NCERT Solutions For Class 11 Business Studies Chapter 1 Business, Trade and Commerce

Maritime trade is the kind of trade that involves the transport of goods through the sea, using ships.

Maritime trade was another important branch of global trade network. Malabar Coast, on which Muziris is situated, has a long history on international maritime trade going back to the era of the Roman Empire.

Explanation:

In any business, one of the main motive is to earn profit. No business can survive for long without earning profit. Moreover, a part of the profit is also required to be re-invested in the business for growth prospects. That is why businessmen make all possible efforts to maximise profits, by increasing the volume of sales or reducing costs.

Explanation:

The various types of industries are :

1.  Primary industries : These include all those activities  which are connected with the extraction and production of natural resources, reproduction and development of living organisms, plants etc.  
2. Secondary industries: These are concerned with using the materials, which have already been extracted at the primary stage. These industries process such materials to produce goods for final consumption or for further processing by other industrial units. Example, mining of an iron ore is a primary industry, but manufacturing of steel by way of further processing of raw irons is a secondary industry.
3. Tertiary industries: These are concerned with providing support services to primary and secondary industries as well as activities relating to trade.

Explanation:

Business refers to those economic activities, which are connected with the production or purchase and sale of goods or supply of services with the main object of earning profit. The term business is derived from the word ‘busy’ which means ‘engaged in an activity.

Explanation:

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.

Explanation:

The term ‘business risks’ refers to the possibility of inadequate profits or even losses due to uncertainities or unexpected events. There are two types of risk – speculative and pure. Speculative risk involve both the possibility of gain as well as the possibility of loss. It arises due to changes in the market conditions including fluctuations in demand and supply, changes in prices or changes in fashion and tastes of customers. Pure risks involve only the possibility of loss or no loss.The chance of fire, theft, strike are examples of pure risks.

Causes of business risks may be classified as follows:

1. Natural Causes: Human beings have no control over the nature. Unforeseen events like heavy rains, famine, earthquake etc. affects business adversely.
2. Human causes: These include dishonesty, carelessness and negligence of employee, riots, strikes etc.
3. Economic Causes: Economic causes relate to fluctuations in demand and price or changes in the market conditions. A business may incur losses because of price fluctuations, severe competition, and depression in the market. For example, color T.V. has replaced Black and white T.V. from the market.
4. Other Causes:  These include all technical or mechanical causes, which affect the working of the business. For example, an explosion in a boiler may cause injuries to human beings.

Explanation:

Industry may be broadly classified as:

a)  Primary Industries – These include activities concerned with extraction and production of natural resources; reproduction and development of living organisms, plants, etc. These industries may be further sub divided into extractive and genetic industries.

       Extractive industries draw out products from natural sources. Genetic industries engage in breeding plants and animals for their use in further reproduction.

b)    Secondary Industries – These are concerned with using the materials which have already been extracted at the primary stage. These industries process materials derived from the primary industries to produce goods for final consumption or for further processing by other industrial units. These may be further divided into manufacturing and construction industries.

      Manufacturing industries are engaged in producing goods through processing of raw materials. These are further sub divided into analytical, synthetical, processing and assembling industries. Construction industries are involved in the construction of buildings, dams, bridges, roads, etc. by using products of extractive and manufacturing industries.

c)    Tertiary Industries – These industries provide support services to primary and secondary industries as well as activities relating to trade. As business activities, these may be considered as a part of commerce since auxiliaries to trade assist in trade. These include: banking, warehousing, insurance, transportation, communication, packaging and advertising.

Explanation:

Comparison of business with profession and employment can be explained with the help of the chart as below-

Explanation:

The term ‘business risks’ refers to the possibility of inadequate profits or even losses due to uncertainities or unexpected events.

The following are the characteristics of business risks:

1. Business risks arise due to uncertainties – Natural calamities, change in demand and prices, changes in government policy, improvement in technology, etc  are some of the examples of uncertainty which create risks for business because the outcome of these future events is not known in advance.
2. Risk is an essential part of every business – The amount of risk may vary from business to business but no business can avoid risk. Risks can be minimised but cannot be eliminated.
3. Profit is the reward for risk  taking – Greater the risk involved in the business, higher is the chance of profit. An entrepreneur undertakes risks under the expectation of higher profit.

Explanation:

Services which facilitate the purchase and sale of goods is called auxiliaries to trade and include transport, banking, insurance, communication, advertisement, packaging and warehousing. The following are the two business activities which are auxiliaries to trade –

1. Transport and communication: The obstacle of place is removed by transport through road, rail or coastal shipping. Transport facilitates movement of raw material to the place of production and the finished products from factories to the place of consumption.
2. Warehousing: Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed. Usually goods are not sold or consumed immediately after production. They are held in stock to make them available as and when required. Special arrangement should be made for storage of goods to prevent loss or damage.

Explanation:

Business activities can be classified into industry and commerce.

Industry: It refers to economic activities which are connected with conversion of resources into useful goods. It is concerned with the production or processing of goods and materials. Industry is used for activities  in which mechanical appliances and technical skills are involved. Example , cotton textile industry refers to all manufacturing units producing textile goods from cotton.

Commerce: It includes two types of activities, viz.,i) trade and ii)auxiliaries to trade. Buying and selling of goods is termed as trade and activities required to facilitate the purchase and sale of goods are termed auxiliaries to trade and include banking, transport, insurance, communication, advertisement, packaging and warehousing.

Explanation:

There are three types of economic activities. They are:

1. Business: It refers to those economic activities, which are connected with the production or purchase and sale of goods or supply of services with the main object of earning profit.
2. Profession: It includes those activities which require special knowledge and skill to be applied by individuals in their occupation. E.g – lawyers, doctors, chartered accountants etc.
3. Employment: It refers to the occupation in which people work for others and get remunerated in return. e.g- agricultural labourers, industrial labourers.

Hundi is an instrument of exchange which was prominent in the subcontinent. It involved a contract which

• Warrant the payment of money, the promise or order which is unconditional
• Capable of change through transfer by valid negotiation.

1. Pataliputra known as Patna today.
2. Peshawar (commercial transaction between India, China and Rome in the first century A.D.)
3. Taxila (Land route between India and Central Asia)
4. Indraprastha (commercial junction on the royal road where most routes leading to the east, west, south and north converged)

Mithila (traded at ports on the islands of java, Sumatra and Borneo)

Survival of the business largely depends upon the ability of the entrepreneurs to anticipate problems and solve them with minimum cost.

Some of the basic factors which must be considered while starting a business are as follows –

1. Selection of line of business- Nature and type of business to be undertaken to start a business is very important. This decision will be influenced by the customer requirement in the market, technical knowledge and interest of the entrepreneur.
2. Size of the firm- Scale of operation or size of the firm is very important factor to be considered while starting a business.If the market conditions are uncertain and risks are high, small size business would be a better choice for the entrepreneur and vice versa.
3. Choice of form of ownership- The choice of suitable form of ownership such as sole proprietorship, partnership, joint stock company will depend on such factors as line of business, capital requirements, liability of owners, division of profit, legal formalities, continuity of business, transfer of interest and so on.
4. Location of business enterprise- It is very important to locate the place where the business will be located. Availability of raw materials and labour, power supply and services like banking, transportation, communication, warehousing etc are important factors to be considered while selecting a location.
5. Financing the proposition- Availability of necessary capital is very important for starting as well as for continuing the business. Capital is required for investment in fixed assets like land and building, machinery and equipment and current assets like raw materials, book debts, stock of finished goods etc. For requirement of capital, its proper utilisation and determining the source of capital proper financial planning is required.
6. Physical facilities- It is very important for an entrepreneur to consider and decide the physical requirement like machinery, equipment, building and supportive services etc. depending upon the nature and size of business, availability of funds and the process of production .
7. Plant layout- After the physical requirement's are met, the entrepreneur should draw a layout plan showing arrangement of these facilities. Layout means the physical arrangement of machines and equipment needed to manufacture a product.
8. Competent and committed worke force- It is very important for an entrepreneur to identify the requirement of skilled, unskilled workers and managerial staffs so that physical and financial resources are converted into desired outputs.
9. Tax planning – The entrepreneur has to consider in advance the tax liability under various tax laws and its impact on business decisions so that the business is carried out efficiently and smoothly.
10. Launching the  enterprise- Actual launching of the business can take place once above factors have been taken into account. This would mean mobilising various resources , channelising them, fulfilling necessary legal formalities, starting the production , advertisement, sales promotion campaign.

Explanation:

Since a business has to balance a number of needs and goals, it requires multiple objectives. Objectives have to be specific in every area and sphere of business. Objectives define in concrete terms what the business is going to do. Objectives also enable the business to analyse their own performance and take steps to improve their performance in future.

The following are five multiple objectives that a business tries to achieve-

1. Innovation- No business enterprise can flourish in a competitive world without new ideas or innovation.Innovation is the introduction of new ideas or methods in the way something is done or made.
2.  Productivity-  In order to ensure continuous survival and progress, every enterprise aims at greater productivity through the best use of available resources.Productivity is ascertained by comparing the value of output with the value of inputs.
3. Earning profits – One of the objective of business is to earn profits on the capital employed. The profit earned can be re invested for better growth and survival.
4. Market Standing – Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise aims at standing on stronger footing in terms of offering competitive products to its customers and serving them better.
5. Physical and financial resources- Business requires physical resources like plants , machines, offices etc. and financial resources  to supply goods and services to its customers . A business enterprise aims at acquiring these resources according to their requirements and use them in a better way.

Explanation:

Commerce provides the necessary link between producers and consumers. Commerce include two types of activities- trade and auxiliaries to trade. Buying and selling of goods is termed trade and activities that are required to facilitate the purchase and sale of goods is called auxiliaries to trade. It includes all those activities which involves the removal of hindrances in the process of exchange .

The various branches of auxiliaries to trade are:
a) Transport – It facilitates movement of raw materials to the place of production and finished products from factories to places of consumption. It creates ‘place utility’ and helps a producer to increase production and earn a remunerative price.
b) Banking – Funds are required for running business activities and to meet day to day expenses, which can be obtained from banks. Banks help in overcoming the problem of finance by providing loans, overdrafts or cash credit.
c) Warehousing – It refers to storage of goods. Goods have to be stored for some time before transportation by manufacturers, wholesalers and retailers. It creates ‘time utility’.
d) Advertising – It helps in providing information about the available goods & inducing customers to buy specific items. It persuades the potential customers by making them aware of a product’s availability, usage, quality, price etc.
e) Insurance - It provides security against various risks faced by a business. Assets of the business, stocks of raw materials, finished goods and employees are required to be protected from the risks. Hence, insurance makes trade and business secure by making provision against all probable losses.

Business refers to an occupation in which people regularly engage in activities related to purchase, production and /or sale of goods and services with the view to earning profits. The following are the main characteristics of business:

1. 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.
2. Production and procurement of goods and services- Before goods are offered to people for consumption, these must be either produced or procured by business enterprises.
3. Sale or exchange of goods and services-Directly or indirectly business involves transfer or exchange of goods and services for value. Goods produced not for sale but for personal consumption is not called a business activity.
4. Dealings in goods and services on a regular basis- Business involves dealings of goods and services on regular basis. One single transactions of sale or purchase does not constitute business.
5. Profit earning- Earning profit is one of the main purpose of business. No business can survive for long without earning profit. Moreover, a part of the profit is also required to be re-invested in the business for growth prospects. That is why businessmen make all possible efforts to maximise profits, by increasing the volume of sales or reducing costs.
6. Uncertainty of returns- Uncertainty of return refers to the lack of knowledge relating to the amount of money that the business is going to earn in a given period.Every business invests money to run its business with the objective of earning profit but it is not certain as to what amount of profit will be earned.
7. Element of risk – Risk is the uncertainity associated with an exposure to loss.It is caused by some unfavourable or undesirable event. Risks are related with certain factors like changes in consumer tastes and fashions, changes in methods of production, strike or lock out in the workplace, increased competition in the market , fire, theft, accidents etc.

Indigenous banking system played a prominent role in lending money and financing domestic, and foreign trade with currency and letter of credit.

With the development of banking, people began to deposit precious metals with lending individuals functioning as bankers or Seths, and money became an instrument for supplying the manufacturers with a means of producing more goods.

Documents such as Hundi and Chitti were in use of carrying out transactions in which money passed from hand to hand.

Hundi is an instrument of exchange, which was prominent in the subcontinent. 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.

The emergence of credit transactions and the availability of loans and advances enhanced commercial applications.

The Indian subcontinent enjoyed the fruits a 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.