Nature and Purpose of Business
Short Answer Questions
Question 1: State the different types of economic activities.
Answer: Different types of economic activities are as follows:
Question 2: Why is business considered an economic activity?
Answer: Activities which are done to earn a livelihood are called economic activities. A business is done for the prime purpose of earning livelihood. Hence business is considered and economic activity.
Question 3: Explain the concept of business.
Answer: 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 is called business. Business is an economic activity and any non-economic activity; like charity cannot come under the category of business. A business always involves production of and sale of goods and service. The motive of business is to earn profit by satisfying human needs in society. Any illegal activity which is done to satisfy human need cannot come under the category of business.
Question 4: How would you classify business activities?
Answer: Business can be classified into two main activities, viz. Industries and Commerce
- Industry can be classified into primary, secondary and tertiary industries.
- Commerce can be classified into trade and auxilliaries to trade.
Question 5: What are various types of industries?
Answer: Industry is classified into three main types:
- Primary Industries
- Secondary Industries
- Tertiary Industries
Question 6: Explain any two business activities which are auxiliaries to trade.
Answer: Following are two business activities which are auxiliaries to trade:
- Insurance: Most of the businesses take insurance cover to minimize the business risks in case of pure risks.
- Advertising: Advertising is used as a tool to motivate customers to buy products or services of a business organization.
Both insurance and advertising facilitate trade but since the transaction is not directly related to end users hence they are termed as auxiliaries to trade.
Question 7: What is the role of profit in business?
Answer: Profit is very important for a business. The return on capital employed is termed as profit. Profit is always calculated after deducting expenses. Profit is important for further growth and expansion of business. A major part of profit needs to be ploughed back into the business so that the business can grow in size. A part of profit can also be kept as cash reserve for unforeseen circumstances.
Question 8: What is business risk? What is its nature?
Answer: The possibility of inadequate profit or even losses due to uncertainties or unexpected events is called business risk.
There are two types of business risks, viz. speculative risk and pure risk.
Speculative risk involves both the possibilities of profit and loss. Such risks arise due to uncertainties in market conditions. Same market condition can be profitable for a particular business organization while can result in loss for another business organization. Pure risk involves either the risk of profit or loss. For example; a natural calamity would always result in loss.