std.11 commerce, organization of commerce and management… · we present to you "std. xi...

© Target Publications Pvt. Ltd. No part of this book may be reproduced or transmitted in any form or by any means, C.D. ROM/Audio Video Cassettes or electronic, mechanical

including photocopying; recording or by any information storage and retrieval system without permission in writing from the Publisher.

STD. XI Commerce

Organization of Commerce &

Management

Written as per the revised syllabus prescribed by the Maharashtra State Board

of Secondary and Higher Secondary Education, Pune.

• Exhaustive coverage of syllabus in Question Answer Format.

• Covers answers to all Textual Questions.

• Relevant Marking Scheme for Each Question.

• Includes Additional Important Questions for better preparation.

• Mnemonics to facilitate easy answer recall.

• Quick Recap at the end of each chapter to facilitate quick revision.

• Simple and Lucid language.

• Includes GG ‐ our very own mascot.

Salient Features:

Printed at: Repro India Ltd., Mumbai

P.O. No. 23903

10162_10805_JUP

PREFACE We present to you "Std. XI Commerce: Organization of Commerce and Management" with a revolutionary fresh approach towards content thus laying a platform for an in‐depth understanding of the subject. This book has been written according to the revised syllabus and guidelines as per the State Board and covers answers to all textual questions. In addition to this, we have included extra questions in each lesson that not only aim at covering the entire topic but also make students ready to face the competition. The sub‐topic wise classified “Question and Answer” format of this book helps students in easy comprehension. Furthermore, we have provided model answers to each question in the form of pointers which makes it easy for students to memorize and reproduce the answers in their examinations. We have incorporated “Mnemonics” to facilitate easy answer recall. Every chapter ends with a Quick Recap to facilitate quick revision of the lesson learnt. The model questions are provided with relevant marking schemes so as to highlight the importance of each question. We are sure this study material will turn out to be a powerful resource for students and facilitate them in understanding the concepts of this subject in the most lucid way. The journey to create a complete book is strewn with triumphs, failures and near misses. If you think we've nearly missed something or want to applaud us for our triumphs, we'd love to hear from you. Please write to us on: [email protected]

Best of luck to all the aspirants! Yours faithfully, Publisher.

Gyan Guru (GG)

We present to you our mascot 'GG', who has been proudly

introduced by us. GG is a student‐buddy who pops up

throughout the book and draws your attention to important bits

of knowledge also termed as 'Good to Know'. These 'Good to

Know' sections help you understand a concept distinctly with a

corresponding example from your immediate environment. This

is our initiative in education that helps linking learning to life

and we're hopeful that you are going to love it.

Sr. No. Topic Name Page No.

1. Nature and scope of Business 1

2. Small Business 30

3. Private, Public and Global Enterprises 67

4. Internal Trade 96

5. International Business 132

6. Business Environment 169

7. Marketing 189

8. Nature and Significance of Management 219

Note: All Textual questions are represented by * mark.

1

Chapter 01: Nature and Scope of Business

Ms. Priya is conducting her first OCM class for class XI. She is eager to start with the

chapter ‐ ‘Nature and Scope of Business’. She wants the class to be interactive. So, she asks them to introduce themselves one by one.

The conversation flows as given below:

Ms. Priya: Hi all, welcome to class XI. I am your OCM teacher. Today we are starting with the first chapter. But before that, let’s have a quick round of introduction about you and your family.

Praful: Hi, my name is Praful. My dad works as an engineer with an MNC. My mother is a home maker.

Ms. Priya: Thanks for the introduction Praful. Let’s take your example. Everybody in Praful’s family does some or the other activity. Praful studies, his dad works with an MNC and his mom looks after household duties. Is that right?

Students: Yes.

Ms. Priya: Great. However, do all of them receive money for the activity they perform?

Students: No.

Ms. Priya: Only Praful’s dad receives money for the activity he does. Hence, the work that he does is termed as ‘economic activity’ and the activity of studying and performing household duties are termed ‘non‐economic activity’.

Ravi: Hi, I am Ravi. My mom is a doctor and runs her own clinic. My dad deals in purchase and sale of old furniture.

Ms. Priya: Thanks Ravi. Ravi’s introduction takes me towards the classification of Economic activities. Economic activities are classified into Business, Profession and Employment. Business includes manufacturing and/or trading in goods or services. Profession includes rendering expert services. Employment means hiring somebody to do a job.

Ravi: I understood. The work my mom does is termed as ‘Profession’ and the work my father does is termed as ‘Business’. Is that right, ma’am?

Ms. Priya: Absolutely Yes.

Anuj: Ma’am, I have a question. We sold some furniture last month. Does that also mean ‘Business’?

Ms. Priya: No, Anuj. Business is a regular activity. If you purchase and sell furniture on a regular basis, then it would be termed as ‘Business’.

Thus, we conclude that human activities can be of two types viz. economic activities and non‐economic activities. Economic activities take place on pursuing a business, profession or an employment.

In this chapter, you will learn the meaning of economic activity and its classification. What are Human Activities? ‐ Every human being engages himself/herself in some kind of activity.

‐ All human activities can be broadly classified into two categories. They are as follows: Non‐Economic Activities: These activities are performed for gaining happiness, pleasure and satisfaction. These

activities do not involve money matters at all. For e.g. Reading a book, attending a family function, chatting with friends, worshipping god, etc.

Introduction

01.Nature and Scope of Business

Human Activities

2

2

Std. XI : Commerce

Economic Activities: These activities are undertaken for the purpose of earning livelihood. A person conducting

economic activities receives money in return of it. For e.g. Running a shop, working in an MNC, practicing as a chartered accountant, selling second hand goods, etc.

Economic activities can be further classified into three types viz. Business, Profession and Employment (Service).

Meaning of Business: ‐ Business is a state of being busy.

‐ The primary aim of conducting business is to earn profit.

‐ Business is related to the continuous and regular production & distribution of goods & services for the purpose of satisfying human wants and earning profit.

‐ Production refers to changing the form of resources and/or adding value to them so that they can be used for consumption.

‐ Goods can be either agricultural goods or manufactured goods.

‐ Such goods are made with the help of manpower or with the use of machines.

‐ For e.g. Growing mangoes on a piece of land is an example of agricultural production. Converting the mangoes into pulp/juices and selling them in the market is an example of manufactured goods.

‐ Distribution, on the other hand, is the process of making the products and/or services available for consumption in the market. This process includes actual buying and selling along with the arrangement for transportation, advertising, warehousing and other aids‐to‐trade that help the products to reach the consumers.

Definitions of Business:

Stephenson defines business as, “The regular production or purchase and sale of goods undertaken with the object of earning profit and acquiring wealth through the satisfaction of human wants”.

According to Prof. Haney, “Business activities are all those human activities which are directed towards the production and processing of wealth”.

*Q.1. Define Business. Explain its Features. [10]

Ans: Stephenson defines business as, “The regular production or purchase and sale of goods undertaken with the object of earning profit and acquiring wealth through the satisfaction of human wants”.

According to Prof. Haney, “Business activities are all those human activities which are directed towards production and processing of wealth”.

Features of Business (Traditional Business):

The features of business are as discussed below: [Mnemonic: DIRECT Plan]

i. Deals in Goods and Services: ‐ Every business transaction is concerned with either goods and/or services.

‐ In their absence, business cannot take place.

‐ Goods are tangible in nature. They may either be capital goods (like tools and machinery) or consumer goods (like clothes, shoes, toothpaste etc).

‐ Services are intangible in nature. They include transport, banking, insurance etc.

ii. Involves Production and Distribution: ‐ Every business deals with production of goods / creation of services and their distribution.

‐ Any activity or transaction that is required to complete the process of making goods or services available for a price to the consumers is called a business activity.

Economic Activities ‐ Business

3


iii. Risk:

‐ Risk and uncertainty are a part of any business activity.

‐ The element of risk exists due to a variety of factors such as:

change in the demand of goods;

risk of loss due to fire, earthquake, pilferage, theft etc.

competition, changes in government policies etc.

‐ A businessman tries to predict the future uncertainties and plans his business activities

accordingly.

‐ However, the element of risk always remains associated with a business.

iv. Involves Exchange:

‐ Business means exchange of goods or services for money or money’s worth.

‐ When goods are exchanged for money’s worth, it is called monetary exchange.

‐ On the other hand, when goods exchanged for some other goods is called Barter Exchange.

‐ However, exchange does not include goods donated or gifted to someone.

‐ Also, business does not include goods used for personal consumption by a businessman.

v. Continuity:

‐ Business involves a regular activity of production and/or distribution of goods and services.

‐ A single transaction of buying and selling cannot be termed as business, even if it involves

monetary exchange.

‐ For e.g. If a person sells his old television for money, then it cannot be called as business. It

can be just termed as an economic activity. However, a dealer dealing in second hand

electronic goods can be called a businessman.

vi. Two Parties:

‐ A business transaction involves an exchange.

‐ Every business transaction, thus, involves at least two parties i.e. a buyer and a seller.

‐ A business transaction is a result of an agreement; hence the presence of two parties is a

must.

vii. Aims at Profit:

‐ The primary aim of a business concern is to earn profit as it is a driving force behind every

business.

‐ Every business transaction includes profit, though its amount may vary based on the nature

and size of the transaction. Features of Modern Business:

The above mentioned features of business are related to traditional businesses. However, the

modern businesses operate in a much more competitive and dynamic world. Hence, in addition

to the basic features mentioned above, modern businesses have some additional features too.

These additional features are listed below: [Mnemonic: I M a STAR]

i. Information:

‐ Information plays an important role in today’s business world.

‐ A business unit frames its plans and policies depending upon the information on market

conditions, consumers’ tastes and preferences, government policies etc. gathered through

various sources of information such as market surveys, internet, newspaper and journals.

‐ Information so collected helps the business units to take correct and timely decisions.

4

4

Std. XI : Commerce

ii. Many Lines of Products: ‐ With the expansion of markets,

the business world has become very competitive.

‐ In order to survive, companies produce and distribute many products at the same time.

‐ Thus, even if one product does not yield sufficient profits, the company can recover the

reduction in profit by selling other products.

iii. Large Scale of Business: ‐ Owing to the development in transport and communication, businesses have crossed

national boundaries. ‐ Thus, production and distribution of goods and services takes place on a large scale.

iv. Science and Technology: ‐ Modern businesses make use of

scientific techniques for making budgets, recruitment of employees, handling employees and overall control.

‐ They make use of latest technology for producing goods.

v. Adaptability: ‐ The ability of a business to react

as per the changing situation is known as adaptability.

‐ The business environment is ever changing.

‐ Factors like consumers’ tastes and preferences, government policies, technology, etc. change very rapidly and hence, the business has to change its policies to suit the changing environment.

vi. Role of Government: ‐ In a modern business scenario, the government possesses a crucial role to play. ‐ It plays the role of a regulator by forming various acts and policies. ‐ Through such regulations, it regulates the working of the business units in national and

international markets to restrict unfair and unethical trade practices. ‐ The government, by such acts, intends to protect the welfare of the consumers, investors,

creditors, employees, etc.

Good to Know: Jalgaon's farmers owe their prosperity to precision farming, an agricultural method first tried out in the district in 2002‐03. This technique reduces fertiliser and pesticide use, prevents soil degradation, utilizes water optimally and raises productivity. Globally, this is done with the aid of modern, eco‐friendly farming practices and technology, including satellite imagery and information technology. Over the last decade, Jalgaon's farmers, with some help from companies such as Jain

Irrigation Systems, have adapted precision farming practices without depending

on satellite imagery and the like.

Good to Know:

A company like HUL has numerous product lines like Shampoos, detergents, Soaps etc. The combination of all these product lines forms the product mix.

Good to Know:

Barrix Ago Sciences, a Bangalore‐based start‐up offers eco‐friendly crop protection methods after much research on products

that support organic farming to increase crop produce and quality with minimal expenditure.

5


Meaning of Profession:

‐ Profession is the utilization of special knowledge and skills that empowers an individual to provide services in order to earn a living.

‐ In order to become a professional, a person has to attain a certain degree of knowledge, formal education and undergo training.

‐ Profession is an intellectual activity.

‐ For e.g. Teachers, lawyers, doctors, engineers, chartered accountants, etc. are known as Professionals.

*Q.2. Write a short note on: Features of Profession. [5]

Ans: Profession is the utilization of special knowledge and skills that empowers an individual to provide services in order to earn a living. A person has to attain a certain degree of knowledge, formal education and undergo training in order to become a professional.

The features of Profession are as follows:

i. Qualification:

‐ A person has to acquire certain expertise to offer professional services.

‐ Every profession has its own definite body of knowledge.

‐ The knowledge required for practicing a profession has to be acquired through systematic and formal training.

‐ A person cannot practice a profession, unless he has the prescribed qualification, education and skills.

ii. Motive:

‐ Profession is an economic activity.

‐ Every economic activity is undertaken for earning money.

‐ However, profession should also have the motive to provide diligent service to the clients.

‐ A professional renders services of special nature to solve the problems and work for the well being of his clients.

‐ For e.g. A doctor treating the illness of a patient should aim at improving the health of the patient rather than just focusing on money.

iii. Monetary Returns:

‐ A professional renders services in exchange of ‘Fees’.

‐ Income of profession depends upon the expertise, quality of service and experience of the professional.

‐ The income of self‐employed professional, in particular is uncertain.

‐ For e.g. A doctor having his own clinic is self‐employed and so his income will be uncertain whereas, a doctor working in a hospital is considered as an employee, whose income is certain.

iv. Capital:

‐ The capital required by a self‐employed professional is low as compared to a businessman.

‐ If a professional is working under someone else, he usually does not require any capital.

v. Requirement of Registration: ‐ Every professional needs to register himself/herself with the respective council and get a

certificate of practice after successful completion of the specified education and training.

‐ For e.g. The Bar Council of India for Lawyers, Council of Architecture, India for Architects etc.

‐ Generally, professions have a distinct national level council that lays down the code of conduct to be followed by them. The professionals have to strictly adhere to the code of conduct prescribed by their respective councils. It protects the interests of both, the professionals as well as their clients.

Economic Activities ‐ Profession

6

6

Std. XI : Commerce

vi. Non‐transferability:

‐ Unlike a business, profession cannot be transferred to some other person as per the will of a professional.

‐ To practice a profession, one requires to have the prescribed qualification, education and skill.

‐ However, it can be transferred to a person who is equally qualified in the said profession.

‐ For e.g. A lawyer cannot transfer his office or his practice to his son who has not completed his education in law. However, it can be transferred to another lawyer.

vii. Nature of Work:

‐ A professional renders expert services to his clients based on his formal education, training and skills in exchange of fees.

‐ For e.g. A doctor treats the illness of a patient and accepts fees. Meaning of Employment:

‐ Employment is an economic activity wherein a person appoints another person for the purpose of completing a job, task or assignment and pays wages / salary in return.

‐ The person who assigns the task is known as an Employer and the one who is expected to perform the assigned task is known as an Employee.

‐ For e.g. Factory workers, office assistants, managers, etc. are employees of a company.

‐ Employment may be full‐time, part‐time, permanent or temporary in nature. *Q.3. Write a short note on: Features of Employment. [5]

Ans: Employment is an economic activity wherein a person appoints another person for the purpose of completing a job, task or assignment and pays wages / salary in return. The person who assigns the task is known as an Employer and the one who is expected to perform the assigned task is known as an Employee.

The features of employment are as follows:

i. Qualification:

‐ Qualification required for an employment may or may not be specific.

‐ Some jobs do require specific qualifications, whereas some do not.

‐ The qualification required to perform a job depends upon the nature of the job.

‐ As the nature of job changes, the qualification also changes.

‐ The criteria for qualification can be used for employing skilled as well as unskilled employees.

‐ For e.g. A driver should know how to drive a car.

ii. Motive:

‐ The motive of employment is to earn money in order to satisfy the primary and secondary needs.

iii. Monetary Returns:

‐ An employee gets returns in the form of ‘Wages’ or ‘Salary’ for the work completed by him.

‐ The returns of employees are certain as they are paid on the basis of pre‐determined terms of engagement.

‐ Wages are paid daily or weekly while salary is paid monthly.

‐ An employee may also get incentives and rewards in the form of travelling allowances, rent allowance, bonus, commission etc.

iv. Capital:

‐ No capital is required to be invested by an employee.

‐ An employer provides the employee with all the material, infrastructure, tools and equipment that is required to complete the given job.

Economic Activities ‐ Employment

7


v. Code of Conduct:

‐ An employee has to abide by the rules and regulations as specified by the employer.

‐ These rules are agreed by the employee at the time of accepting the employment.

‐ For e.g.: Reporting time to office, dress code etc.

vi. Non Transferability:

‐ Every employment is an individual and independent contract which cannot be transferred from one person to another.

‐ For e.g. If a manager retires, he cannot transfer the job to his son / daughter, provided certain provisions and guidelines are given on Government level.

vii. Nature of Work:

‐ The nature of work depends upon the job profile of the employee.

‐ An employer assigns a task and the employee is expected to complete the same. *Q.4. Describe the various objectives of a business unit. [10]

Ans: Business is related to the continuous and regular production and/or distribution of goods and services for satisfying human wants and earning profit.

Objectives of Business:

Objectives are the desired results that a business intends to achieve. A business may be started with the objective of earning profit, but sooner or later it realises the influence of social factors on business. Thus, it has to maintain good relations with suppliers, customers, employees, investors etc. In short, it has to maintain a balance between the profit objective and the social objective.

The statement by Henry Ford is as follows: “business is not mere money chasing but it also should aim at serving the community”.

Objectives of business can be classified into two types: Economic Objectives and Social Objectives.

They are explained as follows: A. Economic Objectives:

Business being an economic activity, its objectives is economic in nature. Economic objectives of business are:

i. Earning Profit:

‐ Profit is essential for the survival, expansion and growth of a business.

‐ Earning legal profit is not objectionable.

‐ Thus, a business unit produces those goods and services that are in demand and commercially viable.

‐ Profitability is also an indicator of the stability, efficiency and progress of a business unit.

ii. Search of New Customers:

‐ Customers are key to the profitability of an organization.

‐ The survival of a business depends on the number of customers it has created in the market.

‐ Given the level of competition in the market, a business unit works hard to create and maintain a loyal customer base.

‐ New customers are created when a business supplies goods that suit the tastes and preferences of the market.

‐ Existing customer base can be maintained by supplying quality goods at reasonable prices.

‐ Thus, customer satisfaction is the end towards which all business energies are directed.

‐ Customer satisfaction ensures that the business remains operational in the market for a long time.

Objectives of Business

8

8

Std. XI : Commerce

iii. Innovation: ‐ Innovation can be in the form of

introduction of a new product/service in the market

‐ It can also be in the form of improvement in an existing product/service available in the market

‐ A business needs to be innovative in order to be competitive.

‐ It cannot keep offering the same product for a long time as the tastes and preferences of the consumers change rapidly.

‐ A business needs to spend on research, market surveys etc. to bring innovation in its products.

‐ Such novelties attract the customers and expand the customer base.

‐ Apart from new product launches, innovations can also be achieved by tapping into unique channels of distribution and offering value added services.

iv. Best Possible use of Resources: ‐ Most of the available resources are scarce and they can be put to productive use in more ways

than one.

‐ Resources include human resources, raw materials, financial resources etc.

‐ A business should make best possible use of these resources and try to minimize their wastage.

‐ Reduction of wastage also reduces the cost of production and increases the profits.

‐ Additionally, reduction of wastage is beneficial from the environmental perspective.

‐ Thus, optimum (maximum) use of resources helps in increasing the efficiency, productivity and profitability of the business organization.

B. Social Objectives: A business depends on society for the utilization of various resources. Hence, as a token of

gratitude, it has to undertake social initiatives to gain goodwill and acceptance of the people.

i. Supplying Quality Products: ‐ Customers are a part of the society that a business actively seeks to serve.

‐ Thus, providing quality products/services at reasonable prices becomes a pre‐requisite.

‐ Quality refers to product attributes such as purity, safety, durability, utility etc.

‐ Customers will be satisfied if they get value for money.

‐ Satisfied customers help in creating a favourable brand image that leads to further widening of the customer base.

‐ This in turn enhances the profitability of the enterprise.

ii. Avoiding Unfair Trade Practices: ‐ A business concern should avoid malpractices like black marketing, misleading advertising,

wrong measurement etc.

‐ It should follow fair trade practices.

‐ Unfair trade practices may lead to quick profits but in the long run, it affects the image of the company and the company loses its market share to its competitors.

iii. Employment Generation: ‐ Business units undertake economic activities in the society.

‐ Thus, they can be described as socio‐economic institutions.

Good to Know:

Tata Motors got the idea of launching a small truck half the size of a Tata 407, a 2.25 tonner. The feedback from the market clearly pointed towards a rising demand for small trucks. Tata Motors identified this gap in the market and launched Ace.

Today, every fourth truck sold in India is a Tata Ace. It has created an all‐new segment that of the small light commercial vehicle.

9


‐ Business helps society by providing adequate employment opportunities to the people.

‐ A business should also consider providing employment opportunities to the needy and the physically challenged people.

‐ This helps in establishing a favourable public image and enhances the goodwill of the organization.

iv. Welfare of Employees: ‐ Skilled and unskilled labour

/ employees are a resource that a business obtains from the society.

‐ Therefore, employee welfare is a way to serve the society.

‐ It can be achieved by providing the employees with fair wages, good working conditions, appreciations, increments, additional perks and benefits etc.

v. Help to Solve Social Problems: ‐ Rapid industrialization leads to various problems such as air pollution, water pollution, noise

pollution, traffic jams, etc. ‐ Business sector should understand the intensity and impact of such problems and try to find

a viable solution. ‐ It should implement processes that reduce pollution and safeguard the environment. ‐ This ensures harmony in the social and ecological environment.

vi. Contributing to the Welfare of the Society: ‐ A business should understand and

play a pro‐active role in the general welfare of the society.

‐ They can lend support to social, cultural, religious, research and developmental organizations.

‐ They can help build schools, colleges, libraries, dharamshalas, hospitals, sports bodies and research institutions.

‐ They can help non‐government organizations (NGOs) like CRY, Help Age and others which render

services to weaker sections of society.

Good to Know:

RMSI an IT services player bagged first rank by keeping staff happy without big budgets as India's best companies to work for 2015.

The company, which employs about 800 people currently, plans to more than double its headcount to 2,000 people in the next one year.

The company focuses on simple employee engagement practices like Workshops to help employees develop life skills; Sessions on stress management through jazz and yoga; In‐house music band and photography club; Wellness camps, etc.

Good to Know:

Set up in 1996, Mahindra & Mahindra through its flagship programme, Project

Nanhi Kali supports the education of over 11 lakh underprivileged girls in ten states, providing material support (uniforms, bags, notebooks, shoes and socks) and academic support (workbooks, study classes). The key outcomes of the project include an increase in both enrolment of girls in schools and curtailing dropouts to less than 10%.

Good to Know:

The IT‐BPO industry has created direct employment of 2.2 million and indirect employment of eight million. By 2020, the figures are expected to go up to 10 million and 20 million

respectively. The indications are that significant global career opportunities will be generated. Interestingly, the employment opportunities have touched different sections of society, going beyond the metros.

10

10

Std. XI : Commerce

Q.5. *Explain the importance of profit in Business.

OR Discuss the Role of Profit in Business. [10] Ans: Every business operates with an aim of earning profit. It is a reward for taking risk and investing

time, money and energy in the business. Profit not only ensures the survival and growth of a business but also helps the concern to fund its social initiatives.

Importance/Role of Profit: The importance/role of profit can be explained as follows:

[Mnemonic: STARING Great Entrepreneurs] i. Survival of Business: ‐ Profit is necessary for the survival and growth of a business enterprise. ‐ A new business may find it difficult to survive the initial stages in the constantly evolving

markets. ‐ However, if the business makes even small profits, it can survive and aim for better profits in

the near future. ‐ Profits also boost the morale of the employees, ease negotiations with banks, attract

investors and build customer confidence.

ii. Reward for Risk Taking: ‐ Profit is a return on investment. ‐ A businessman invests his capital and also runs his business with an uncertainty of making

profit and the risk of incurring losses. ‐ Thus, earning profit is a reward for risk taken in the business.

iii. Availability of Funds: ‐ Regularity in profit making helps a business to create a pool of available funds in the form of

savings or retained earnings. ‐ These funds can be utilized to meet future contingencies in business. ‐ Also, savings indicate a sound financial standing and thus help to build public confidence. ‐ This helps the business in raising funds by means of issuing shares to the public or taking

loans from financial institutions. Thus, profits make the availability of funds from internal as well as external sources possible.

iv. Research and Development: ‐ Reasonable amount of profit making encourages the management to undertake research and

development. ‐ This may lead to the creation of innovative products and services that help the business to

earn more profits.

v. Index of Performance: ‐ Profit acts as an indicator of financial performance. ‐ Higher profits indicate enhanced efficiency in the functioning of the business and lower

profits signal the management towards taking corrective steps.

vi. Income to Satisfy Needs: ‐ Business is an economic activity i.e. its main purpose is to earn profit. ‐ Profit is the income earned by the businessman. ‐ Through this income earned, he can satisfy the needs and wants of his family.

vii. Growth and Expansion: ‐ Profits are required to fund the growth, expansion and diversification plans of a business. ‐ Growth and expansion may be in the form of opening new branches, offering different types

of goods and services etc. ‐ Profits are also required to make a business globally competitive.

Role of Profit in Business

11


viii. Satisfaction of Interest Groups: ‐ A business depends on customers, employees, government investors, etc. for its functioning.

‐ These factors are known as interest groups.

‐ A profitable business is able to satisfy these interest groups by:

providing good quality products at a reasonable price to its customers;

offering fair remuneration to its employees;

paying taxes to the government and

distributing dividends on time to its investors.

ix. Increases Efficiency: ‐ Profits help in making payments to suppliers, employees and vendors on time.

‐ This ensures that the above associates are motivated to provide prompt and quality services to the business unit, whenever required. This in turn helps to improve the efficiency in functioning.

Classification of Business Activities:

‐ Business activities are the sum total of all the activities that range from raw‐material purchase to the production and final distribution of finished products.

‐ On the basis of function performed, the business activities can be classified into two types: Industry:

‐ Industry includes all those business activities which are related with the production and manufacturing of goods and services.

‐ An industry is involved in the production of:

Consumer goods that are consumed by the final consumer

Capital goods that are used for the production of other goods and services

Intangible services

‐ Industry creates form utility by processing raw materials or semi‐finished goods into finished goods. This is done with the help of manpower, machineries and money.

‐ Industrial activities may be undertaken at large scale or small scale. They may take place in factories, small workshops or even at home.

‐ Industries can be further classified into three types viz. Primary Industries, Secondary Industries and Tertiary Industries.

Commerce:

‐ Commerce is an integral part of business which deals with the distribution of goods and services produced by the Industry.

‐ Thus, role of commerce begins where the role of industry ends.

‐ All goods and services produced are to be made available to the consumers else the industrial activities of producing goods will be of no use.

‐ In simple words, commerce facilitates the buying and selling process by removing all the difficulties involved in the distribution of goods and services.

‐ Hence, commerce is the sum total of ‘Trade’ and ‘Auxiliaries to Trade’.

‐ Trade refers to the buying and selling of goods and services. It can be further classified into: Home Trade / Internal Trade and Foreign Trade / External Trade.

‐ Auxiliaries to Trade are the various services and factors that are required to facilitate the Trade. They ensure smooth flow of goods and services from the seller to the buyer.

‐ Auxiliaries to Trade include Transport, Warehousing, Insurance, Banking, Advertising and Mercantile Agents.

Classification of Business Activities

12

12

Std. XI : Commerce

Q.6. Discuss the different types of Industries. [10]

Ans: Industry includes all those business activities which are related with the production and manufacturing of goods and services. It can be classified into three types viz. Primary Industries, Secondary Industries and Tertiary Industries.

Types of Industries:

Industries can be classified into three types:

A. Primary Industry:

‐ Primary industries are directly dependent on nature.

‐ Generally, the products of these industries cannot be consumed ‘as it is’.

‐ They need to be processed first and then made available in the market.

‐ The output of Primary Industries may also be used as a raw material in Secondary Industries.

‐ Primary industries are further divided into three sub types.

They are as follows:

i. Agriculture Industry:

‐ It includes farming and cultivation of land for growing crops.

‐ The farm produce needs to be processed before it is made available in the market for consumption.

ii. Extractive Industry:

‐ It includes extraction from natural sources (i.e. land, air and water) for the purpose of consumption.

‐ For e.g. Extracting minerals and oils, fishing etc.

‐ The extracts from these industries may be used directly or sent to other industries for further processing.

iii. Genetic Industry:

‐ These industries are involved in the reproduction and multiplication of plants and animals.

‐ For e.g. Poultry farming, Animal husbandry, Horticulture (growing fruits and vegetables), Floriculture (growing flowers), Pisiculture (breeding fish).


Industry Commerce

Trade Auxiliaries to TradePrimary Industry

Secondary Industry

Tertiary Industry

Home Trade Foreign Trade

Wholesale Trade

Retail Trade

Import Trade

ExportTrade

EntrepotTrade

i. Transportii. Warehousing iii. Insurance iv. Banking v. Advertising vi. Mercantile Agents vii. Communication

AgricultureIndustry

Extractive Industry

Genetic Industry

ManufacturingIndustry

ConstructionIndustry

13


B. Secondary Industry: ‐ These industries are dependent on primary industries for the regular supply of raw materials.

They convert these raw materials into finished goods.

‐ For e.g. Fruits produced by primary industry are used for making jams and jellies, Cotton is used to produce textile cloth, Timber is used to produce furniture.

Secondary Industries are of the following two types:

i. Manufacturing Industry: ‐ These industries convert raw materials into finished products with the help of manpower and

machines. ‐ The output of manufacturing industries can be directly consumed. ‐ They manufacture consumer goods as well as capital goods.

‐ For e.g. Manufacturing furniture from wood.

ii. Construction Industry: ‐ It refers to those industries which are concerned with construction of bridges, dams etc. ‐ It is the only industry which creates immovable wealth. ‐ The output of this industry is sold at the same place where it is built.

‐ For e.g. Residential flats, offices, shops etc. C. Tertiary Industry: ‐ Tertiary Industries facilitate the functioning of primary industries and secondary industries by

providing them with services like Banking, Transport, Insurance, Warehousing etc. ‐ This industry can only grow if primary and secondary industries flourish in the market. Q.7. What do you mean by Trade? Discuss the classification of Trade.

OR *Write a short note on: Classification of Trade. [5] Ans: Meaning of Trade: ‐ Trade involves the buying and selling of goods and/or services for money or money’s worth. ‐ Trading activities are performed in local and international markets. ‐ The purpose of trading activities is to transfer the ownership and possession of goods and/or

services from one person to another i.e. seller to buyer. Classification of Trade: Trade can be classified on the basis of area of operations, as Home Trade/Internal Trade and

Foreign Trade/External Trade. They are explained as follows: A. Home Trade/Internal Trade: ‐ When trade takes place within the political boundaries of a country, it is called Internal Trade. ‐ Since the trade takes place within the country, local currency of the country is used for the

purpose of exchange. ‐ Based on the scale of operations, Internal Trade is further divided into:

i. Wholesale Trade: ‐ Wholesale trade refers to a trade wherein goods are purchased in large quantities from

manufacturers or producers for the purpose of resale. ‐ This type of trade is usually conducted on a large scale. ‐ Traders who engage in this type of trade are known as Wholesalers. ‐ A wholesaler acts as an intermediary between the manufacturer and the retailer.

ii. Retail Trade: ‐ Retail trade refers to a trade wherein goods are sold to the final consumers in small quantities. ‐ This type of trade is usually conducted on a small scale. ‐ The trader involved in this type of trade is known as a Retailer. ‐ The retailer is the last link in the chain of distribution. He establishes a link between

wholesalers and consumers.

14

14

Std. XI : Commerce

B. Foreign Trade/External Trade/International Trade:

‐ It is a trade between two countries.

‐ When the exchange of goods and services takes place between a buyer and a seller who belong to two different countries, it is known as External Trade.

‐ Since the buying and selling of goods/services is conducted across national boundaries, foreign currency is used for the purpose of exchange.

‐ Foreign trade is further classified into:

i. Import Trade:

‐ Import trade refers to inflow of goods and services from foreign country to home country.

‐ In this case, goods from a foreign country enter the political boundaries of home country.

ii. Export Trade:

‐ Export trade refers to outflow of goods from home country to a foreign country.

‐ In this case, goods from home (our) country cross the boundaries and are sent to another country.

iii. Entrepot Trade:

‐ Entrepot trade is also known as Re‐export.

‐ It is a combination of import and export trade.

‐ It refers to purchase of goods from one country and then reselling them (exporting them) to another country.

*Q.8. What is meant by Export Trade? [5]

Ans: ‐ Export trade is a part of external trade.

‐ External trade refers to the exchange of goods and services between a buyer and a seller who belong to two different countries.

‐ On the other hand, export trade refers to outflow of goods from home country to foreign country.

‐ For e.g. India selling mangoes to European countries. This is an example of export trade where India plays the role of an exporter.

‐ Usually, when goods are produced in surplus, they are exported to countries where there is a demand for the same.

‐ This allows domestic companies to sell surplus goods in the international market.

‐ This provides a business opportunity in the form of expansion of markets and globalization.

‐ Also, it earns valuable foreign exchange and increases the foreign currency reserves of the country thereby, facilitating the economic development of the nation.

‐ Moreover, export trade helps in creating goodwill for the company in the national and international markets.

*Q.9. State the role of Auxiliaries to Trade in Trading Activities. [5]

Ans: Activities that facilitate buying and selling of goods (trade) are known as Auxiliaries to Trade. It not only facilitates smooth flow of goods and services between the seller and the buyer but also provides the necessary support to the entire business for its successful functioning. Following are the different Auxiliaries to Trade:

i. Transport:

‐ Transport helps:

in the movement of raw‐materials up to the factory site

in the movement of finished goods from the factory to the markets

Thus, transport helps in creating place utility by making the goods available wherever they are required.

15


ii. Warehousing:

A trader needs to store the goods on account of the following reasons:

‐ Goods purchased in bulk by a trader are sold in smaller quantities to the customers as and when demanded.

‐ Goods produced in one season may be demanded throughout the year. For e.g. agricultural produce.

‐ Goods produced throughout the year may be demanded only in one season. For e.g. Sweaters in winter.

‐ Warehousing helps a trader to store the goods till they are demanded.

‐ Warehouse is a place or building used for safe storage of goods.

‐ Thus, warehousing creates time utility by making the goods available whenever they are required.

iii. Insurance:

‐ A business is exposed to the risk of damage (of goods) on account of floods, fire, robbery etc.

‐ To safeguard against such causes of damage, a business can take an insurance policy from an insurance company.

‐ Here, the business is required to pay premium to the insurance company for the coverage of risk.

‐ In the event of loss, the insurance company will pay compensation that would be equivalent to the amount of loss suffered.

iv. Banking:

‐ A business requires continuous flow of money for its smooth working.

‐ A businessman may not be able to invest large sums as capital and thus face the difficulty of finance.

‐ Banking provides finance to the businessman.

‐ Banking offers the following services to traders:

capital funding for the business through loan facility

working capital to fund day‐to‐day operations through overdraft and cash credit facilities

other value‐added services such as cheques, demand drafts, debit card, credit card etc.

v. Advertising:

‐ There is a multitude of products available in the market. However, the consumers lack the necessary awareness about the products available for sale.

‐ For increasing sales, it is important for a seller to make the consumers aware about his product.

‐ However, the consumers are spread over a wide area. Hence, the seller faces difficulty in communication. This difficulty is solved through advertising.

‐ Advertising communicates all the required information about the product, to the prospective consumers and creates in them a strong desire to purchase the product.

‐ This results in increased amount of sales. However, a company should provide correct information through advertising to maintain the level of trading activities in the long term.

‐ The various mediums used for the purpose of advertising are newspapers, radio, television, cinema theatres, wall posters and hoardings at prominent places.

Good to Know:

India has around 6,300 cold storage facilities, with a capacity of 30.11 million tonnes. However, some 75‐80 per cent of these refrigerated warehouses

are suitable only to store potatoes, a commodity that produces only 20 per cent of agricultural revenue. This was revealed in a report by the Institution of Mechanical Engineers (IME), a professional organisation of the UK.

16

16

Std. XI : Commerce

vi. Mercantile Agents: ‐ Consumers are spread over a wide area, thus it is difficult to have a direct contact between

the producer and consumer. ‐ Mercantile agents are middlemen who form a link between the seller and the large number

of buyers.

‐ Mercantile agents remove the difficulty of personal contact and complete the transaction on behalf of the seller.

‐ Thus the mercantile agents bridge the gap between the seller and the buyer. ‐ There are several types of mercantile agents such as brokers, commission agents,

auctioneers, underwriters, insurers etc.

vii. Communication: ‐ In today’s world, the distance between two traders is very vast.

‐ It becomes difficult to establish a direct contact between two traders.

‐ This difficulty of distance makes it complex for a retailer to place an order with a wholesaler located at a far off place.

‐ This difficulty is solved by various means of communication. Communication refers to exchange of information from one person to another.

‐ Communication can be in the form of oral or written communication. With the modern communication facilities, a retailer can simply visit the website of the wholesaler and place an order.

‐ Modern means of communication like telephone, telex, telegraph, email, teleconference etc., play an important role in establishing contact between businessman, producers and consumers.

‐ These modern means of communication save time and money. *Q.10. Write short notes on: [5 marks each] i. Warehousing as an Auxiliary to Trade. Ans: ‐ Activities that facilitate buying and selling of goods (trade) and solve the various difficulties

involved in the process of trading are known as auxiliaries to trade.

‐ Time difficulty is a major problem faced by traders.

‐ Time difficulty arises as there is a time gap between the production and consumption of goods.

‐ Sometimes, goods may be produced only once a year but they may be required for consumption throughout the year (for e.g. agricultural goods).

‐ On the other hand, in some cases, goods may be produced throughout the year but they may be required only once a year (for e.g. sweaters in winter).

‐ Therefore, it becomes necessary to preserve the goods and maintain the quality of these goods till their demand arises.

‐ This difficulty is solved through warehousing.

‐ The basic function of warehousing is to store large quantities of goods and ensure steady supply of goods in the market as and when needed.

‐ Thus, warehousing helps in creating time utility. ‐ It also stabilizes the prices by regulating the supply of goods in the market.

Hence, we can say that, warehousing is an auxiliary to trade as it facilitates smooth flow of goods and solves the difficulty of time faced by the traders.

ii. Interdependence of Industry and Commerce. Ans: ‐ The functions performed by Industry and commerce complement each other well.

‐ Industry produces goods and services whereas commerce helps in the distribution of those goods and services.

‐ Goods are primarily produced to satisfy human wants.

‐ Hence, creation of goods and services is not enough.

17


‐ They need to be made available to consumers.

‐ This activity of making the goods and services available to the consumers is performed by commerce.

‐ Thus, the activities of commerce begin where the activities of Industry end.

Hence, Industry and Commerce are the two inseparable and interdependent functions of a business.

Meaning of Business Risk:

‐ Risk is the possibility of incurring loss in a business.

‐ Each and every business has a possibility of incurring loss.

‐ Risk is an important element of business.

‐ The element of risk exists due to a variety of factors.

‐ For e.g. Change in the demand of goods; risk of loss due to fire, pilferage, theft, natural calamities etc.

‐ A businessman tries to predict the future uncertainties and plans his business activities accordingly.

Nature of Business Risk:

The nature or the basic characteristic of business risk is as follows:

‐ Risk is inevitable.

‐ It is present in all types of businesses, irrespective of the nature and scale of business. ‐ Risk can be minimized or transferred but cannot be completely avoided.

‐ Profit is the reward for undertaking risk. *Q.11. What is Business Risk? Explain various causes of Business Risk. [10]

Ans: Risk is the possibility of incurring loss in a business. Each and every business has a possibility of incurring loss. A businessman tries to predict the future uncertainties and plans his business activities accordingly.

The causes of business risks can be explained as follows:

i. Change in Fashion:

‐ Fashion relates to a popular trend at any given point in time.

‐ This trend is influenced by people’s tastes and preferences, their purchasing power and other influences.

‐ Based on this trend, the demand for a particular product may either rise or fall.

‐ In case the demand falls, the goods are at a risk of being unsold.

‐ This further leads to business losses.

ii. Change in Government Policies:

‐ Every Business has to operate under the legal framework i.e. the policies framed by the Government.

‐ Businesses have to frame their plans and policies based on these government policies.

‐ Thus, when a government revises old policies or introduces new policies, the organization has to reframe its policies.

‐ This difference in policy can affect the business and may result in profits or losses and put the business at risk.

‐ For e.g. Changes in the Import‐Export policy of the Government.

iii. Office Personnel:

‐ This is the most common type of risk faced in business.

‐ If there is any uneasiness among workers while carrying out their job, it may result in strikes or lock outs or non co‐operation.

Business Risks

18

18

Std. XI : Commerce

‐ Work gets delayed and lead to heavy losses in production. ‐ In this process, the unit also loses its efficient workers. ‐ Negligence and dishonesty of personnel, accidents or deaths in the industry, incompetency of

managers or other important people in the organization, etc. cause losses to the organization.

iv. Change in Technology: ‐ The ever evolving field of

technology leads to new breakthroughs in product development.

‐ Due to which, the earlier products become obsolete in no time.

‐ This leads to huge losses in the form of unsold goods as customers are lured by the presence of newer versions of the products in the market.

‐ For e.g. Change from pagers to mobiles affected the market for pagers adversely.

v. Natural Calamities: ‐ Natural calamities like floods, earthquakes, famines, fire etc. cause great damage to the

business units. ‐ It not only causes financial loss but may also result in loss of life and property.

‐ For e.g. Floods in Mumbai in July 2006, Tsunami in South India, etc.

vi. Manmade Disasters: ‐ Every business is exposed to manmade disaster like bomb blasts, riots, war etc. ‐ During this process, a lot of businesses come to a halt, thereby resulting in a major loss to all

business sectors.

vii. Dependence on Others: ‐ Business depends on various factors such as steady supply of raw material, employees,

contractors, logistical support etc. that are not under the direct control of a businessman. ‐ If there is any problem in the functioning of any one of the above factors or a delay in the

performance of their duties, it can create a loss. viii. Competition Level: ‐ Today, the business world has become very competitive in local as well as international markets. ‐ Market conditions are constantly changing, especially due to globalization and liberalization. ‐ Thus, every organization needs to carefully consider all the factors while framing and

implementing its policies. ‐ Any mistake in policy making could lead to heavy losses and the organization may lose its

market share to its competitors. I. Select the correct option from the options given below and rewrite the sentences:

[1 mark each] 1. Activities undertaken to derive mental satisfaction are known as _______ activities. (A) economic (B) human (C) non‐economic *2. A courier agent is _______.

(A) an employee (B) a businessman (C) a professional person

Multiple Choice Questions

Good to Know:

Voice over Internet is a sector that is being revolutionizing businesses. Use of this

technology in virtual conferencing, live‐meetings etc. educe costs and efforts in organizing in‐personal meetings. Small and Medium Enterprises benefit from this cost benefit. Hence, Cisco and other companies have been coming up with really innovative ideas to reduce the overhead of making phone calls. Skype, Yahoo and others have already changed the way we made phone calls traditionally. This has made customers to adopt these technologies over traditional means of communication.

19


*3. National level of code of conduct is prepared for _______.

(A) professionals (B) businessmen (C) employees 4. _______ means changing the form of resources.

(A) Production (B) Distribution (C) Business 5. The primary aim of every business is to earn _______.

(A) salary (B) profit (C) loss 6. There should be minimum _______ parties to a transaction.

(A) one (B) two (C) three 7. _______ is the driving force of every business.

(A) Loss (B) Satisfaction (C) Profit 8. A business has to change its _______ with the changing environment.

(A) policies (B) employees (C) core values 9. Government plays a _______ role in Business environment.

(A) dormant (B) regulatory (C) none of these 10. A person has to acquire certain _______ to offer professional services.

(A) job (B) commodity (C) qualification 11. Profession is _______ activity.

(A) a non‐economic (B) an economic (C) a political 12. A person who works for others gets _______ in return.

(A) salary (B) rent (C) profit 13. A business organization can create a good public image by _______.

(A) violating rules (B) making losses (C) employment generation 14. Profit _______ is the basic aim of any business.

(A) diluting (B) maximization (C) minimization 15. Innovation means introduction of _______ idea or methods.

(A) new (B) old (C) systematic 16. _______ is a return on investment.

(A) Fund (B) Profit (C) Capital *17. Raw material is converted into finished product by _______ industry.

(A) genetic (B) extractive (C) manufacturing *18. Actual buying and selling of goods is known as _______.

(A) profession (B) trade (C) industry *19. The activity that removes difficulty of risk is _______.

(A) insurance (B) transport (C) advertising *20. Building of dams is an activity done under _______ industry.

(A) primary (B) secondary (C) tertiary *21. Difficulty of finance is solved by _______.

(A) insurance (B) mercantile agents (C) banking 22. _______ Industry is responsible for reproduction and multiplication of plants and animals.

(A) Genetic (B) Extractive (C) Agriculture

20

20

Std. XI : Commerce

23. _______ industry uses the products of primary industry as its raw material.

(A) Primary (B) Secondary (C) Tertiary 24. _______ Industries facilitates the functioning of primary industries and secondary industries.

(A) Tertiary (B) Extractive (C) Manufacturing 25. Commerce is mainly concerned with _______.

(A) production (B) distribution (C) expansion 26. _______ trade takes place within the borders of a country.

(A) Internal (B) External (C) Entrepot 27. The medium which moves men, materials from one place to another is called _______.

(A) insurance (B) transport (C) banking 28. Manmade disasters include _______.

(A) earthquakes (B) floods and famines (C) bomb blasts II. Match the correct pairs: [1 mark each pair]

*1.

Group “A” Group “B”

i. Morning walk a. Social objective

ii. Genetic industry b. Foreign trade

iii. Local currency c. Warehousing

iv. Employment generation d. Horticulture

v. Business Risk e. Non‐economic activity

f. Economic objective

g. Internal trade

h. Mining

i. Covered by insurance

j. Banking Ans: (i e), (ii d), (iii g), (iv a) , (v i). 2.

Group “A” Group “B”

i. Tertiary Industry a. Extracting minerals and oils beneath the earth

ii. Agriculture Industry b. Cheque

iii. Construction Industry c. Animal husbandry

iv. Extractive Industry d. Warehousing

v. Manufacture Industry e. Cultivation of land and farming

f. Storage

g. Mobile

h. Construction of bridges

i. Railways

j. Making furniture Ans: (i d), (ii e), (iii h), (iv a) , (v j).

Match the Pairs

21


III. Write a word or phrase or a term which can substitute each of the following:

[1 mark each]

*1. Human activities conducted for earning money.

2. Activities that are done for mental satisfaction and not for monetary rewards.

*3. Monetary returns earned by a professional for rendering expert services.

4. The process of making goods, products or services available for use or consumption by a

consumer.

5. Goods exchanged for goods.

6. Goods exchanged for money’s worth.

7. The person who employs the worker.

8. Best possible use of resources in the business.

*9. A type of trade that sells the goods directly to ultimate consumer.

*10. Trade that takes place between the traders of two different countries.

*11. An aspect of business which is concerned with the production of goods.

*12. Various services which facilitate smooth flow of goods and services from seller to buyer.

*13. The type of industries that provide services.

*14. The type of industries that create immovable wealth.

*15. An aspect of business which is concerned with the distribution of goods.

*16. A type of industry which takes out wealth from the earth.

17. Industries directly dependent on nature.

18. Buying and selling of goods.

19. Storage of goods whether raw material or finished goods.

20. Selling of goods to foreign countries.

21. Exchange of information between two people.

22. Activities that facilitate the trading activities.

23. Middlemen who form a link between the buyers and the sellers.

24. The incentive for taking risk.

Ans: 1. Economic Activities 2. Non‐Economic Activities

3. Fees 4. Distribution

5. Barter Exchange 6. Monetary Exchange

7. Employer 8. Optimum utilization

9. Retail Trade 10. External Trade

11. Industries 12. Auxiliaries to Trade

13. Tertiary Industries 14. Construction Industries

15. Commerce 16. Extractive Industry

17. Primary Industry 18. Trade

19. Warehousing 20. Export Trade

21. Communication 22. Auxiliaries to trade

23. Mercantile Agents 24. Profit

One Word

22

22

Std. XI : Commerce

IV. Distinguish between the following: *1. Give comparative analysis of business, profession and employment. Ans:

Sr.No. Business Profession Employment

Meaning

i. Business is an economic

activity which involves

production &

distribution of goods &

services.

Profession is an economic

activity wherein expert

services are provided.

Employment is an

economic activity where

one person works for

another person.

Qualifications

ii. Here, specific

qualification is not

required.

Here, specific qualification

is required.

Here, nature of work

determines the required

qualification level.

Monetary Returns

iii. A businessman earns

monetary rewards in

the form of profits.

A professional charges

fees for the services

rendered by him.

An employee receives

monetary rewards in the

form of salary / wages.

Capital

iv. Here, the scale of

business determines

the amount of

investment to be made.

Here, only self‐employed

professionals need to make

an investment.

Here, no money is

required to be invested.

Decision Making

v. A businessman is free to

take decisions that

serve the best interests

of his business.

A professional can take

decisions related to his

profession on his own.

However, the professionals

need to follow the code of

conduct laid by the

governing body.

An employee can take

decisions confined only to

his field of work.

Risk

vi. Risk is involved in every

business.

Self‐employed

professionals face limited

risk.

There is no risk if the

employer and employee

adhere to the contract.

Commencement

vii. Business can be started

when all legal

formalities are

completed.

A professional can start

working only after

receiving the certificate of

practice.

An employee can start

working when the contract

is signed by both the

parties and the employee

completes the joining

formalities.

Distinguish Between

23


Transfer of Ownership

viii. Here, the ownership can be transferred from one person to another after completion of legal formalities.

Here, the ownership can be transferred to someone who is equally qualified and competent to render services.

Employment cannot be transferred as every job offered is an individual and independent contract, provided certain provisions and guidelines are given on Government level.

Tenure

ix. Here, no fixed tenure is applicable.

Here, no fixed tenure is applicable.

Here, tenure may be mentioned in the contract or appointment letter.

Code of Conduct

x. Businessman is not required to follow any code of conduct.

A professional is required to follow the code of conduct laid down by the governing body.

An employee has to follow the code of conduct mentioned at the time of contract till he is under an employer.

*2. Industry and Commerce.

Ans:

Sr. No. Industry Commerce

Meaning

i. Industry involves the production or manufacture of goods and/or services.

Commerce involves the distribution and exchange of goods and/or services.

Location of Operations

ii. Activities of industry can take place at factories, small workshops or even at home.

Activities of commerce take place at markets and in offices.

Utility

iii. Industry creates form utility by processing raw material or semi finished goods into finished goods.

Commerce creates time, place and ownership utility.

Capital Investment

iv. Large amount of capital investment is required in an Industry.

A very large sum of capital investment is not required.

Resources Required

v. Natural, physical and human resources are required to manufacture goods and/or services.

Mainly human resources are required to distribute goods and/or services.

Forces in the Market

vi. Industry influences the supply of goods and/or services in the market.

Commerce influences the demand for goods and/or services in the market.

24

24

Std. XI : Commerce

*3. Business and Commerce.

Ans:

Sr. No. Business Commerce

Meaning

i. Business includes the economic activities related to the production and distribution of goods and/or services undertaken for the purpose of earning profit.

Commerce involves the distribution of goods and/or services.

Scope

ii. Business has wider and broader scope than commerce as it includes both industry and commerce.

Commerce has narrower scope than business as it is a part of business.

Skill

iii. Here, technical as well as marketing skills are required for undertaking activities related to business.

Here, marketing skills are required for undertaking commercial activities.

Subset

iv. Business is a subset of economic activities.

Commerce is a subset of business.

Classification

v. Business can be classified into Industry and Commerce.

Commerce can be classified into Trade and Auxiliaries to Trade.

V. State with reasons, whether the following statements are True or False: [5 marks each]

1. Economic Activities are performed with the purpose of gaining satisfaction.

Ans: This statement is FALSE. [Non‐economic activities are performed with the purpose of gaining satisfaction]

Reasons: ‐ Economic activities are undertaken for the purpose of earning livelihood while non‐economic

activities are performed for gaining happiness, pleasure and satisfaction.

‐ Reward for economic activity is money or money’s worth.

‐ Examples of economic activities are: a teacher teaching in a school, a worker performing work in a factory, a doctor treating a patient etc.

‐ Non‐economic activities are undertaken without the intention of gaining money or material reward.

‐ Examples of non‐economic activities are: cooking for one's children, reading a book, listening to music etc.

Thus, the above statement is false. 2. Social objectives are equally important for a Business Organization to survive.

Ans: This statement is TRUE.

Reasons: ‐ Business functions within the society for mutual benefit of both, the business as well as

society.

‐ Society includes various internal and external members such as the employees, customers, vendors, government etc.

True or False

25


‐ It cannot survive and develop without the support of the society as it is dependent on the society for the utilization of various resources.

‐ Hence, as a token of gratitude it has to undertake various social initiatives to gain goodwill and acceptance of the people.

Thus, fulfilment of social objectives is equally important. *3. Industrial activities takes place after commerce finishes its role.

Ans: This statement is FALSE. [Commercial activities take place after Industry finishes its role]

Reasons:

‐ Industry refers to all such business activities that involve production and manufacturing of goods and services.

‐ It processes raw materials or semi‐finished goods into finished goods.

‐ These goods can be either consumer goods which are directly used by the ultimate consumers or they might be capital goods which are used by another industry for further production.

‐ Commerce deals with the distribution of these goods and services produced by the Industry. All goods and services produced are to be made available to those who need them i.e. consumers.

‐ Thus, Industry produces goods first and later the function of commerce helps in selling the produced goods.

Thus, commercial activities are undertaken only after Industry finishes its role. *4. Tertiary industry depends upon primary and secondary industry.


Reasons:

‐ Primary and secondary industries are involved in the production of some or the other kind of output or product.

‐ Tertiary Industry, on the other hand, is known as service industry since it provides supportive services to the primary and secondary sector.

‐ It facilitates the functioning of primary and secondary industries by providing them with much needed services such as banking, transport, insurance, warehousing etc.

‐ In other words, the activities of the tertiary sector help in the development of the primary and secondary sectors.

‐ However, tertiary activities alone do not produce any product. They simply aid the process of production carried out by the primary and secondary sectors.

Hence, tertiary industry depends upon the primary and secondary industry for its growth. 5. *Internal Trade handle import and export.

OR

Trade between two countries is called Internal Trade.

Ans: This statement is FALSE. [External Trade handles import and export]

Reasons:

‐ Trade can be classified on the basis of the area of operation into internal and external trade.

‐ Internal trade involves the buying and selling of goods and/or services that takes place within the political boundaries of a country.

‐ External Trade involves the trading of goods and/or services that take place between a buyer and a seller who belong to two different countries.

‐ Import and export of goods are examples of external trade where the buying and selling of goods is conducted across the national boundaries.

Thus, imports and exports are a part of external trade and not internal trade.

26

26

Std. XI : Commerce

*6. Commerce is a wider term than Business.

Ans: This statement is FALSE. [Business is a wider term as compared to commerce]

Reasons:

‐ Business deals with the production as well as the distribution of goods and services.

‐ Thus, business includes industry as well as commerce.

‐ On the other hand, commerce merely deals with the distribution of goods and/or services produced by the Industry.

‐ Commerce is a part of business and includes trade and auxiliaries to trade.

Hence, business is a wider concept as it includes both, industry and commerce. *7. Wholesaler is in direct contact with ultimate consumer.

Ans: This statement is FALSE. [Retailer is in direct contact with the ultimate consumer.]

Reasons:

‐ Wholesale trade refers to a trade wherein goods are purchased in large quantities from manufacturers or producers for the purpose of resale.

‐ Traders who engage in this type of trade are known as Wholesalers.

‐ A wholesaler acts as an intermediary between the manufacturer and the retailer.

‐ Thus, a wholesaler is in direct contact with the retailer.

‐ A retailer, on the other hand, buys goods from wholesalers and sells them to the ultimate consumers.

‐ Here, a retailer acts as a link between the wholesalers and the consumers.

Thus, a retailer is in direct contact with the ultimate consumer. *8. Business can be expanded with the help of mercantile agents.


Reasons:

‐ In the process of distribution, producers and consumers are unable to have direct contact, as consumers are spread over a vast area.

‐ Mercantile agent is an agent who is authorized by a principal (producer/wholesaler/retailer) to buy or sell goods on his behalf.

‐ Mercantile agents thus remove the difficulty of personal contact by acting as middlemen who form a link between the buyers and the sellers.

‐ They do not carry on business in their own name but in the name of the seller.

‐ With the help of mercantile agents, a seller can thus sell more goods and services and create new customers.

In this way, mercantile agents help the business to expand as they widen the distribution area of the business.

*9. Transport creates place utility.


Reasons:

‐ Transport creates place utility.

‐ ‘Difficulty of Place’ is a major problem faced by businesses.

‐ Goods are produced at one place and demanded over a wide area. The distance between ‘centers of production’ and ‘centers of consumption’ is vast.

‐ This difficulty is removed by an important aid to trade known as Transport.

‐ Transport ensures that raw material reach the industries in time and the finished goods from the industries reach the consumers on time.

Hence, the above statement is true.

27


*Q.1. State the features of Business. [5] Ans: Refer Q.1. “Features of Business (Traditional Business)”, any 5 points. *Q.2. Why is it necessary for a business organization to create customers? [5] Ans: Refer Q.4. (A) Point (ii). *Q.3. What are the types of Secondary Industry? [5] Ans: Refer Q.6. (B) *Q.4. What do you mean by Commerce? [5] Ans: Refer Page No. 11. “Commerce”. *Q.5. Describe the scope of Internal Trade. [5] Ans: Refer Q.7. (A) *Q.6. Give the classification of foreign trade in brief.

OR Write a short note on: Classification of Foreign Trade. [5] Ans: Refer Q.7. (B) *Q.7. How does Advertising help trading activities? [5] Ans: Refer Q.9. Point (v) *Q.8. How do government policies affect business risk? [5] Ans: Refer Q.11. Point (ii) Q.9. Write short notes on: [5 marks each] *i. Primary Industry. Ans: Refer Q.6. (A) *ii. Social Objectives of Business. Ans: Refer Q.4. (B) *iii. Economic Objectives of Business. Ans: Refer Q.4 (A) *iv. Causes of Business Risk. Ans: Refer Q.11. Q.10. State with reasons, whether the following statements are True or False: [5 marks each] *i. Risk is inevitable in business activities. Ans: This statement is TRUE. Reasons: Refer Q.1. “Features of Business (Traditional Business)” Point (iii). *ii. Available resources should be used to its maximum. Ans: This statement is TRUE. Reasons: Refer Q.4. (A) Point (iv) *iii. Changing fashions is one of the important cause of business risk. Ans: This statement is TRUE. Reasons: Refer Q.11. Point (i) Q.11. Distinguish between the following: [5 marks each] *i. Business and Profession. Ans: Refer IV. (1) “Comparison between Business and Profession”.

Additional Questions for Revision

28

28

Std. XI : Commerce

*ii. Employment and Profession. Ans: Refer IV. (1) “Comparison between Profession and Employment”.

QUICK RECAP Human Activities

Economic Activities Non‐Economic Activities

Business Profession Employment

i. Earning Profit ii. Search of New Customers iii. Innovation iv. Best Possible use of

Resources

Economic Objectives

i. Supplying Quality Products ii. Avoiding Unfair Trade

Practices iii. Employment Generation iv. Welfare of Employees v. Help to Solve Social Problemsvi. Contributing to the welfare of

the Society

Social Objectives

Objectives of Business

i. Deals in Goodsand Services

ii. Involves Production andDistribution

iii. Risk iv. Involves Exchange v. Continuity vi. Two Parties vii. Aims at Profit

i. Prescribed Qualification

ii. Motive to earn income and render services

iii. Monetary Returns ‐Fees

iv. Capital ‐ required if self‐employed v. Requirement of registration vi. Non transferability vii. Nature of work ‐

renders expert services

Profession

i. Information

ii. Many Lines ofProducts

iii. Large Scale ofBusiness

iv. Science and

Technology v. Adaptability vi. Role of

Government

Modern Business

i. Qualification asrequired by theemployer

ii. Motive ‐ satisfyprimary andsecondary needs

iii. Monetary Returns‐ salary/wages

iv. No Capital isrequired

v. Code of Conduct ‐ as specified by

the employer vi. Non

Transferability ofemployment

vii. Nature of Work ‐influenced by thenature of the jobof the employer

Employment

Features of Economic Activities

[Mnemonic: DIRECT Plan]

[Mnemonic:I M a STAR]

Traditional Business

Business

29


i. Change in Fashion

ii. Change in GovernmentPolicies

iii. Office Personnel

iv. Change in Technology

v. Natural Calamities

vi. Manmade Disasters

vii. Dependence on Others

viii. Competition Level

Causes of Business Risk


Industry Commerce

Trade Auxiliaries to TradePrimary Industry

Secondary Industry

Tertiary Industry

Home Trade Foreign Trade

Wholesale Trade

Retail Trade

Import Trade

ExportTrade

Entrepot Trade

i. Transportii. Warehousing iii. Insurance iv. Banking v. Advertising vi. Mercantile Agents vii. Communication

Agriculture Industry

Extractive Industry

Genetic Industry

ManufacturingIndustry

ConstructionIndustry

i. Survival of Business

ii. Reward for Risk Taking

iii. Availability of Funds iv. Research and Development

v. Index of Performance

vi. Income to Satisfy Needs

vii. Growth and Expansion

viii. Satisfaction of Interest Groups

ix. Increases Efficiency

Role of Profit in Business

[Mnemonic:

STARING Great Entrepreneurs]

std.11 commerce, organization of commerce and management… · we present to you "std. xi...

Documents