NCERT Solutions Class 12 Business Studies Chapter 3

NCERT Solutions Class 12 Business Studies Chapter 3- Business Environment

Extramarks Business Studies Chapter 3 NCERT Solutions Class 12 helps students understand every topic covered in the chapter Business Environment. Students get a thorough understanding of the chapter and the importance it holds in day-to-day business life. NCERT Solutions Class 12 Business Studies Chapter 3 allows students in Class 12 to understand and revise important concepts, definitions, and questions and answers. Furthermore, as they are exclusively created by experts, these study materials are considered to be credible. Students are encouraged to use NCERT Solutions even for last-minute test preparation and revision.

NCERT Solutions for Class 12 Business Studies Chapter 3- Business Environment are written in simple language with point-by-point explanations. Students can access a variety of additional study tools on the Extramarks website in addition to the NCERT solutions. They may access CBSE revision notes, CBSE sample papers, CBSE past years’ question papers, and so on Extramarks. 

Key Topics Covered In NCERT Solutions Class 12 Business Studies Chapter 3

Following are the key topics covered in NCERT Solutions Class 12 Business Studies Chapter 3- Business Environment:

Meaning of Business Environment
Importance of Business Environment
Elements of Business Environment
Economic Environment in India
Impact of Government Policy Changes on Business and Industry

Students should be able to grasp all the topics of Chapter 3- Business Environment to be able to get comprehensive knowledge of the chapter. Students may consider referring to NCERT Solutions Class 12 Business Studies Chapter 3 provided by Extramarks to help students prepare for their forthcoming examinations. The fundamentals are explored in great detail to help students understand the concepts. With the help of these answers, students will obtain a complete comprehension of all of the chapters.

Here’s the detailed information on each subtopic in NCERT Solutions Class 12 Business Studies Chapter 3 Business Environment.

Meaning of Business Environment

The term “business environment” refers to all external factors that have an impact on a company’s success. Such influences include economic, social, political, technical, and legal forces, to name a few. The business environment is influenced by individuals, consumers, the government, and legal concerns. Changes in client tastes and preferences, as well as changes in government policies, the political environment, and legal restrictions, all influence the business climate. Although such variables are beyond an organisation’s control, they positively or negatively impact its success. For example, a movement in customer preferences toward a company’s goods boosts demand for that company’s product. When a new technology is launched, the company’s present technology becomes obsolete, and its goods become inferior.

Importance of Business Environment

Extramarks NCERT Solutions Class 12 Business Studies Chapter 3 presents before you the importance of the Business Environment: 

  • Gaining a competitive advantage and recognising opportunities: Opportunities are positive external trends or changes that help a firm enhance its performance. In the environment, there are various opportunities for commercial success.
  • Early warning signals and threat identification: Threats are changes in the external environment that hamper a company’s performance. A study of the business environment helps an organisation detect hazards or negative signals that may negatively influence its operations, in addition to bright possibilities.
  • Collecting helpful Resources: A company’s environment provides a range of resources or inputs, including raw materials, machinery, and labour. On the other hand, enterprises provide goods and services that benefit the environment.
  • Adapting to changes: The corporate world is a fast-paced environment. Technology, client preferences, and government legislation are all constantly changing. A detailed examination and knowledge of the environment aid an organisation’s capacity to deal with these changes and take necessary action.
  • Making Policies and Plans: A continual study of the environment aids an organisation’s capacity to detect possibilities and threats. As a result, the organisation is better able to adopt suitable plans and policies in light of the current circumstances.
  • Improving Performance: Continuous environmental analysis aids organisations in developing suitable policies and programmes, which leads to increased performance. 

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Elements of Business Environment

Refer to Extramarks NCERT Solutions Class 12 Business Studies Chapter 3 to get a detailed explanation of Elements of Business Environment:

  • Economic Environment: Interest rates, income, and stock market indexes are examples of economic factors that have an influence on how businesses run. For example, a rise in income has an effect on a company’s demand for goods and services.
  • Social Environment: The social environment includes the social factors of conventions, traditions, social values, and social trends. Religious festivities, for example, give chances for a wide range of enterprises, including those that provide sweets, decorations, and other items.
  • Technological Environment: The technical environment includes technological breakthroughs and advancements. For example, computers, the internet, and new telecommunications infrastructure all have an influence on organisations.
  • Legal Environment: The Companies Act and the Trade Union Act are examples of government laws and guidelines. These rules govern how a business works and behaves. Businesses must understand these rules since noncompliance might put them in legal trouble.
  • Political Environment: Political conditions such as peace and stability and law and order make up the political business environment. That confidence might be shattered by political turmoil. Similarly, the attitudes of government officials towards business may have a positive or negative influence on the economy. For example, a state of political unrest erodes investor confidence and makes it difficult for firms to function efficiently.

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Economic Environment in India

The Indian economic environment is made up of a number of macro-level elements that affect business and industry, such as the means of production and wealth distribution. Since independence, the business climate in India has been continuously evolving, owing primarily to government policy. To address our country’s economic issues at the time of independence, the government adopted a number of initiatives, including state ownership of major sectors, central planning, and a reduction in the influence of the private sector. These measures yielded mixed results until 1991, when the Indian economy was hit by a severe foreign exchange crisis, a large government deficit, and an upward price trend despite bountiful harvests. Refer to Extramarks NCERT Solutions Class 12 Business Studies Chapter 3 for more knowledge on the subject.


The term “liberalisation” refers to eliminating unnecessary rules and restrictions like licences, permits, and quotas by the government. The following is a diagram of India’s industrial liberalisation.

  • Starting a business no longer requires a licence.
  • Companies regained control over the scope and scale of their manufacturing, as well as the pricing of their goods.
  • Trade restrictions on products and services were lifted.

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Privatisation implies giving the private sector a more significant role while restricting the role of the public sector. The following is how privatisation in India proceeded.

  • Public-sector businesses are being disinvested.
  • Creating an Industrial and Financial Reconstruction Board to assist ailing and losing enterprises in regaining their footing.
  • Reducing the government’s ownership of public-sector companies.

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Globalisation is the procedure through which different economies around the world come together to become one. It requires removing barriers to import and export, such as licensing and taxes. India adopted the following policies in terms of globalisation.

  • Import restrictions are lifted.
  • Abolition of the export tax.
  • Import tax reduction

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Impact of Government Policy Changes on Business and Industry

Liberalisation, privatisation, and globalisation policies of the government have an influence on how firms function. The following points emphasise the implications of government policy changes on business and industry. NCERT Solutions Class 12 Business Studies Chapter 3 by Extramarkspresent point wise explanation of the subject.

  • Increased Competition: Domestic enterprises face increasing competition due to efforts such as reducing licencing requirements and cutting import tariffs.
  • Increased Demand: As the quantity of goods and services accessible to customers expands, so does competition. As a result, consumers have access to higher-quality products and a more comprehensive range of options.
  • Policy Changes: Government policies have a direct influence on how firms run. As a result, they’ll have to change their policies.
  • Changes in Technology: As the market grows more competitive, companies must find new and innovative methods to stay afloat. Technical breakthroughs are essential in this case.
  • The Need for Trained Staff: Product innovation and improvement, as well as the implementation of new technologies, demand the use of skilled and trained personnel. Human resource development becomes important as a result.
  • Increased Market Orientation: As competition has grown, manufacturing has become more market-oriented.

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NCERT Solutions Class 12 Business Studies Chapter 3 Business Environment NCERT Solutions

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By referring to Extramarks NCERT Solutions Class 12 Business Studies Chapter 3, students can easily understand the Nature and Significance of Management.

Key Features of NCERT Solutions Class 12 Business Studies Chapter 3

Students must study all vital topics in order to do well in the exam. Practicing is the best way to beat exam stress. Hence, NCERT Solutions Class 12 Business Studies Chapter 3 providea detailed solution to all questions. Students must choose Extramarks for all their learning needs due to the following reasons:

  • It covers all the chapter end questions along with their comprehensive answers explained in detailed with appropriate examples.
  • All solutions are given in a comprehensive and easy to understand  way which gives students an idea of how to attempt a question in the board exam in the right manner
  • By laying a foundation and explaining the chapter’s fundamental principles, the answers help in eliminating the student’s doubts and confusion.
  • The solutions are prepared by experts in the field of Business Studies.

Q.1 What is meant by business environment?

Ans. The total of external economic, social, political, technological and political forces affecting the business and its operations is known as business environment.

Q.2 How does understanding of business environment help in improving performance of a business?

Ans. Business environment helps in improving performance of a business like:

  • It enables the firm to identity opportunities and getting the first mover advantage.
  • It helps the firm to identity threats and early warning signals.
  • It helps in tapping useful resources.

Q.3 Give an example to show that a business firm operates within numerous inter related factors constituting the business environment. (Hint: example highlighting the inter relatedness of dimensions of business environment).

Ans. All the elements of the business environment including its various dimensions of economic, legal, political, technological and social are closely interrelated to each other.

For example, People are now focusing on using organic food products for health concerns. This is a part of the social dimensions of the business environment.

However, it presupposes an economic dimension that the people now have more disposable income than before.

Q.4 Krishna Furnishers Mart started its operations in the year 1954 and emerged as the market leader in the industry because of their original designs and efficiency in operations. They had a steady demand for their products but over the years, they found their market share declining because of new entrants in the field. The firm decided to review their operations and decided that in order to meet the competition, they need to study and analyze the market trends and then design and develop their products accordingly. List any two impacts of changes in business environment on Krishna

Furnishers Mart’s operations. (Hint: increase in competition and Market orientation).

Ans. The impact of changes in business environment on Krishna Furnitures Mart’s operations are:

  • Increased competition: As a result of changes in the rules of industrial licensing and entry of foreign firms.
  • Market Orientation: earlier firms used to produce first and firms used to produce first and go to the market for sale later. In other words, they had production oriented marketing operations. In a first changing world, there is a shift to market orientation in as much as the firms have to study and analyse the market first and produce goods accordingly.

Q.5 Name any two Specific forces of business environment affecting business.

Ans. Specific environment refers to those external forces that affect an organisation directly. These are specific to a particular organisation.

Specific forces such as investors, customers, competitors and suppliers affect business directly and immediately in their day-to-day working.

Q.6 Why it is important for business enterprises to understand their environment?

Ans. Ans. Understanding the business environment is important for an organisation as it gives the following benefits:

  1. Identifying opportunities
  2. Tapping useful resources
  3. Identifying warning signals
  4. Assisting in planning and policy making
  5. Coping with rapid changes Improving performance

Q.7 National Digital Library of India (NDL India) is a pilot project initiated by the HRD ministry. It works towards developing a framework of virtual repository of learning resources with a single

­window search facility. It provides support to all academic levels including researchers, life

­long learners and differently abled learners free of cost. State the dimensions of business environment highlighted above.

Ans. The dimensions of business environment is technological environment.It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services and new methods and techniques of operating a business. Technological environment provides new learning framework to NDL India. For example, recent technological advances in computers and electronics have modified the ways in which companies advertise their products.

Q.8 State the impact of demonetization on interest rates, private wealth and real estate.

Ans. Demonetisation is an act of cancelling the legal tender status of a currency unit in circulation. Countries across the globe have used Demonetisation at some or the other point to control situations such as inflation and to boost economy. In November, 2016, Indian Government banned the high denomination notes of 1,000 and 500 and these currency notes are ceased to be legal tender from the date.


Interest Rate: As a result of increased liquidity, RBI cut down the rates of interests applicable on fixed deposits, recurring deposits. Since banks accumulate huge deposits, borrowing cost for bank reduced. Customers get lower interest rates on loan products.

Private wealth: Declined due to demonetisation. Some of the high demonetisation notes were not returned to the depositors leading to fall in the prices of real estate.

Real Estate: The unorganised sector affected by the invalidation of the higher denomination currency notes. The prices of real estate fell in the secondary market where most of the property dealings happen through cash. However, there won’t be much change in the primary real estate market as property buyers deal either in the form of Cheques or through loans.

Q.9 How would you characteriSe business environment? Explain with examples, the difference between general and specific environment.

Ans. A business environment means the sum total of all individuals, institutions and other forces that are outside the control of an enterprise but may affect its performance.

It can be characterised as follows:

i. Totality of external forces- Business environment includes all forces, institutions and factors which directly or indirectly affect an organisation operating in it.

ii. Specific and general forces- Specific forces in a business environment include customers, investors, competitors, suppliers etc. General forces which influence the environment are social, political, legal, technological conditions etc.

iii. Dynamic Nature- Business environment is highly flexible and keeps changing continuously. Changes could be in customer preferences, technological advancements etc.

iv. Complexity- The business environment consists of numerous and inter- related forces, hence it becomes difficult to comprehend the impact of the environmental forces on business. It becomes difficult to know the indirect impact of social, political, technological or legal factors on aspects of business.

v. Uncertainty- It is difficult to predict the changes in business environment, especially in case of rapidly changing aspects of environment, such as technological environment.

Q.10 How would you argue that the success of a business enterprise is significantly influenced by its environment?

Ans. The significance of understanding the business environment is as follows –
i. Identifying opportunities – Scanning of business environment during initial stages helps the business in identifying the opportunities and gaining the first mover advantages.
ii. Tapping useful resources – Business environment helps firms to obtain inputs & in selling their output. The environment provides various resources for running the business like finance, machines, raw materials, power and water, labour, etc and also helps firms to sell their outputs such as goods and services to customers, to give taxes to government, give return on investment to investors etc.
iii. Identifying warning signals – Threats from the environment refer to the trends & changes that may hinder business’s performance. Analysis of business environment helps businessmen in dealing with the constraints or hurdles and act as warning signals.
iv. Assisting in planning and policy making –The plans and policies in the organisation are formed keeping in mind the business environment as it helps in finding out the opportunities of business and policies can be made to grab these opportunities.
v. Coping with rapid changes – Business environment scanning helps companies to scan and understand the changes such as turbulent market conditions, less brand loyalty, changes in technology etc. Businessmen make changes in their internal environment to match the external environment.
vi. Improving performance – Continuous analysis of business environment can help companies to improve their performance. By changing the internal environment in relation to the external environment, organisations can prosper and improve their market.

Q.11 Explain, with examples, the various dimensions of business environment.

Ans. The dimensions of business environment are:

i. Economic environment: Economic environment consist of gross national product, inflation rate, productivity, balance of payments etc. Economic environment has a significant influence over organisational policies and actions. For example, rise in the disposable income of people due to increase in the gross domestic product of the country results in increase in the demand for products.

ii. Social environment: The social environment of the business includes the social forces like customs and traditions, values, social trends, society’s expectations from business etc. The main components of social environment are as follows:

Demographic trends, social attitudes, customs, rituals, cultures, etc., family structure and values.

iii. Technological environment: The technological environment includes new approaches to production and distribution of goods and services, new processes and equipments etc. Technological environment has a significant influence on business. For example: DTH facility provided by many companies like Tata Sky, Dish TV has adversely affected the cable TV operators.

iv. Political environment: It consists of those elements that are related to governmental affairs i.e. the type of government, government attitude towards various industries etc. For example, IT companies have found Hyderabad to be the most hospitable location primarily due to the supportive political climate.

v. Legal environment: Every business has to function within the framework of laws and regulations of the country. Legal environment therefore has a very significant influence on business activities. Non-compliance of laws can land the business into legal problems. For example, a publishing company has to follow the law governing copyright.

Q.12 The government of India announced Demonetization of ₹500 and ₹1,000 currency notes with effect from the midnight of November 8, 2016. As a result, the existing ₹500 and ₹1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹500 and ₹2,000 were issued by Reserve Bank of India after the announcement. His step resulted in a substantial increase in the awareness about and use of Point of Sale machines, ewallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection.

a. Enumerate the dimensions of business environment highlighted above.

b.State the features of Demonetization.

Ans. a)

The dimension is Economic environment.

Interest rates, inflation rates, changes in disposable income of people, stock market indices and the value of rupee are some of the economic factors that can affect management practices in a business enterprise.

Demonetisation affect the working of business.

Demonetisation is also a part of the legal environment as a rule was passed by the government.

b) Features of Demonetisation:

  • Tax administrative measure: People having cash falling under declared income deposited their cash in banks immediately to be exchanged for new currency notes but those with unaccounted wealth had to pay taxes at a penalty rate.
  • Demonetisation is being considered as a strict measure by the government against tax evasion which will not be tolerated.
  • Demonetisation help in channeling more savings through the formal financial system and improving tax compliance.
  • Channelising savings into formal financial system: New deposit schemes introduced by the banks will be used as loans, at lower interest rates.

Q.13 What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?

Ans. The economic reforms announced by Government of India in 1991 were:

i. Reduction in the number of industries under compulsory licensing to six.

ii. Many of the industries reserved for the public sector under the earlier policy, were dereserved.

iii. Disinvestment of public sector industrial enterprises.

iv. Increasing the foreign equity participation.

v. Establishment of Foreign Investment Promotion Board (FIPB) to promote and channelize foreign investment in India.

Appropriate measures were taken to remove obstacles in the way of growth and expansion of commerce and trade.

The economic reforms were brought about through- Liberalisation, Privatisation and Globalisation.

Liberalisation refers to removal of licencing raj to liberate the Indian businesses from unnecessary restrictions and controls, through abolishing licensing requirements of various industries, reduction of taxes and removal of restriction of movement of goods and services.

Privatisation is aimed at giving greater role to the private sector in the nation building process and a reduced role to the public sector. This was to be brought about through disinvestment, which is the process of dilution of stake of Government in public sector undertakings beyond 51%.

Globalisation was aimed at encouraging foreign private participation in India’s industrial development, through import liberalisation, export promotion and rationalization of tariff structure.

Q.14 What are the essential features of:


b.Privatization and


Ans. (a) Liberalisation: It means deregulations and reduction of government control in the business and large number of firms in various sectors functioning freely and without too much licensing.

(b) Privatisation: It means transferring of ownership from government to private sector. For example, Government of India has reduced its stake in various public sector undertakings and sold them to private sector.

(c) Globlisation: It means the integration of the various economies of the world and helping companies of one country to do business in other countries.

Q.15 Explain the following terms:




Ans. (a) Liberalisation: It means deregulations and reduction of government control in the business and large number of firms in various sectors functioning freely and without too much licensing.

(b) Privatisation: It means transferring of ownership from government to private sector. For example, Government of India has reduced its stake in various public sector undertakings and sold them to private sector.

(c) Globlisation: It means the integration of the various economies of the world and helping companies of one country to do business in other countries.

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FAQs (Frequently Asked Questions)

1. Why is it essential for businesses to understand their environment?

The following are the reasons why it is essential for businesses to understand their environment:

  • The business environment has a role in determining whether a company will succeed or fail.
  • Business groups can identify positive prospects for a firm. They assist in making the initial move and staying ahead of the pack.
  • It is critical to research the company environment to detect possible dangers and comprehend their implications for growth to choose the appropriate countermeasure.
  • The corporate world is ever-changing. Consumer preferences and government regulations influence variables such as technology, which are vulnerable to change based on demand.
  • It will be easier to adjust to the new development if you understand the company environment.

2. What are the fundamentals of the Business Environment chapter for Class 12?

The CBSE syllabus for Class 12 Business Studies includes a unit on Business Environment. It’s the third chapter of the book on business studies. The Business Environment chapter’s fundamentals encompass issues such as external influences that affect the organisation and business. It also covers the relevance of the business environment and how the business environment aids in coping with changes in the environment.

3. What is the basic principle of the Chapter on the Business Environment?

 Understanding the essential characteristics of the business environment is the underlying notion of the Business Environment Chapter of Class 12 Business Studies. The economic environment, social environment, technical environment, political environment, and legal environment are some of these components. The most important notion of understanding and comprehending is how the business environment interacts with various shifts and dimensions. The essential idea in this chapter is the features of a business environment.