sacred centres,
and pilgrimage towns. Their existence is an index of prosperity of merchant communities and professional

The following were the leading trade centres in ancient India:

1. Pataliputra : It is known as Patna today. It was not only a commercial town, but also a major
centre for export of stones.
2. Peshawar : It was an important exporting centre for wool and for the import of horses. It had a
huge share in commercial transactions between India, China and Rome in the first century A.D.
3. Taxila : It served as a major centre on the important land route between India and Central Asia.
It was also a city of financial and commercial banks. The city occupied an important place as a
Buddhist centre of learning. The famous Taxila University flourished here.
4. Indraprastha : It was the commercial junction on the royal road where most routes leading to
the east, west, south and north converged.
5. Mathura : It was an emporium of trade and people here subsisted on commerce. Many routes
S.

from South India touched Mathura and Broach.

6. Varanasi : It was well placed as it lay both on the Gangetic route and on the highway that
linked North with the East. It grew as a major centre of textile industry and became famous for
beautiful gold silk cloth and sandalwood workmanship. It had links with Taxila and Bharuch.
7. Mithila : The traders of Mithila crossed the seas by boats, through the Bay of Bengal to the
South China Sea, and traded at ports on the islands of Java, Sumatra and Borneo. Mithila
established trading colonies in South China, especially in Yunnan.
8. Ujjain : Agate, carnelion, muslin and mallow cloth were exported from Ujjain to different centres.
It also had trade relations through the land route with Taxila and Peshawar.
G.

9. Surat : It was the emporium of western trade during the Mughal period. Textiles of Surat were
famous for their golden borders (zari). It is noteworthy that Surat hundi was honoured in far off
markets of Egypt and Iran.
10. Kanchi : Today known as Kanchipuram, it was here that the Chinese used to come in foreign
ships to purchase pearls, glass and rare stones and in return they sold gold and silk.

Evolution and Fundamentals of Business 8

 11. Madura : It was the capital of the Pandayas who controlled the pearl fisheries of the Gulf of
Mannar. It attracted foreign merchants, particularly Romans, for carrying out overseas trade.
12. Broach : It was the greatest seat of commerce in Western India. It was situated on the banks of

AG
river Narmada and was linked with important marts by roadways.
13. Kaveripatta : Also known as Kaveripatnam, it was scientific in its construction as a city provided
loading, unloading and strong facilities of merchandise. Foreign traders had their headquarters
in this city. It was a convenient place for trade with Malaysia, Indonesia, China and the Far East.
It was the centre of trade for perfumes, cosmetics, scents, silk, wool, cotton, corals, pearls, gold
and precious stones; and also for ship building.
14. Tamralipti : It was one of the greatest ports connected both by sea and land with the West and
the Far East. It was linked by road to Banaras and Taxila.

1.1.8 Major Exports and Imports

Exports consisted of spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals and
animal products — hides, skin, furs, horns, tortoise shells, pearls, sapphires, quartz, crystal, lapis, lazuli,
granites, turquoise and copper, etc.
Imports included horses, animal products, Chinese silk, flax and linen, wine, gold, silver, tin, copper,

AL
lead, rubies, coral, glass, amber, etc.

1.1.9 Position of Indian Subcontinent in World Economy (1 AD upto 1991)

Between the 1st and the 7th centuries CE, India is estimated to have the largest economy of the ancient
and medieval world, controlling about one-third and one-fourth of the world’s wealth (timeline). The country
was often referred to as ‘Swaranbhumi’ and ‘Swarndweep’ in the writings of many travellers, such as
Megasthenes, Faxian (Fa Hien), Xuanzang (Huen Tsang), A1 Beruni (11th century), Ibn Batuta (11th century),
Frenchman Francois (17th century) and others. They repeatedly refer to the prosperity of the country.
The pre-colonial period in Indian history was an age of prosperity for Indian economy and made the
Europeans embark great voyage of discovery. Initially, they came to plunder but soon realised the rewards
of trade in exchange of gold and silver. Despite the growing commercial sector, it is evident that the 18th
century India was far behind Western Europe in technology, innovation and ideas. With the increasing
control of the East India Company causing lack of freedom and no occurrence of agricultural and scientific
revolution, limited reach of education to the masses, population growth and preference to machines over
manual skills made India a country which was prosperous but with people who were poor.
The British empire began to take roots in India in the mid-18th Century. The East India Company used
S.

revenues generated by the provinces under its rule for purchasing Indian raw materials, spices and goods.
Hence, the continuous inflow of bullion that used to come on account of foreign trade stopped. This changed
the condition of the Indian economy from being an exporter of processed goods to the importer of raw
materials and buyer of manufactured goods.

1.1.10 India Begins to Reindustrialise

After Independence, the process of rebuilding the economy started and India went for centralised
planning. The First Five Year Plan was implemented in 1952. Due importance was given to the establishment
of modern industries, modern technological and scientific institutes, space and nuclear programmes. Despite
G.

these efforts, the Indian economy could not develop at a rapid pace. Lack of capital formation, rise in
population, huge expenditure on defence and inadequate infrastructure were the major reasons. As a result,
India relied heavily on borrowings from foreign sources and finally, agreed to economic liberalisation in
1991.
The Indian economy is one of the fastest growing economies in the world today and a preferred FDI
destination. Rising incomes, savings, investment opportunities, increased domestic consumption and

9 Business Studies
younger population ensures growth for decades to come. The high growth sectors have been identified,
which are likely to grow at a rapid pace world over and the recent initiatives of the Government of India
such as ‘Make in India’, ‘Skill India’, ‘Digital India’ and roll out of the Foreign Trade Policy (FTP 2015-20)

AG
is expected to help the economy in terms of exports and imports and trade balance.
SECTION-II
1.2 CONCEPT OF BUSINESS
The term business is derived from the word ‘busy’. Thus, business means being busy. However, in a
specific sense, business refers to an occupation in which people regularly engage in activities related to
purchase, production and/or sale of goods and services with a view to earning profits.

AL
If you look around you will observe that people undertake various activities to satisfy their needs. These
activities may be broadly classified into two groups — economic and non-economic activities. Economic
activities are those by which we can earn our livelihood, whereas, non-economic activitgies are performed
out of love, sympathy, sentiment, patriotism, etc. For example, a worker working in a factory, a doctor oper-
ating in his clinic, a manager working in an office and a teacher teaching in a school are doing so to earn
their livelihoods and are, therefore, engaed in an economic activity. On the other hand, a housewife cooking
food for her family, or a boy helping an old man cross the road are performing non-economic activities since
S.

they are doing so out of love or sympathy.

Economic activities may be further divided into three categories, namely business, profession and em-
ployment. Business may be defined as an economic activity involving the production and sale of goods and
services undertaken with a motive of earning profit by satisfying human needs in society.
The main difference between economic and non-economic activities depends on the basic motives
with which they are performed. The same activity can be economic if it results in earning money and can
be non-economic if the motive is not monetary gain. For example, when a teacher is teaching in a school
and gets salary, it is an economic activity. However, if he/she is teaching his/her son or daughter at home,
then it is called a non-economic activity. Similarly, when a farmer is producing crop for selling in the market,
G.

it is an economic activity. But when he is cultivating crop for self-consumption, it is called a non-economic
activity.

Evolution and Fundamentals of Business 10

 AG
1.2.3 Types of Economic Activities
AL
Economic activities can be classified into three broad categories:

1. Business : Business refers to those economic activities which are concerned with production,
purchase, sale or distribution of goods or supply of services with main aim of earning money or
profit. For example, farming, fishing, cultivation by farmer, mining, publishing a book by a
publisher, etc.
S.

2. Profession : Profession may be defined as an economic activity that requires special knowledge
and skills to be applied by individuals in their work to earn income.
The individuals involved in professions are called professionals. In every profession, guidelines
or codes of conduct laid down by professional bodies have to be adhered. For example,
Chartered Accountants are in accounting profession and have to adhere the codes of conduct
laid down by the Institute of Chartered Accountants of India. Similarly, Doctors are professionals,
engaged in medical profession governed by the Medical Council of India.
3. Employment : It may be defined as an economic activity in which people work for others and
G.

receive remuneration (salaries/wages) in return. The persons who are employed by others are
called employees and the employer is the one who offers job/service.
Examples:
(a) Persons who work in bank receive salaries.
(b) Working as a nurse/doctor in a hospital.
(c) Working as labour in factory get wages.

11 Business Studies
 (d) Working in banks, government departments, insurance companies as managers, supervisors,
assistants, salesmen, peon, etc.

AG
AL
S.

1.3.1 Characteristics of Business

1. An Economic Activity : Business is an economic activity which is carried on with the primary
objective of earning livelihood or money. Earning profits is the main aim of every business activity.
G.

Activities done out of sympathy, love and affection or for any charitable purpose do not fall
under the category of business.
2. Production or Procurement of Goods and Services : The business firm either manufactures goods
or acquires them from manufacturers, before they are offered to people for consumption. A
business firm is said to be manufacturing firm when it produces goods and services itself whereas

Evolution and Fundamentals of Business 12

 if it buying goods from producers for the purpose of sale, then it is called a trading firm.
The goods may be consumable or capital. Consumable goods are meant for direct consumption
by the final consumers like milk, sugar, note book, clothes, shoes, butter, bread etc. Capital goods

AG
are those goods which are used for the production of consumer goods such as machinery, plant,
materials etc. Services such as banking, electricity, insurance, transportation, etc.
3. Sale or Exchange of Goods and Services : Sale or exchange of goods and services between the
seller and the buyer is one of the prominent characteristics of business. Business involves sale
or exchange of goods and services for some consideration. If goods are manufactured for self
consumption and not for sale purpose then it can’t be termed as a business activity.
For example, if the owner of a bookshop purchases a book for himself cannot be called business
activity but if he sells the book to a customer, it is called business activity. Similarly, purchasing
goods for presenting to others as gifts do not constitute a business because there is no sale but
purchasing goods for resale is termed as business activity.
4. Dealing in Goods and Services on a Regular Basis/Regular Dealing : Another prominent feature
of business is that it must involve exchange of goods and services on a regular or daily basis.
One single transaction of sale or purchase cannot be termed as business. Business must involve
regularity of dealings or transactions of similar nature for price. For example, if a person sells

AL
his furniture or car (even at profit) is not a business activity. But, if he continuously deals in
buying and selling of furniture or car, it will be considered as business activity.

5. Profit Earning : The main objective of business is to earn adequate profit and obtain wealth.
Earning sufficient profits is indispensable for the survival of the business. Profit helps
businessman in earning his livelihood and also in survival, growth and expansion of business.
S.

A businessman always tries to maximise revenues by making optimum use of resources, lowering
costs and increasing the sales level. However, profit is not the sole criterion of business. The
modern concept of business is founded on the goal of ‘profits through service.’
6. Uncertainty of Return : Uncertainty is another main characteristic of every business. A
businessman invests capital to run its business but he/she is not certain about the amount of
profit that he/she may earn. Also, there is always a possibility of losses being incurred, inspite
of the best efforts put into the business by him/her.
7. Element of Risk : The risk element always exists in every business. In each business activity,
some amount of risk is always present. Risk might occur by various factors such as fire, strikes,
G.

theft, change in fashion or taste of consumer, non-availability of raw material, breakdown of

machinery, increase in the level of competition, power failure, hailstrom, change in government
policies, bad labour-management relations, natural calamities like flood, earthquake, etc. Though,
businessmen can take measures through insurance, but loss cannot completely be eliminated.

13 Business Studies
1.4 OBJECTIVES OF BUSINESS
Objectives are needed in every area that influences the survival and prosperity of business. Since a
business has to balance a number of needs and goals, it requires multiple objectives. It cannot follow only

AG
one objective and expect to achieve excellence. Objectives have to be specific in every area and sphere of
business. Objectives also enable the business to analyse their own performance and take steps as necessary
to improve their performance in future. Some of these areas are described as follows:
1. Market standing: Marinating goodwill and reputation of one’s business is paramount to succeed
and prosper. It helps in forming a distinct identity in the market and is referred to as market standing in
relation to its competitors. A business enterprise must aim at standing on stronger footing in terms of offering
competitive products at reasonable prices to its customers and serving them to their satisfaction.
2. Innovation: Innovation is central to the growth of any business enterprise. It helps business to
scale up and give competititve edge to the enterprise in the market. Innovation is defined as an introduction
of new ideas or methods in the way something is done or made. However, it does not imply that a new
product is to be manufactured. Any modification in the existing product to enhance its operation also denotes
innovativeness. There are two kinds of innovation in every business, i.e., (i) innovation in product or
services; and (ii) innovation in various skills and activities needed to supply products and services. No
business enterprise can flourish in a competititve world without innovation. Therefore, innovation becomes
an important objective.

AL
3. Productivity: Productivity is ascertained by comparing the value of output with the value of inputs.
It is used as a measure of efficiency. In order to ensure continuous survival and progress, every enterprise
must aim at greater productivity through the best use of available resources.
4. Physical and financial resources: Any business requires physical resources, like plants, machines,
offices, etc., and financial resources, i.e., funds to be able to produce and supply goods and services to its
customers. The business enterprise must aim at acquiring these resources according to their requirements
and use them efficiently.
5. Earning profits: One of the objectives of business is to earn profits on the capital employed.
Profitability refers to profit in relation to capital investment. Every business must earn a reasonable profit
which is so important for its survival and growth.
6. Social responsibility: Social responsibility refers to the obligation of business firms to contribute
resources for solving social problesm and work in a socially desirable manner.
1.5 ROLE OF PROFIT IN BUSINESS
An objective is the starting point of business. Every business is directed to the achievement of certain
S.

objectives. Objectives refer to all that the business people want to get in return for what they do. It is
generally believed that business activity is carried out only for profit. Business persons themselves proclaim
that their primary objective is produce or distribute goods or services for profit. Every business is said to
be an attempt on the part of business people to get more than what has been spent or invested, or in other
words, to earn profit which is the excess of revenue over cost. However, it is being increasingly realised
nowadays that business enterprises are part of the society and need to fulfil several objectives, including
social responsibility, to survive and prosper in the long run. Profit is found to be a leading objective but
not the only one.
Although earning profit cannot be the only objective of business, its importance cannot be ignored.
G.

Every business is an attempt to reap more than what has been invested, and profit is the excess of revenue
over cost. Profit may be regarded as an essential objective of business for various reasons:
(a) Source of Income for Businessmen : Profit is the main source of income and it provides
livelihood for the businessmen who spend time and efforts to manage business.
(b) Source of Funds for Business Growth : Just as air, water and food are essential for living similarly
profit is essential for the survival, growth, diversification, modernisation, innovation and

Evolution and Fundamentals of Business 14

 expansion of business. Profit is the life blood of any business without which it cannot survive.
A part of the profits can be retained for the expansion of the business. Retention of profits, an
internal source of funds, is always considered cheaper source than external sources such as

AG
banks, financial institutions, etc.
(c) Index of Performance : Profit is considered as an index or barometer for measuring the performance
of the business firm. Higher profits indicate that the business enterprise is financially sound and
also ready to face any uncertain future risks and vice-versa.
(d) Reward for Risk Taking : Profit acts as a reward for the risk born by the businessman. A
businessman invests capital in business and undertakes risks with the hope of earning adequate
profits in future. It is the profit element that motivates businessman to carry on with business
inspite of risks and uncertainties and the possibility of increasing losses. Profit and risk are
directly related to each other. Higher the risk, higher is the return and vice-versa.
(e) Builds Up Reputation of Business : A profit making enterprise enjoys more goodwill in the society
as compared to loss earning concern. Such goodwill helps business units to raise loans and
acquire credit more easily etc. for further improvement of the business. The adequate profit making
business firm pays more wages/salaries to its employees, and dividend at competitive rates to
shareholders and superior quality of goods at reasonable price to its customers. Consequently,
the firm becomes reputed.

AL
However, earnings of profits cannot be the only motive of business. According to Urwick, “Profit
can no more be the objective of a business than eating is the objective of living.”
Arguments against Profit Maximisation/Profit Maximisation should not be the Sole Objective
(a) Profit maximisation neglects the interests of employees, consumers, labour, investors and the
society.
(b) Profit maximisation may propel a businessman to involve in anti-social practices like false
advertising, adulteration, black-marketing, hoarding, etc.
(c) A business unit cannot survive in the long period if it adopts unfair trade practices for the sake
of profits because the people who affected by this will oppose and raise voice against such
restrictive trade practices of business firms. The firms might lose business and may be unable to
earn profit and survive.
Conclusion : The real objective of business should be ‘Profit earning through service to society.’
1.6 BUSINESS RISKS
S.

The possibility of inadequate profits or even losses due to uncertainties or some unpredictable,
unexpected/unforeseeable and unfavourable events which are beyond the control of the businessman is
called business risk.
Examples :
(a) Damage caused by fire, theft, earthquake, storm, cyclone, flood, embezzlement, bad debts, death,
etc.
(b) Demand for a firm’s product may fall due to change in taste, preference and fashion of customers
or change in the policy of competitors, etc.
(c) Non-availability of power, capital, raw material in desired quantity and quality.
G.

(d) Stopping of production due to worker’s strike.

(e) Who could foresee the terrorist attack on the World Trade Centre (WTC) at Newyork on 11th
September 2001? This single happening claimed thousands of human lives and had adverse effects
on investors, stock brokers, hotels, airlines, importers, exporters and other business firms
throughout the world.

15 Business Studies
 (f) Earthquake, Tsunami and Nuclear blast in Japan in March 2011 not only claimed thousands of
human lives but also affected the whole japanese economy. The commercial activities including
power supply, banks, hotels, restaurants, entertainment, transportation etc., were very badly

AG
affected.
(g) Breakdown of plant and machinery and so on.

1.6.1 Types of Business Risks

The different types of business risks are given below:
1. Speculative Risks : Speculative risks involve both the possibility of loss as well as the
possibility of profit. They arise due to price fluctuations, changes in taste and fashion of
consumers, changes in demand, etc. Speculative risks can be minimised and avoided.
2. Pure Risks : Pure risks involve only the chance of loss or no loss but they never bring any
profit. Earthquake, flood, theft, fire etc. are all examples of pure risks.
3. Insurable Risks : Insurable risks are those risks which can be covered or insured because
their probability can be determined. In other words, the losses for which firm can get
compensation from insurance company are called insurable risks. Examples include fire, accident,
theft, etc.

1.6.2 Nature of Business Risks

AL
4. Non-Insurable Risks : Non-insurable risks are those risks which cannot be insured, e.g., change
in government policies, price fluctuations, change in demand and supply, etc. They cannot be
insured because it is not possible to determine the probability of such risks.

1. Risk is an Essential Part of Every Business : Risk is an unavoidable characteristic of business.

No business can run without some element of risk in it. According to Peter F. Drucker, “Risk
bearing is an essential element of business.” However, the degree of risk may vary from business
to business. Though risk can be minimised but cannot be eliminated completely from the business.
2. Business Risks Arise Due to Uncertainties : Uncertainty refers to the lack of knowledge about
what is going to happen in future. Technological changes, strikes, natural calamities, theft, fire,
dishonesty, bad debts, change in government policies, change in demand, price fluctuations,
etc., are few of the examples of uncertainty which create risks for business.
3. Degree of Risk Depends Mainly upon the Nature and Size of Business : The degree of risk in
the business is determined by the nature of business (i.e., type of goods and services
S.

manufactured and sold) and the volume of production. For example, a company dealing in
essential commodities like wheat, sugar, salt, etc. faces lesser risk than others who deal in
fashionable items. The amount of risk in large scale firms is much higher as compared to small
scale units.
4. Profit is the Reward or Return for Risk Taking : Profit is the outcome for bearing risk. Risk
and profit are directly related to each other. There is a famous saying, “more risk, more gain”.
This principle is applicable to all types of business.
1.6.3 Causes of Business Risks
G.

The main causes of business risks are:

1. Natural Causes : This is an important cause of business risk. Natural calamities like tsunami,
drought, earthquake, volcanic eruption, snowfall, hailstrom, epidemic, famine, tornado, etc. result
in heavy loss of life, property and income. Losses due to natural causes are unpredictable and
unavoidable. Human beings have very little or no control over nature. For example, thousands
of businessmen had to suffer heavy losses due to Gujarat earthquake on 26th January 2001.

Evolution and Fundamentals of Business 16

 2. Human Causes : Human causes are also prominent causes of business risks. These include strikes,
gheraos, embezzlement of cash, laziness and carelessness of employees, theft of goods,
dishonesty on the part of employees, riots, irrational approach of manager or owners of the

AG
business, etc.
3. Economic Causes : Economic causes are related to the changes taking place in the market. Many
economic causes can result in business risks like demand and price fluctuations, change in
government policies, recession in the market, change in technology, etc. For example, Digital
watches resulted in death of Traditional watches.
4. Other Causes : There may be physical causes and political causes. Physical causes include
technical or mechanical causes which affect the working of the assets of business. For example,
breakdown of cooling machine results in damage of perishable goods such as milk and ice cream.
Political causes include changes in government policies regarding taxation, excise duty, licensing,
foreign trade, etc. and fall of the government, civil war, changes in laws may lead to huge loss
in business.
1.7 CLASSIFICATION OF BUSINESS ACTIVITIES
Various business activities can be divided into two broad categories:

I. Industry
AL
Meaning of Industry
Industry refers to an activity which is concerned with the production or processing of goods and
materials (using mechanical appliances and technical skills) as well as breeding and raising of animals.)
The term industry also refer to a group of firms producing similar or related goods. For example,
electronic industry includes all the business firms which are manufacturing electronic goods such as video
camera, T.V., etc. Similarly, cotton textile industry includes all business firms producing textile goods from
cotton.
S.

Types of Industries
Industries can be divided into three broad categories:

1. Primary Industries
G.

Primary industries include all those activities which are concerned with the extraction, production and
processing of natural resources and reproduction and development of living organisms, plants, etc. Primary
Industries can further be divided into two categories :
(a) Extractive Industries : Extractive industries are those which involve extraction of products from
natural resources like fish from rivers, timber from forest and mineral from earth. Afforestation,

17 Business Studies
 fishing, mining, oil extraction, lumbering, hunting, farming, etc., are important examples of
extractive industries. The products of extractive industry can be directly consumed (e.g., fish as
food) or used as raw materials by other manufacturing and construction industries (e.g., in steel

AG
industry iron ore is used).
(b) Genetic Industries : Genetic means heredity or parentage. Genetic industries are concerned with
breeding of plants and animals and their use in further reproduction. The examples are dairy
farming, cattle breeding farms, nursery, animal husbandry, poultry farming, pisciculture, etc.

2. Secondary Industries
Secondary industries are concerned with using the materials extracted at the primary stage to
manufacture goods either for final consumption or for further processing by other industrial companies.
For example, manufacturing cotton is a primary industry and producing cloth out of cotton is a secondary
industry.
Secondary industries may be further classified as follows :
(a) Manufacturing Industries : Manufacturing industries are those industries which convert or
transform raw materials or partly finished products into finished products. Such industries create
form utility by changing the shape or form of raw materials into finished products. For example,

AL
sugarcane into sugar, cotton into cloth, timber into furniture, iron into steel, etc.
Manufacturing Industries can be further classified into the following four categories:
(i) Analytical Industry : Under this industry many things are produced out of one thing. In
other words, in this industry, a basic raw material is analysed and separated into different
products. For example, in an oil refinery, crude oil is separated into a number of products
like diesel, petrol, lubricating oil and gasoline.
(ii) Synthetical Industry : In this type of industry, two or more materials are combined or
mixed together to produce a new product. For example, cement is produced by mixing
concrete, gypsum, coal, etc. Similarly, various chemicals are mixed to make paints, cosmetics,
soap, etc.
(iii) Processing Industry : It is an industry in which a raw material is processed through various
stages of production for obtaining finished products. For example, in the cotton textile
industry, cotton is passed through the spinning, weaving, dyeing, bleaching and printing
processes to transform it into cloth.
(iv) Assembling Industry : In assembling industry, manufactured components or parts are
S.

assembled to produce a new product. For example, production of cars, computers,

television, automobiles, watches, bicycles, etc.
(b) Construction Industries : Construction industries are concerned with the construction of
buildings, flyovers, roads, dams, canals, etc. These industries use the products of manufacturing
industries such as steel, cement, brick, iron, etc. and also the products of extractive industries
such as marble, stone, coal, etc. The special characteristic of these industries is that their products
are immovable or cannot be shifted to the market for sale purpose. They are constructed and
remain at a fixed location only. The products constructed by these industries are very durable in
nature.
G.

3. Tertiary Industries
These industries are also called service industries. They provide services to primary and secondary
industries and facilitates smooth flow of goods and services in the economy. It includes transport, banking,
communication, advertising, warehousing, packaging, insurance, etc.

Evolution and Fundamentals of Business 18

II. COMMERCE
Commerce includes two types of activities, viz., (i) trade and (ii) auxiliaries to trade. Buying and selling
of goods is termed as trade. But there are a lot of activities that are required to facilitate the purchase and

AG
sale of goods. These are called services or auxiliaries to trade and include transport, banking, insurance,
communication, advertisement, packaging and warehousing. Commerce, therefore includes both, buying
and selling of goods, i.e., trade, as well as, auxiliaries, such as transport, banking, etc.
Commerce provides the necessary link between producers and consumers. It embraces all those
activities, which are necessary for maintaining a free flow of goods and services. Thus, all activities involving
the removal of hindrances in the process of exchange are included in commerce. The hindrances may be in
respect of persons, place, time, risk, finance, etc. The hindrance of persons is removed by trade, thereby,
making goods available to consumers from the possession or ownership producers. Transport removes the
hindrances of place by moving goods from the place of production to the markets for sale. Storage and
warehousing activities remove the hindrance of time by facilitating holding of stocks of goods to be sold
as and when required. Goods held in stock, as well as, goods in course of transport are subject to a risk of
loss or damage due to theft, fire, accidents, etc. Protection against these risks is provided by insurance of
goods. Capital required to undertake the above activities is provided by banking and financing institutions.
Advertising makes it possible for producers and traders to inform consumers about the goods and services

AL
available in the market. Hence, commerce is said to consist of activities of removing the hindrances of
persons, place, time, risk, finance and information in the process of exchange of goods and services.

1. Trade
Trade refers to buying and selling of goods and services with profit motive. It involves exchange of
goods and services between buyers and sellers.
Trade and Auxiliaries to Trade
Trade is an essential part of commerce. It refers to sale, transfer or exchange of goods either physcial
or virtual. It helps in making the goods produced available to the consumers or users. These days goods
are produced on a large scale and it is difficult for producers to themselves reach out to individual buyers
for selling their products. Businessmen are engaged in trading activities to make the goods available to
consumers in different markets. In the absence of trade, it would not be possible to undertake production
activities on a large scale.
Activities which are meant for assisting trade are known as auxiliaries to trade. These activities are
generally referred to as services because these are in the nature of facilitating the activities relating to
industry and trade. Transport, banking, insurance, warehousing, and advertising are regarded as auxiliaries
S.

to trade, i.e., activities playing a supportive role. In fact, these activities support not only trade, but also
industry and, hence, the entire business activity. Auxiliaries are an integral part of commerce in particular
and business activity in general. These activities help in removing various hindrances which arise in
connection with the production and distribution of goods. Transport facilitates movement of goods from
one place to another. Banking provides financial assistance to the manufacturer and trader. Insurance covers
various kinds of business risks. Warehousing creates time utility by way of storage facilities. Advertising
provides information to the consumers. In other words, these activities facilitate movement, storage,
financing, risk coverage and sales promotion of goods. Auxiliaries to trade are briefly discussed below:
(a) Transport and Communication : Generally, goods are manufactured at a particular location whereas
G.

these are demanded in different parts of the country. The hindrance of place is eliminated by
transport. The various means of transportation are truck, railways, air, water, etc. For example,
cotton is produced in Gujarat and Maharashtra, tea is mainly produced in Assam and Darjeeling
but these goods are consumed all over the country. This is made possible only because of

19 Business Studies
 transport. Transport helps in movement of raw materials to place of production and the finished
goods from factories to different parts of country where they are finally consumed. It creates
place utility.

AG
Along with transportation facility, communication is also prominent service. It helps in exchange
of information among producers, consumers and traders. The common means of communication
are internet, postal service, telegram, fax, telephones, etc.
(b) Banking and Finance : Business activities cannot be undertaken unless funds are available for
acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be
obtained by businessmen from a bank. Thus, banking helps business activities to overcome the
problem of finance. Commercial banks, generally lend money by providing overdraft and cash
credit facilities, loans and advance. Banks also undertake collection of cheques, remittance of
funds to different places, and discounting of bills on behalf of traders. In foreign trade, commercial
banks help exporters in collecting money from importers. Commercial banks also help promoters
of companies to raise capital from the public.
(c) Insurance : Business involves several types of risks, e.g., fire, theft, death, natural calamities,
etc. This hindrance of risk is removed by insurance. A businessman can protect himself from
different types of risks with the help of insurance. Insurance companies undertake to make good

(d) AL
any loss or damage by receiving a nominal premium in advance as consideration. The different
types of insurance are marine insurance, life insurance, fire insurance, etc.
Warehousing : Generally, there is a time gap between the manufacturing and consumption of
goods. Goods produced are not sold off immediately in the market. For example, seasonal goods
like rice, wheat, etc. are produced in a particular season but are consumed throughout the year
so it is necessary to store these goods till they are demanded by consumers. Warehousing helps
the businessmen to eliminate the hindrance of storage of goods and facilitates the availability of
goods whenever needed. Warehousing also helps in maintaining reasonable level of prices by
ensuring continuous supply of goods. Warehousing creates time utility.
(e) Advertising and Public Relations : There is an old saying “Advertising is what you pay for and
PR is what you pray for”. Both advertisement and PR activities are the tools to commerce, influence
and promote your product, services or an idea to your potential customers and motivate you
target customers to recognise your accomplishments.
Advertising and public relation activities are one of the most important methods of promoting
the sale of products and services in a market place. It is practically impossible for producers and
S.

traders to contact each and every customer. Thus, for promoting sales, information is made
available through advertisements and publicity tools about their features, price, etc., to the
potential customers. Also, there is a need to persuade potential customers and buyers about the
utility featuress, quality, price, competitive information about the goods and services, etc. The
publicity of such attributes of products and services are done using various techniques of
maintaining public relation tools. The popular PR tool is the use of press release in print and
social media platforms. Advertising and Public Relations activities help in providing information
about available goods and services and inducing customers to buy particular items.
Advertisements are always a paid activity where business occupies space in print or non-print
media to promote its product or a service. PR activities, on the other hand, are normally unpaid
G.

where business enters into a strategic communication to build a mutually beneficial relationship.

Evolution and Fundamentals of Business 20

 AG
AL MAKE IN INDIA
‘Make in India’ is an initiative launched by the Government of India on September 25, 2014, with
the primary goal of making India a global manufacturing hub, by encouraging both national as well as
international companies to manufacture their products in India.
The major objectives behind the ‘Make in India’ initiatives are job creation and skill enhancement
in 25 Sectors of the economy, which are as follows:
1. Automobile 2. Automobile Components 3. Aviation
4. Biotechnology 5. Chemicals 6. Construction
7. Defence Manufacturing 8. Electrical Machinery 9. Electronic Systems
10. Food Processing 11. Information Technology and 12. Leather
Business Process Management
S.

13. Media and Entertainment 14. Mining 15. Oil and Gas
16. Pharmaceuticals 17. Port and Shipping 18. Railways
19. Renewable Energy 20. Roads and Highways 21. Space and Astronomy
22. Textiles and Garments 23. Thermal Power 24. Tourism and Hospitality
25. Wellness
G.

21 Business Studies
 AG
❑ Economic Activities : Economic activities are those activities which are undertaken to earn livelihood
or money and to create wealth. For example, driving a car by a driver.
❑ Non-Economic Activities : Non-economic activities are those human activities which are undertaken
for the satisfaction of emotional, psychological and social needs. For example, social work, teacher
teaching his son at home, etc.
❑ Types of Economic Activities : Economic activities can be divided into three broad categories:
1. Business. 2. Profession. 3. Employment.
❑ Characteristics of Business
1. An Economic Activity.
2. Production or Procurement of Goods and Services.

❑
6. Uncertainty of Return.
7. Element of Risk.
Objectives of Business
1. Economic Objectives—
AL
3. Sale or Exchange of Goods and Services for the Satisfaction of Human Needs.
4. Dealing in Goods and Services on a Regular Basis.
5. Profit Earning.

(a) Earning Profits (b) Survival (c) Growth

2. Social Objectives—
(a) Quality Goods. (b) Avoidance of Unfair Trade Practices.
(c) Generation of Employment Opportunities. (d) Welfare of Employees.
(e) Contributing to Community Development.
❑ Role of Profit in Business
S.

1. Source of Income for Businessmen.

2. Source of Funds for Business Growth.
3. Index of Performance.
4. Reward for Risk Taking.
5. Builds up Reputation of Business/Goodwill.
❑ Business Risks : “Risk may be defined as uncertainty in regard to cost, loss or damage.”
❑ Types of Business Risks
1. Speculative Risks 2. Pure Risks
G.

3. Insurable Risks 4. Non-Insurable Risks

❑ Nature of Business Risks
1. Business Risks Arise Due to Uncertainties.
2. Risk is an Essential Part of Every Business.

Evolution and Fundamentals of Business 22

 3. Degree of Risk Depends Mainly Upon the Nature and Size of Business.
4. Profit is the Reward for Risk Taking.

AG
❑ Causes of Business Risks
1. Natural Causes. 2. Human Causes. 3. Economic Causes. 4. Other Causes.
❑ Classification of Business Activities : Business activities can be divided into two categories:
I. Industry : Industry can be defined as an economic activities which are connected with conversion
of resources into useful products.
II. Commerce: Commerce includes all those activities which are necessary for facilitating the
exchange of goods and services.
❑ Types of Industries
1. Primary Industries
(a) Extractive Industries e.g., afforestation, fishing, farming, etc.
(b) Genetic Industries e.g., nursery, animal husbandry, pisciculture, etc.
2. Secondary Industries

AL
(a) Manufacturing Industries
• Analytical Industry e.g., an oil refinery separates crude oil into a number of products
like diesel, petrol, gasoline and lubricating oil.
• Synthetical Industry e.g., paints, cement, soaps.
• Processing Industry e.g., cotton and sugar.
• Assembling Industry e.g., automobiles, computers, cars, etc.
(b) Construction Industries e.g., construction offlyovers, dams, roads, etc.
3. Tertiary Industries : They provide services facilities, e.g., transport, banking, communication,
advertising, warehousing, insurance, etc.
II. Commerce : Commerce includes trade and auxiliaries to trade. Trade refers to buying and selling
of goods. Activities that help in the smooth flow of trade are called auxiliaries or aids to trade
e.g., transportation and communication, banking and finance, etc.
❑
S.
Types of Trade
1. Internal Trade : Trade done within geographical boundaries of one country is called internal
trade. Internal trade can be divided into two broad categories:
(i) Wholesale Trade. (ii) Retail Trade.
2. External Trade : It refers to buying and selling of goods and services between people or
organisations belonging to different countries. External trade can be classified into three broad
categories:
(i) Import Trade. (ii) Export Trade. (iii) Entrepot Trade.
❑
G.

Auxiliaries to Trade
1. Transport and Communication. 2. Banking and Finance.
3. Insurance. 4. Warehousing. 5. Advertising.

23 Business Studies
TYPOLOGY OF QUESTIONS

AG
EXERCISE
OBJECTIVE TYPE QUESTIONS (OTQ’s)/MULTIPLE CHOICE QUESTIONS (MCQ’s)
[1 mark each]

1. Mr. Shenoy wanted to start business of supplying readymade garments. But he was wondering
about how much profit or return on investment he would be able to earn. This situation reflects
which characteristic of business?
(a) Economic Activity (b) Profit Earning
(c) Uncertainty of Return (d) Element of Risk
2. An American firm ‘Zebsik Enterprise’ purchased handmade decorative pieces from India,
re-packaged and sold them in its own name to Germany. The above transactions represents

AL
(a) Entrepot for Zebsik Enterprise, Export for India and Import for Germany.
(b) Export for Zebsik Enterprise, Import for India and Entrepot for Germany.
(c) Import for Zebsik Enterprise, Entrepot for India and Export for Germany.
(d) Import for Zebsik Enterprise, Export for India and Entrepot for Germany.
3. Which type of industry is packaging?
(a) Processing Industry
(c) Assembling Industry
(b) Primary Industry
(d) Tertiary Industry
4. Sudden rise in the cost of operation is a cause related to which type of business risk?
(a) Human Cause (b) Technological Cause
(c) Natural Cause (d) Economic Cause
5. Which of the following is not an economic activity?
(a) Production of Goods (b) Trading in Goods
(c) Social Service (d) Professional Service
6. Identify the activity which is not an auxiliary to trade
S.

(a) Insurance (b) Mining

(c) Banking (d) Warehousing
7. Match the correct options of column-I with column-II. (1 mark each)
Column-I Column-II
(i) Economic Activities (a) Profit
(ii) Business Risk (b) Road transport
(iii) Business (c) Production
(iv) Door to Door Service (d) Uncertainty
G.

8. Out of the following name the trade in which goods are first imported and then exported.
(a) Import trade (b) Export trade
(c) Entrepot trade (d) None of the above
9. Which of the following cannot be classified as genetic industry?
(a) Mining (b) Animal husbandry
(c) Plantation (d) Poultry farming

Evolution and Fundamentals of Business 24

 10. Which of the following is the example of business uncertainties?
(a) Earthquake (b) Drought

AG
(c) Change in Prices (d) Snowfall
11. Economic activities include
(a) Business + Profession (b) Business + Employment
(c) Profession + Employment (d) Business + Profession + Employment
12. The occupation in which there is no need of capital is known as
(a) Employment (b) Business
(c) Both (a) and (b) (d) Profession
13. Commerce includes
(a) Business and Industry (b) Business and Trade
(c) Trade and Aids to Trade (d) None of above
14. Which among the following is not a feature of business?
(a) Production or procurement of goods and services
(b) Dealing in goods and services on regular basis
(c) Certainty of return
(d) Profit earning

(a) Synthetical
(c) Processing
AL
15. Chennai Refineries Ltd. import crude oil and separates different products like petrol, diesel, etc.
Name the type of manufacturing industry.
(b) Analytical
(d) Assembling
16. Which among the following is an example of ‘Natural Cause of Business Risk’?
(a) Strike (b) Theft
(c) Earthquake (d) Taxation
17. Match the following: (1 mark each)
Services Types of Hindrances
(a) Warehousing (i) Hindrance of Place
(b) Transportation (ii) Hindrance of Risk
(c) Insurance (iii) Hindrance of knowledge
S.

(d) Advertisement (iv) Hindrance of Time

18. Match column ‘A’ with column ‘B’ and ‘C’. (1 mark each)
A B C
(a) Employment (i) Personal satisfaction (I) Personalised service
(b) Business (ii) Fees (II) Gardening at home
(c) Profession (iii) Profit (III) High risk
(d) Non-Economic Activity (iv) Service contract (IV) Salary
19. Transportation removes the hindrance of _________ in trading activities.
G.

(a) Place (b) Risk

(c) Time (d) Finance
20. Fill in the blanks. (1 mark each)
(a) Business ___________.
(b) Profession Fee
(c) Employment ___________.
25 Business Studies
 21. Poor workmanship and carelessness may cause spoilage of the resources and bring losses to a
business. In which of the following, it can be included?
(a) Economic causes (b) Human causes

AG
(c) Political causes (d) Natural causes
22. In which type of industry oil refinery falls?
(a) Extractive (b) Genetic
(c) Manufacturing (d) Construction
23. Choose the odd one from the following industries:
(a) Floury culture (b) Cement manufacturing
(c) Fish hatchery (d) Poultry farming
24. The industries which provide support service to other industries are known as ___________.
(a) Primary Industries (b) Secondary Industries
(c) Tertiary Industries (d) None of these
25. Mr. Naresh Batra a businessman incurred some financial loss due to the dishonesty of his workers.
This loss is caused due to ___________.
(a) Natural cause (b) Financial cause
(c) Human cause
26. Banking is ___________.
(a) Primary Industry
(c) Tertiary Industry
AL
27. Mining is an example of ___________ industry.

Basis Business
(d) Economic cause

(b) Secondary Industry

(d) Not an Industry

28. Complete the following table with the help of given information.
Profession
(1 mark each)
Employment
Commencement ? Membership of ?
professional body
? Heavy risk ? ?
Qualification ? ? Depend upon the
nature of the job
Transfer of interest ? Not possible ?
S.

Return Profit ? ?

29. Which one of the following economic activities is directed towards producing or acquiring wealth
through buying and selling of goods?
(a) Profession (b) Employment
(b) Management (d) Business
30. Match the following type of industries in Column I with Column II. (1 mark each)
G.

Column I Column II
I. Genetic Industry A. Packaging
II. Processing B. Cement
III. Synthetical C. Sugar Mills
IV. Tertiary D. Animal Husbandry
(a) I—A; II—B; C—III; D—IV (b) I—B; II—C; III—D; IV—A

Evolution and Fundamentals of Business 26

 (c) I—C; II—D; III—A; IV—B (d) I—D; II—C; III—B; IV—A
31. “Bad debts due to non-payment of debts by debtors” is an example of which type of business
risk?

AG
(a) Economic (b) Human
(c) Physical (d) Natural
32. Why a business should earn profit?
(a) To provide return to investor (b) To provide funds for future growth
(c) To increase the reputation of business(d) All the above
33. What reward does an entrepreneur get for risk bearing in business?
(a) Salary (b) Profit (c) Interest (d) Fees
34. It grew as a major centre of textile industry and became popular for stunning gold silk cloth and
sandalwood workmanship.
(a) Broach (b) Tamralipti
(c) Varanasi (d) Surat
35. Which one of the following is NOT known as service industry?
(a) Processing (b) Banking (c) Insurance (d) Advertising

(a) Business
(c) Employment

(c) Both of the above

AL
36. Which one of the following is an economic activity in which specialised knowledge is required?

37. Risk is the result of _________.

(a) Certainties

38. Which of the following creates ‘form utility’?

(a) Industry (b) Trade
(b) Profession
(d) None of the above

(b) Uncertainties
(d) None of the above

(c) Commerce (d) Business

39. Code of conduct DOES NOT include
(a) Rules (b) Dishonesty (c) Morality (d) Integrity
40. A business firm in India buys toys from China to sell it to Sri lanka. Identify the type of trading
activity mentioned above.
(a) Entreport (b) Import (c) Export (d) Retail trade
41. Soaps are included under which type of industry?
(a) Analytical Industry (b) Synthetical Industry
S.

(c) Processing Industry (d) Assembling Industry

42. Fill in the blanks. (1 mark each)
(i) _____________ activities are undertaken to satisfy social and psychological needs.
(ii) _____________ requires special knowledge and skills in the occupation to earn fees.
(iii) _____________ includes activities which are connected with production, purchase and
sale of goods with the aim of earning profit.
(iv) Occupation in which people work for others and get salary or wages in return is termed as
_____________.
(v) The Indian subcontinent enjoyed the fruits of favourable balance of trade, where
G.

_____________ exceeded _____________ with large margins.

(vi) The economic and commercial evolution of any economy depends upon its _____________.
(vii) The Indian subcontinent enjoyed the fruits of favourable balance of trade, where
_____________ exceeded _____________ with large margin.
(viii) The maritime routes linked the east and the west by sea and were used for the trade of
spices and known as _____________.
27 Business Studies
 (ix) Commercial cities like _____________ and _____________ were founded in the third
millennium B.C.
(x)_____________ was another source of income generation. It had to be paid for

AG
passengers, goods, cattle and carts.
43. Which of the following does not characterise business activity?
(a) Production of goods (b) Presence of risk
(c) Sale or exchange of goods and services(d) Salary or wages
44. Which of the broad categories of industries covers oil refinery and sugar mills?
(a) Primary (b) Secondary (c) Tertiary (d) None of them
45. The occupation in which people work for others and get remunerated in return is known as
(a) Business (b) Employment (c) Profession (d) None of them
46. Classify the following economic activities under appropriate heads.
(a) Gurpreet, a Chartered Accountant working as Finance Manager in National Heavy Chemicals
Ltd.
(b) Prateek is a leading advocate in Chennai, practising in High Court
Ans.

Ans.
(a) Mining
(c) Building Works
AL
______________________________________________________________________________
47. Fill in the blanks.

48. Classify the following industries under suitable heads.

(b) Textile Industry
(d) Animal Husbandry
(1 mark each)

______________________________________________________________________________
49. State whether the following statements are ‘True’ or ‘False’: (1 mark each)
(i) All business risks can be insured.
(ii) Business comprises industry and trade.
(iii) Business is an economic activity.
(iv) Profit is the reward for bearing.
(v) Profession involves greater risk than business
S.

50. State whether the following statements are ‘True’ or ‘False’: (1 mark each)
(i) Employment involves greater risk than business.
(ii) Business risk increases with the size of business.
(iii) Teaching in a college is a non-economic activity.
(iv) Business risk due to natural causes can be controlled.
(v) Earning profits is the sole objective of business.
51. State whether the following statements are ‘True’ or ‘False’: (1 mark each)
(i) Employment is an economic activity.
G.

(ii) A business activity may be without a profit motive.

(iii) A boy helping a blind woman to cross the road is an economic activity.
(iv) Commerce includes trade and auxiliaries to trade.
(v) Risk is an essential element of every business activity.

Evolution and Fundamentals of Business 28

 52. Match the ‘Types of Industries’ given under ‘A’ with the suitable statements under ‘B’:
(1 mark each)
A B

AG
(i) Synthetical Industry (a) Industry in which a product passes through various stages to
become a final product.
(ii) Extractive Industries (b) Industries engaged in breeding plants and animals for their use
in further reproduction.
(iii) Processing Industry (c) Industry engaged in combining two or more raw materials
together in the manufacturing process to make the final product.
(iv) Analytical Industry (d) Industry in which different components are assembled to make
a new product.
(v) Construction Industry (e) Industry engaged in analysing and separating basic raw
materials into different finished products.
(vi) Genetic Industries (f) Industries engaged in rasing products from natural sources.
(vii) Assembling Industry (g) Industries engaged in the construction of activities

1.
Ans.
2.
(i) Patliputra
What is meant by Hundi?
AL
List any two major trade of ancient India.
(ii) Peshawar
(1)

(1)
Ans. A Hundi is a financial instrument that developed in Medieval India in order to facilitate trade and
credit transactions.
3. List any two major exports and imports in ancient India. (1)
Ans. Exports : Spices and Wheat.
Imports : Horses and Chinese Silk.
4. Define maritime trade.
Ans. Maritime trade is the type of global trade which took place through sea route. Indian maritime
S.

history began during the 3rd millennium BCE when inhabitants of the Indus Valley initiated maritime
trading contact with Mesopotamia.
5. Name the type of human activity in which a teacher teaching his son at home. (1)
Ans. Non-economic activity.
6. Mention the two types of human activities. (1)
Ans. (a) Non-economic activities. (b) Economic activities.
7. Give two examples of economic activities. (1)
Ans. (a) A doctor operating in her clinic. (b) A worker working in a factory.
8. A girl helping a blind woman to cross the road is an example of which activity, economic or non-
G.

economic? (1)
Ans. Non-economic activity.
9. Give two examples of non-economic activities. (1)
Ans. (a) A boy helping a blind woman to cross the road.
(b) A housewife cooking food for her family.

29 Business Studies
 10. Mention different types of economic activities. (1)
Ans. Business, Profession and Employment.
11. Name the economic activity in which transfer of interest is possible. (1)

AG
Ans. Business.
12. A person repairs motorcycles on roadside. How will you describe this activity? (1)
Ans. Business activity.
13. Why is business considered as an economic activity? (1)
Ans. Business is considered to be an economic activity because it is undertaken with the object of
earning money or livelihood. Activities done out of sympathy, love and affection or for any
charitable purpose do not fall under the category of business.
14. Aarushi cooks food at home for her family but Kshitij cooks food and sells it to others in a
restaurant. Who is engaged in business activity? (1)
Ans. Kshitij is engaged in business activity.
15. Pranshu produces goods not for the purpose of sale but for personal consumption. Will it be a
business activity? Why? (1)
Ans. No, because it does not involve sale or exchange of goods and services between the seller and

16.

Ans.
17.
Ans.
18.
the buyer.

Risk.
AL
Name that element of business which cannot be avoided by the business units, but can be reduced.

What is the primary objective of business?

Profit earning.
Why must every business earn a reasonable profit?
(1)

(1)

(1)
Ans. Because a reasonable amount of profit is essential for the survival of the business.
19. Name the economic activity requiring special knowledge and skill. (1)
Ans. Profession.
20. Name the economic activity which involves specialised knowledge and in which entry is restricted.
(1)
Ans. Profession.
21. Which economic activity requires minimum academic and other qualifications? (1)
S.

Ans. Profession.
22. Name any two professions and professionals. (1)
Ans. (a) Accounting profession-CA. (b) Medical profession-Doctor.
23. Name the professional body whose guidelines or code of conduct are to be followed by lawyers.
(1)
Ans. Bar Council of India.
24. Differentiate between business, profession and employment on the basis of reward/return. (3)
Ans. Business : In a business, profit is the return for undertaking business activities.
G.

Profession : In a profession, the reward is in the form of professional fee for rendering professional
services.
Employment : In case of employment, the return is remuneration in the form of wages/salary/benefit
etc.
25. State two things which have to be taken into consideration to measure market standing. (1)
Ans. Market potential and competition.

Evolution and Fundamentals of Business 30

 26. Name the risk which involves both the possibility of loss as well as the possibility of profit. (1)
Ans. Speculative risk.
27. Which type of risks means chance of loss without any possibility of gain? (1)

AG
Ans. Pure risks.
28. Devesh is planning to set up a factory for manufacturing ready-made garments. List any two risks
that he might face. (1)
Ans. (a) Change in government policies. (b) Change in demand.
29. Why do we insure goods? (1)
Ans. We insure goods in order to minimise the risk of loss. Goods may be damaged or destroyed by
fire, theft and natural calamities in the process of transport and storage. Insurance protects against
such loss.
30. Name the industry which is concerned with extraction of natural resources and reproduction of
living organisms. (1)
Ans. Primary industry.
31. Mining of iron ore is an example of which industry? (1)
Ans. Primary industry.
32.
Ans.
33.
Ans.
34.
(a) Extractive industries.

Genetic industry.
AL
Mention two types of primary industries.
(b) Genetic industries.
Is dairying a genetic or an extractive industry?

Name the industries which is concerned with using the materials extracted at the primary stage to
manufacture goods either for final consumption or for further processing by other industrial
companies.
(1)

(1)

(1)
Ans. Secondary industry.
35. Mention two types of secondary industries. (1)
Ans. (a) Manufacturing industries. (b) Construction industries.
36. Name the industries which provide various support services to primary and secondary industries.
(1)
Ans. Tertiary industries.
37. Give two examples of tertiary industries. (1)
S.

Ans. (a) Banking. (b) Transportation.

38. Name two broad categories into which various business activities can be classified. (1)
Ans. (a) Industry. (b) Commerce.
39. Name the business activity which is concerned with conversion of resources into useful products.
(1)
Ans. Industry.
40. Give any two examples of extractive industries (1)
Ans. (a) Mining. (b) Lumbering.
G.

41. Give any two examples of genetic industries. (1)

Ans. (a) Dairy farming. (b) Animal husbandry.
42. Give two example of manufacturing industries. (1)
Ans. (a) Sugar industry (b) Cotton industry.

31 Business Studies
 43. Mention any two categories of manufacturing industries. (1)
Ans. (a) Processing industry. (b) Assembling industry.
44. Name the type of manufacturing industry in which one material is separated into several useful

AG
products. (1)
Ans. Analytical industry.
45. Give an example of analytical industry. (1)
Ans. Oil refinery.
46. Name the type of industry which combines various ingredients to form a new product. (1)
Ans. Synthetical industry.
47. Give an example of synthetical industry. (1)
Ans. Cement.
48. Name the type of manufacturing industry in which a raw material is processed through various
stages of production for obtaining finished products. (1)
Ans. Processing industry.
49. Write two examples of processing industry. (1)
Ans. (a) Paper industry.

Ans. Assembling industry.

AL (b) Cotton industry.
50. Name the type of manufacturing industry in which manufactured parts are brought together to
produce a new product?

51. Name the manufacturing industry wherein TV sets or computers are produced.
Ans. Assembling industry.
(1)

(1)

52. Internal or inland trade may be classified into two categories. Name the category which involves
buying and selling of goods in bulk quantities. (1)
Ans. Wholesale trade.
53. Name the business activity which involves movement of goods from the place of production to
the place of consumption. (1)
Ans. Transportation.
54. Name the auxiliary to trade which removes the hindrance of place. (1)
Ans. Transport and communication.
55. Name the auxiliary to trade which removes the hindrance of exchange. (1)
S.

Ans. Banking and finance.

56. Name the business activity which is concerned with holding goods in stock for sale in
future. (1)
Ans. Warehousing.
57. Name the auxiliary to trade which removes the hindrance of time. (1)
Ans. Warehousing or storage.
58. Name the auxiliary to trade which removes the hindrance of knowledge. (1)
Ans. Advertising.
G.

59. “Business is undertaken with the object of earning money.” Which characteristic of business is
highlighted in this statement? (1)
Ans. Business is an economic activity.
60. “Business activities are undertaken under conditions of uncertainty.” Which characteristic of
business is highlighted in this statement? (1)
Ans. Element of risk.
Evolution and Fundamentals of Business 32
 61. XYZ Ltd. is planting trees every month on the road side. Name the objective it is trying to
accomplish? (1)
Ans. It is trying to achieve ‘Social objective’.

AG
62. Distinguish between economic and non-economic activities on any three basis. (3)
Ans. (RTP-10)
63. Explain briefly any four characteristics of business. (4)
Ans. (RTP-12)
64. Distinguish between Business and Profession on the following basis: (4)
(a) Risk. (b) Mode of Establishment.
(c) Qualification. (d) Nature of work.
Ans. (RTP-11)
65. While on a study tour Raghav purchased a helmet for ‘ 400. When he returned home his friend
Varun offered ‘ 650 for it and he sold it to him. Is it a business activity? Give the reason. (3)
Ans. No. Explain the characteristic of business. Dealing in goods and services on a regular basis.
(RTP-12)

(a) Earning profits.

Growth.
Ans. (RTP-14)
AL
66. Explain the following objectives of business:

67. Explain any three economic objectives of a business.

Ans. (RTP-14)
68. Explain any three social objectives of a business.
Ans. (RTP-14)
(b) Generation of employment.
(3)
(c)

(3)

(3)

69. Profit is the primary motivating force for economic activity. Do you agree? Give any four reasons
in support of your answer. (4)
OR
“Earning of profit is regarded as the main objective of a business.” Explain by giving any four
reasons. (4)
OR
Explain the role of profit in business. (4)
S.

Ans. (RTP-15)
70. Is earning profits the sole objective of business? Discuss. (3)
OR
Why profit maximisation should not be the objective of business? (3)
Ans. Explain ‘Arguments against profit maximisation’. (RTP-15)
71. Explain different types of business risks. (4)
Ans. (RTP-16)
72. Distinguish between extractive industries and genetic industries by giving suitable examples. (4)
G.

Ans. (RTP-18)
73. What is meant by business risk? List its four nature. (5)
Ans. (RTP-16)
74. “No business is risk free.” In the light of this statement, explain the concept of business risk and
its any three causes. (4)

33 Business Studies
 OR
Your friend Shenoy intends to start a garment unit. But he is not aware of the possible risks that
he may have to face in his new venture. Explain him the causes of business risks with examples.

AG
(5)
Ans. (RTP-16)
75. Explain primary, secondary and tertiary industries. (6)
Ans. (RTP-18)
76. Explain different types of manufacturing industries, with examples. (4)
Ans. (RTP-18)
77. Distinguish between primary industry and secondary industry. Give examples. (6)
Ans. (RTP-18)
78. Write two examples of: (3)
(a) Extractive industry. (b) Genetic industry.
(c) Manufacturing industry.
Ans. (RTP-18)
79.
Ans.
80.
Ans.
81.
Ans.
82.
(RTP-19)

(RTP-20)
AL
What is meant by trade? Distinguish between wholesale trade and retail trade.

Explain in brief various types of foreign trade.

Differentiate between internal and external trade.

(RTP-19)
What do you mean by auxiliaries to trade? Explain any two auxiliaries to trade.
(3)

(3)

(5)

(3)
Ans. (RTP-20)
83. Distinguish between industry and commerce on the basis of meaning, capital requirement, risk
involved and utility. (4)
Ans. (RTP-23)
84. Dr. Dinesh runs a clinic. Mr. Aryan is running a bakery. Identify the types of economic activities
performed by both of them and state any three differences between them. (4)
Ans. Dr. Dinesh is engaged in ‘Profession’. (RTP-11)
S.

Mr. Aryan is engaged in ‘Business’.

85. Explain briefly any four functions of commerce. (4)
Ans. (RTP-22)
86. The structure of business is composed of both industry and commerce. Explain this statement.
(6)
OR
Explain the concept of business. Briefly explain the categories of business activities. (6)
Ans. (RTP-12 and 17)
Distinguish between industry, commerce and trade on any six basis. (6)
G.

87.
Ans. (RTP-23)

Evolution and Fundamentals of Business 34

 AG
Short Answer Type Questions
1. Why is business considered as economic activity?
2. How does business contribute to the economic development of a country?
3. State the different types of economic activities.
4. State the meaning of business.
5. How would you classify business activities?
6. What are the various types of industries?
7. Explain any two business activities which are auxiliaries to trade.
8. What is the role of profit in business?
9. What is meant by business risk?
10. State the causes of risks involved in business?

Long Answer Type Questions

AL
1. Discuss the development of indigenous banking system in Indian subcontinent.
2. Define business. Describe its important characteristics.
3. Compare business with profession and employment.
4. Define Industry. Explain various types of industries giving examples.
5. Describe the activities relating to commerce.
6. Explain any five objectives of business.
7. Explain the concept of business risk and its causes.
8. What factors are to be considered while starting a business? Explain.

1. Sunaina and Suma Reddy are best friends. After completing a course in Fashion Designing, five
S.

years back, both of them started their own separate outlets in Delhi and Chennai respectively to
earn their livelihood.
Sunaina buys readymade garments from various manufacturers and sells them in her store.
However, Seema Reddy designs her own range of clothing. She gets them made through her team
of designers and sells them directly under the brand name ‘Forever Young’. Although, both of
them are making good returns on their investments but in past they have also incurred huge
losses due to changes in the taste and preference of consumer and fashion. Also, despite being
in business for such a long time they cannot say with certainty as to what amount of profit will
be earned by them in future.
G.

Identify and state any four features of business highlighted in the above case. (6)
Ans. Features of business highlighted in the above case are as follows : (RTP-12)
(i) An Economic Activity
‘After completing a course ….. respectively to earn their livelihood.’
(ii) Production or Procurement of Goods and Services

35 Business Studies
 ‘Sunaina buys readymade garment …. sells them directly under the brand name ‘Forever
Young.’
(iii) Element of Risk

AG
‘Although, both of them … due to changes in the taste and preference of consumers and
fashion.’
(iv) Uncertainty of Return
‘Also, despite being in business …. profit will be earned by them in future.’
2. Rajagopalan is running a take away fast food joint in Assam under the name ‘Taste of Assam’.
Recently, when his cousin Devidayal organised a party at his place he had placed an order for
food at ‘Taste of Assam’ worth ` 7,500. However, Rajagopalan decided not to take the money from
Devidayal because of his love and affection for him.
(i) Will this activity related to the supply of food from Rajagopalan’s restaurant to Devidayal
be classified as a business activity? Why or why not?
(ii) State the feature of business reflected above. (3)
Ans. (i) No. This activity related to the supply of food from Rajagopalan’s restaurant to Devidayal
will not be classified as a business activity because it was undertaken out of love and

AL
affection and does not involve transfer or exchange of goods and services for value.
(ii) Sale or exchange of goods or services. (RTP-12)
3. Mr. Liyaquat Ali Khan runs a departmental store in Bhopal. He procures different kinds of products
from all over India through railways, roadways and airways. He also owns a godown to hold the
stocks. He has also taken an insurance policy worth ` 15 crores for his business. Moreover, he
has taken a loan of ` 3,00,000 from Axis Bank in order to meet short-term financial needs of his
business. He has placed information about his store on the hoardings, bill boards, etc. in order to
popularise them.
(i) Define auxiliaries to trade.
(ii) Identify the different auxiliaries to trade that are being used by Mr. Liyaquat in his business
by quoting the lines.
Ans. (i) Activities that help in the smooth flow of trade are called auxiliaries to trade.
(ii) The different auxiliaries to trade that are being used by Mr. Liyaquat in his business are :
(a) Transport — “He procures ……. railways, roadways and airways.”
S.

(b) Warehousing — “He also owns ….. the stocks.”

(c) Insurance — “He has also taken an insurance policy …. ` 15 crores for his
business.”
(d) Banking and Finance — “Moreover, he has taken a loan of ` 3,00,000….. financial
needs of his business.”
(e) Advertising — “He has placed information….. to popularise them.”
4. Different situations in different business are being elaborated below:
(a) Sahil had a match stick factory in Nepal which got destructed by the recent earthquake.
G.

(b) Samsung company was charged with evasion of tax and asked to pay fine in crores which
would lead to heavy losses for the company.
(c) Mr. Manish, a senior manager in a telecom company shared confidential information about
the company with a competitor which led to huge losses for the company.
(d) Typewriters is becoming redundant.
Identify and explain types of business risk being referred to in all the above cases. (6)

Evolution and Fundamentals of Business 36

 Ans. (a) Pure risks. (b) Speculative risks.
(c) Non-insurable risks. (d) Insurable risks. (RTP-16)
5. Shenoy and Gurpreet were good friends. Both have done their masters together from the same

AG
college. After completing their masters Gurpreet has done CA. Shenoy had taken up a job at
managerial level and Gurpreet had started his consultancy firm to provide financial assistance to
other business persons. Beside job, Shenoy has also joined an NGO and worked hard to realise
its objective related to providing free education so that specially abled person can get job easily.
On the other hand, Gurpreet had started to give free assistance to those person who are illiterate
but possessing skills, so that they can utilise their skills and can contribute towards mission taken
by Government of India of SKILL INDIA. Name and explain the activities
undertaken by Shenoy and Gurpreet by quoting the lines. (4)
Ans. Shenoy-Economic activity
‘Shenoy had taken up a job at managerial level...’
Shenoy-Non-economic activity
‘Shenoy has also joined an NGO ... job easily.’
Gurpreet-Economic activity.

Gurpreet-Non-economic activity
AL
‘... Gurpreet had started ... business person.’

‘... Gurpreet had started to give free assistance ... SKILL INDIA’.
6. Identify the characteristics of business in the following statements:
(a) Departmental stores purchasing goods from small manufacturers and selling under one roof.
(b) A car dealer buys and sells cars on regular basis.
(4)

(c) A furniture dealer buys office chairs at ` 500 each and sells them for ` 650 each. ` 150 per
chair is the extra money earned to meet business expenses and for future growth.
(d) Workers at Maruti Udyog Ltd. went on strike for more than a month demanding raises in
wages. The company suffered huge losses due to loss of production and sale.
Ans. (a) Production or procurement of goods and services.
(b) Dealing in goods and services on a regular basis.
(c) Profit earning.
(d) Element of risk.
S.

7. Identify the different auxiliaries to trade highlighted in the following statements: (4)
(a) Jute bags produced in Kolkata are sold across India.
(b) Companies send all original documents related to sale or purchase transaction through
courier or speed post.
(c) The Central Warehousing Corporation provides safe and reliable storage facilities for about
120 agricultural and industrial commodities.
(d) Manufacture or traders provide information about their product to the customer through
radio.
Ans. (a) Transport. (b) Communication.
G.

(c) Warehousing. (d) Advertising.

8. Ankit has two buffaloes, one cow and one calf. He takes care of them and sells the milk extracted
from them to people. Also, the milk which is left unsold, is used by him for producing milk products
like ghee, curd and sometimes kulfi too. He is very popular for his honesty and pure quality of the
products. He gives entire credit of his success to his love for the animals that he has.

37 Business Studies
 (a) Which kind of business activity is he engaged in?
(b) Under which sectors is he working? State. (3)
Ans. (a) Industry.

AG
(b) Primary-Genetic industry. (RTP-18)
9. After doing B.Sc. Mohan has decided to start Poultry farm. Due to his good behaviour and hard
work his business in increasing day by day. He has started sending eggs to another country
also. (3)
(a) Which kind of Industry has he started?
(b) Write down the name of any two other industries which are covered in (a).
(c) Which type of external trade is discussed here?
Ans. (a) Genetic industry. (b) Diary farm, rearing of plant in nursery.
(c) Export.
10. Organic Tea Ltd. is a Singapore based company dealing in import of tea from India and re-exporting
it to many South East Asian countries. It has a huge godown near the sea port where it has made
scientific arrangements for storing tea till it is re-exported. (3)
(a) Name the type of trade in the above case.

Ans.

11.
(a) Entrepot trade.
AL
(b) Name the aids to trade being utilised by Organic Tea Ltd. and which utility does it create.

(b) Warehousing services, time utility.

Gurleen has just completed her M.Sc in agricultural science and have started applying for jobs in
her field. She came to know about an organisation in Banaras where they rear silkworms for
manufacturing the famous Banarasi Silk sarees and decided to join the same.
What is the process of rearing silkworms for silk called and name and state the type of industry
which she has joined. (3)
Ans. Sericulture, Genetic industries. (RTP-18)
12. Phoenix Technologies Ltd. have developed such a washing machine through years of research
which requires very less water for washing clothes and cleans them without damaging the cloth,
as compared to other washing machines presently sold in the market. The profit margins are kept
low to motivate people from lower middle class to buy the product. The company wants to provide
information about new features, price, availability and brand name to the target market.
Name and state the service/facility/aids to trade which the company can utilise and what hindrance
S.

does it remove? (3)

Ans. Advertising, hindrance of information. (RTP-21)
13. Deepak Wadhwa and Sons have been carrying on the business of diamond cutting since the last
three generations in Bhuj, Gujarat. Since Bhuj is prone to earthquakes, the firm has decided to
insure their business premises and inventory with Star Insurance Company.
Which kind of risks the company is trying to minimise? (1)
Ans. Natural causes.
14. Mr. Harish Kalra is a farmer and cultivates sugarcane on a large piece of land in a district in
G.

Maharasthra. Mr. Harish has sold his ancestral house for ` 40 lakhs. His son, Saksham proposes
him to establish a sugar mill with this money as the raw material sugarcane will be available from
their fields.
(a) Mention and define the type of industry in which Harish is engaged in.
(b) Also define the type of manufacturing industry his son, Saksham plans to set up. (3)

Evolution and Fundamentals of Business 38

 Ans. (a) Primary industry. (RTP-18)
(b) Processing industry. (RTP-19)
15. Ram, Mohan and Sohan are good friends. Ram is working as a doctor in a private hospital and

AG
getting salary ` 1,50,000 per month. Mohan is a farmer and producing 50 quintals wheat for his
own consumptions. Sohan is working as a teacher in a school and getting salary ‘ 40,000 per
month. In addition to that Sohan teaches some slum area children in the evening and does not
charge anything from them. It gives him a psychological and mental satisfaction. (5)
(a) Which type of human activity is performed by Ram.
(b) Which type of human activity is performed by Mohan?
(c) Quoted from the lines from the above paragraph which types of human activities are
performed by Sohan.
Ans. (a) Economic activity.
(b) Non-economic activity.
(c) Sohan is a teacher in a school and getting salary-Economic activity.
Sohan teaches some students of slum area and does not charge from them as it gives him
psychological and mental satisfactions-Non-economic activity.

AL
16. Yash is a student of class xii commerce and he is good in studies. His father gifted him a pen on
his birthday. The cost of pen is ` 80. After few days Sumit sold his pen to his friend Rounaq for
` 100. He was very happy to earn profit of ` 20. After completed his studies he has started a pen
manufacturing company in the name of M/s Sumit Pvt. Ltd. Due to good image of his pen his
sales increasing day by day and he is earning huge profits. Then he has decided to give scholarship
to week girls child of his school.
(a) Can the transaction between Yash and Rounaq be termed as business transaction? Why?
(b) Can the transaction made by M/s Yash Pvt. Ltd. be termed as business transaction?
(c) Identify the one value involved here. (5)
Ans. (a) No. Reason : Single transaction cannot constitute business.
(b) Yes. Reason : Regular transaction by M/s Yash Pvt. Ltd. to earn profits.
(c) Value Point : Promoting girls education.
17. If a person sells his domestic computer at a profit, will it be considered a business? Also explain
the characteristic of business which is being highlighted above. (3)
S.

Ans. No.
Characteristic of Business —
Dealing in goods and services on a regular basis/regular dealing. (RTP-12)
18. All human beings fulfill their different needs by performing certain activities. Can you suggest
and explain the activities undertaken by them? (4)
Ans. Explain economic and non-economic activities. (RTP-10)
19. Tea is mainly produced in Assam, while cotton in Gujarat and Maharashtra but they are required
for consumption in different parts of the country. How can this hindrance of place be removed?
G.

Also under what business activity will it be categorised. State. (3)

Ans. Through ‘Transport’ this hindrance of place can be removed. (Auxiliaries/Aids to Trade)
(RTP-20) It will be categorised under ‘Employment’. (RTP-11)
20. Darshan Sharma prepares ‘Sohanpapri’ for customers during Diwali season every year. He prepared
more ‘Sohanpapri’ due to increased demand with adulterated ingredients. He employeed women
and children for packing and paid them less salary. This way he generated good profit from himself.

39 Business Studies
 (a) Which objective of business is not fulfilled?
(b) Give any two values neglected by Darshan Sharma. (3)
Ans. Social objective.

AG
Value Points:
(i) Child labour. (ii) Pure ingredients.
21. Mr. Mahesh is an Orthopedic Surgeon in Ganga Ram Hospital and Mr. Yatin, his friend is an Eye
Specialist who has set his own clinic. Mr. Yatin’s wife, Mrs. Savita operates her jewellery shop.
Compare and differentiate the nature of tasks undertaken by them on any three basis. (3)
Ans. Mr. Mahesh is involved in ‘Employment’. (RTP-11)
Mr. Yatin is involved in ‘Profession’. (RTP-10)
Mrs. Savita is involved in ‘Business’. (RTP-10)
22. Categorise the following into business, profession and employment. (5)
(a) A person repairing motorcycles on roadside.
(b) A doctor.
(c) A salesman.

Ans.
(d) An advocate.

AL
(e) A hawker selling toys for children.
(f) Anandpal is the advocate of High Court.
(g) Vikram is the manager of a car company.
(h) Vinayak sells mobile phones on behalf of his employer.
(i) Angad working as labour in a factory.
(j) Rahul running a shop to sell stationery items.
(a) Business. (b) Profession. (c) Employment.
(d) Profession. (e) Business. (f) Profession.
(g) Employment. (h) Employment. (i) Employment.
(j) Business.
23. “An activity can be an economic activity in one situation and non-economic in another situation.”
Do you agree? Give an example to justify the given statement. (3)
Ans. Yes, I agree with the given statement. For example, if a doctor treats her patients at the clinic,
then it is an economic activity as the doctor gets fees for that. However, if the doctor treats her
S.

daughter at home, then it is non-economic activity.

24. Name and explain the two characteristics of business which involve possibility of loss. (4)
Ans. The two characteristics of business which involve possibility of loss are:
(a) Uncertainty of Return. (b) Element of Risk. (RTP-13)
25. ‘Only sale or exchange of goods/services for profit is business.’ Do you agree with the statement?
Give reason in support of your answer. (3)
Ans. No, we do not agree with the given statement because business involves dealings in goods or
services on a regular basis. One single transaction of purchase or sale does not constitute
G.

business. For example, the sale of one’s old motorcycle even at a profit is not business.
26. Vijay sells his mobile to his friend at a profit of ` 1,000. Will it be considered as a business? Name
and explain the characteristic of business which is being highlighted in the given
example. (3)
Ans. No, it will not be considered as a business as it is a single transaction of sale. To be a business

Evolution and Fundamentals of Business 40

 activity, dealing of goods must be on a regular or daily basis. The characteristic highlighted in
the given example is ‘Dealings in goods and services on a regular basis’. (RTP-12)
27. Jasbir is farmer. His younger brother Ajeet is a Company Secretary while his sister Geeta is a

AG
nurse in a hospital. Name the economic activities in which they are engaged and differentiate
among them on the basis of : (6)
(a) Nature of work. (b) Transfer of Interest.
(c) Risk Element.
Ans. Jasbir is engaged in business, Ajeet is engaged in Profession and Geeta is engaged in employment.

(a) Banking.
AL
28. Classify the following into primary, secondary and tertiary industries.
(b) Lumbering. (c) Oil refinery.
(3)

(d) Warehousing. (e) Mining. (f) Sugar industry.

Ans. Primary industries : (b) and (e).
Secondary industries : (c) and (f).
Tertiary industries : (a) and (d).
29. Categorise the following into Extractive industries, Genetic industries and Manufacturing industries:
(3)
S.

(a) Afforestation. (b) Cotton textiles. (c) Dairy farming.

(d) Sugar industries. (e) Nursery. (f) Mining.
Ans. • Extractive industries: (a) and (f).
• Genetic industries: (c) and (e).
• Manufacturing industries: (b) and (d).
30. Identify the service which is related to the following cases: (5)
(a) The service which helps in removing hindrance of time.
(b) The service which helps in removing hindrance of risk.
G.

(c) The service which helps in removing hindrance of knowledge.

(d) The service which helps in removing hindrance of place.
(e) The service which helps in removing hindrance of exchange of information among producers,
consumers and traders.
Ans. (a) Warehousing. (b) Insurance.

41 Business Studies
 (c) Advertising. (d) Transport.
(e) Banking.

AG
31. Name the following: (3)
(a) The trade in which goods are sold to foreign countries.
(b) The trade in which goods are bought from foreign countries.
(c) The trade in which goods are purchased and sold in comparatively smaller quantities.
Ans. (a) Export Trade. (b) Import Trade.
(c) Retail Trade.

AL
S.
G.

Evolution and Fundamentals of Business 42

 Self-Assessment Test

AG
Time : 1:15 hours Maximum marks : 25

1. Following are the characteristics of business risks. One of them is not correct. Identify it. (1)
(a) Risk is an essential component of every business.
(b) Loss is the reward for risk bearing.
(c) Degree of risk depends on the nature and size of business.
(d) Business risks arises due to uncertainties.
2. Human activities are of _____________ types. (1)
(a) One (b) Two
(c) Three (d) Four
3. Which of the following is not an example of non-economic activity? (1)
(a) Patriotism (b) Teaching of school
(c) Sentiment
AL
‘Laziness’ is an example of natural cause.
(d) Sympathy
4. State whether the following statement is ‘True’ or ‘False’:

5. Which of the following is an example of a natural cause?

(a) Recession in the market
(c) Expidemic
(b)
(d)
Riots
Hailstrom
(1)

(1)

Tick (✓) all the correct options.

6. Which one of the following is known as service industry? (1)
(a) Banking (b) Insurance
(c) Processing (d) Advertising
Choose all the incorrect options.
7. Correct the given statement if it is incorrect. (1)
S.

Mithila was a commercial town and also a major centre for export of stones.
8. (a) “Unexpected increase in competition” relates to which type of cause of business risk? State.
(b) Lakshay started a business of repairing mobile phones and laptops in his shop in Tilak
Nagar. To earn more profits, he used to fix up duplicate spare parts in mobile phones and
laptops. He focused only on earning profits and never laid emphasis on any other objective
of the business.
Identify the objective of business which has been overlooked in the above case. (3)
(a) Wadhwa Pvt. Ltd. is a reputed company for treating its employees as prime assets. It has
G.

9.
taken care of all benefits and protection that may accrue to the workers like providing minimum
wages as prescribed by law, health insurance, cordial working atmosphere, etc.
(i) Which cause of business risks the company is trying to minimise? State.
(ii) Write any one value which are being reflected due to such policy of the company
towards its employees.
43 Business Studies
 (b) DLF Ltd. is India’s largest real estate developer operating in development of residential,
commercial and retail properties. Which type of industry does DLF belong to? (3)
10. Bhoomika moves from one place to another selling vegetables. She earns from the work and meets

AG
her daily requirements. She saved money and opened a shop where she sold vegetables and also
provided home delivery services.
(i) Identify the type of economic activity she is involved in.
(ii) State any two features of the activity identified in (i) above. (3)
11. Anil, Sunil and Payal are friends. They are pursuing their MBA from IIMT, Banaras. While having
a coffee during break time, they were discussing their future plans. Anil said he is planning to
help his father by joining his printing press after completing MBA, Sunil on the other hand, wanted
to get a job in some big company through institutions placement cell. Since Payal loves children,
she shared her willingness to join an NGO and use her knowledge and skill to help the
underprivileged children.
(a) Identify and give two points of difference on any two basis between Anil’s and Sunil’s
plans.
(b) How would you classify the activity which Payal is willing to pursue after college? (4)

AL
12. Guruansh’s job involved travelling. As he was very fond of reading, he requested his father to
buy him some books. His father sold his old laptop on OLX.com and bought him a new ‘kindle’
from Amazon.com. While buying the ‘kindle’, he noticed a message on the screen of the website
that 1% of every purchase would be sent by the company to ‘Alag Foundation’ an NGO for
underprivileged children.
(a) Can the transactions by Guruansh’s father be termed as business activity? Give reason with
the help of relevant characteristic of business.
(b) Which objective of business is Amazon fulfilling?
(c) State the industry in which online business organisations deal.
(d) Write any one value being achieved by Amazon by contributing a part of sales towards
‘Alag Foundation’. (5)
S.
G.

Evolution and Fundamentals of Business 44

 NOTES

AG
AL
S.
G.

45 Business Studies
 NOTES

AG
AL
S.
G.

Evolution and Fundamentals of Business 46