BUSINESS STUDIES (Class 11) CHAPTER 1 and 2

1. What is an Economic Activity?
Economic activities are those by which we can earn our livelihood. Business is considered to be an economic activity because it is undertaken with the object of earning money or livelihood and not because of love, affection, sympathy or any other sentimental reason.
2. Define Business Risk.
The term ‘business risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. Business enterprises constantly face two types of risk: speculative and pure. Speculative risks involve both the possibility of gain as well as the possibility of loss. Speculative risks arise due to changes in market conditions including fluctuations in demand and supply, changes in prices or changes in fashion and tastes of customers. Favorable market conditions are likely to result in gains whereas unfavorable ones may result in losses. Pure risks involve only the possibility of loss or no loss. The chance of fire, theft or strike are examples of pure risks.
3. Define Insurable Risk.
A risk that conforms to the norms and specifications of the insurance policy in such a way that the criterion for insurance is fulfilled is called insurable risk. In case of a scenario where the loss is too huge that no insurer would want to pay for it, the risk is said to be uninsurable.
4. Write a note on manufacturing Industry.
Manufacturing - These industries convert raw materials or semi-finished products e.g. paper from bamboo, sugar from Sugar cane. It is further divided into four parts.
Analytic: Different things are manufactured out of one material such as petrol, diesel, gasoline out of crude oil.
Synthetic: Many raw materials are mixed to produce more useful products such as cement.
Processing: Industries wherein useful things are manufactured by making raw material to pass through different production processes such as sugar and paper.
Assembling: Different component parts are assembled to make a new product, as in the case of television, car, computer, etc.
5. Define Business.
Business means being busy. 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.
6. What is meant by Industry?
Industry refers to economic activities which are connected with conversion of resources into useful goods. Industries may be: primary, secondary or tertiary.
7. What is meant by Primary Industry?

Primary industries are connected with the extraction and production of natural resources and reproduction and development of living organisms, plants, etc. Primary industries may be: extractive (like mining) or genetic (like poultry farms).

8. What is the peculiar feature of Construction Industry? 

The Peculiar feature of construction industry is that it is always initiated by clients, opposite to most of the other industries. The other industries first produces the goods to meet the supply of the customers. But in a construction the request or the specifications are raised by the clients. 

A feature of the construction industry is long-lasting output such as the apartment, building, highways. The peculiar feature of the construction industry that it needs other enterprises to sustain them which can contribute to the gross domestic product of the country. 

9. Why Business is considered as an Economic Activity? 

Business is considered to be an economic activity because it is undertaken with the object of earning money or livelihood and not because of love, affection, sympathy or any other sentimental reason. 

10. Discuss the causes of Business Risk.
Causes of Business Risks are:

Natural causes: Human beings have little control over natural calamities, like flood, earthquake, lightning, heavy rains, famine, etc. property and income in business.

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

Economic causes: These include uncertainties relating to demand for goods, competition, price, collection of dues from customers, change of technology or method of production, etc.

Other causes: These include unforeseen events like political disturbances, fluctuation in exchange rates etc. 

11. Draw a chart showing the classification of Business Activities.

Classification of Business Activities

12. Explain the Role of Profit in the Business.

Profit is a reward for risk taken in the business. It is a return on investment. Business expects highest profit as they expect return on their investment. A firm invests money with the expectation of higher returns on their investment. For an incumbent firm, the reward of higher profit will encourage them to try and cut costs and develop new products. If an industry is profitable, it will encourage new firms to enter. If a firm becomes unprofitable, it will either have to adapt and change or close down. This profit motive can help increase efficiency, provide greater choice for consumers and allocate resources according to consumer preferences. 

13. Explain the difference between Industry, Commerce & Trade.
Industry is related to production of goods and services, commerce is related to distribution of products and trading is related to the transfer (exchange, buying and selling) of goods and services.

Industry	Commerce	Trade
Refers to the production of goods and services.	Refers to the distribution of goods and services supplied by industries.	Refers to the actual exchange or and of purchase and sale.
It represents supply side of goods and services.	It represents demand side of goods and services.	It represents the exchange of goods and services.
It requires huge fixed and working capital in production	It requires limited fixed capital, but huge working capital.	It requires limited fixed capital. Limited working capital is enough if turnover is quick.
It includes genetic, extractive, manufacturing and construction industries.	It includes trade and auxiliaries to trade.	It includes domestic and international trade.
It may be carried on at home, workshop, factory or mine.	It involves movement of goods from the place of production to the place of consumption.	It is carried on where buyers and sellers exist.
It creates form utility by changing the form or shape of materials.	It creates place utility and time utility through preservation of goods and their movement from one place to another.	It creates place utility through exchange of goods and services.

14. What are the types of utilities created by a business?

Utility is a loose and controversial topic in microeconomics. Generally speaking, utility refers to the degree of removed discomfort or perceived satisfaction that an individual receives from an economic act — for example, a consumer purchases a hamburger to alleviate hunger pangs and to enjoy a tasty meal.

There are four different types of utility: form, place, time, and possession utility.

• Form utility: It is created by changing the raw materials into final goods. For example, food, clothing, and shelter have utility for everyone as everyone has a want for these. The Utility created by changing shape, size or color of a particular product is called as a form utility. For example, making furniture out of wood. Making furniture out of wood increases the utility of the wood.
• Place utility: It is created when goods are transported from one place to another. The utility of place refers to the availability of a product or service in a location that is convenient to your customers. In business marketing, place can refer to the convenience of your distribution channels or direct sales operations. By improving the utility of place, you are ensuring that your customers will find it convenient to buy your product.
• Time utility: When goods are stored in warehouses so that they can be used later creates time utility. Logistics plays an important role in improving the time utility. By developing an efficient supply chain, you can ensure that products are delivered on time. Late delivery could impact your customers’ own productivity and efficiency if your company is part of their supply chain. In service marketing, you can deliver utility by offering service and support 24 hours a day, seven days a week. That kind of service would add real value if it reduced customers’ downtime.
• The utility of possession is defined as the value given to a product by virtue of the fact that the purchaser has the legal right to own and use it freely. The utility of possession gives your customers ownership of a product or service, enabling them to derive benefits in their own business. If you provide customers with a high-performance component, for example, your customers can use that component to improve the performance of their own product. Possession has given them a strong benefit. You can improve the value of possession by offering business customers financing options, for example by leasing products rather than outright purchase.

15. Explain in detail the classification of Business Activities on the basis of their function.

Business activities may broadly be classified into two categories namely (A) Industry and (B) Commerce. Industry involves production of goods and services whereas commerce is concerned with the distribution of goods and services.

INDUSTRY

Economic activities associated with the procurement or extraction of raw materials and converting them into finished products which reach the final customer is known as an industry. The term ‘industry’ is used to denote those activities which involve the use of mechanical appliances and technical skills, i.e. activities with the manufacturing, production, and processing of products. It indicates the supply side of the market. The activities covered under industry are as under:

Extraction of materials such as coal, petroleum etc. Conversion of raw materials into useful goods like soaps, fans, cement, etc. Construction of buildings, dams, roads etc.

The industry represents a group of factories, specialized in a specific product line. The different types of industries are as under:

• Primary Industry: Industry concerned with obtaining and providing natural raw materials like mining, agriculture or forestry.
• Secondary Industry: Industry engaged in conversion activities, i.e. converting raw material provided by primary industry, into finished products.
• Tertiary Industry: Industry that provides support services to the primary and secondary industry.

COMMERCE 

The term ‘commerce’ means a business activity that involves buying and selling of goods or services for value (cash or kind) and that too, on a large scale, between businesses or entities, from one place to another. When there is a purchase or sale of a particular item, it is known as a transaction, but commerce refers to all the transactions associated with the buying and selling of that item in an economy.

All the economic activities which are in some way or the other related to exchange comes under commerce. It covers the distribution aspect of business, i.e. it facilitates consumption process by providing proper distribution channel. Therefore, it ensures the availability of goods and services to the customers, at the right time and place. It is broadly classified into two activities:

• Trade: The process of buying and selling of goods and services for money.
• Auxiliaries to trade: All the activities which assist trade directly or indirectly are auxiliaries to trade. It includes transportation, warehousing, banking & finance, advertising, insurance and so on.

Key Differences Between Industry and Commerce

The significant differences between industry and commerce are discussed in detail, in the points given below:

1. The industry is defined as an economic activity, concerned with the procurement and processing of raw materials into finished products, that reaches the customer. Commerce is described as a business activity, wherein exchange for goods and services for value is done on a large scale.

2. A huge capital investment is required to start an industry. On the other hand, commerce requires comparatively less capital investment.

3. Industry involves the conversion of resources into useful goods. As opposed to, commerce which involves activities that are essential for facilitating the buying and selling of goods.

4. The industry is an indicator of production part of business activities. Unlike commerce which deals with the making goods available to the customers, i.e. the distribution part.

5. Industry involves high risk in comparison to commerce. 

Conclusion

Industry and Commerce cover all the aspects of business. Industry looks after production, procurement, fabrication, extraction, construction activities of business. On the other hand, commerce looks after the movement of product from the source location through distribution channels (such as wholesalers, retailers, distributors, etc.), to the final consumer.

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