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The NCERT Class 11 Business Studies Chapter 1 introduces business as an economic activity involving the production and sale of goods and services for profit, its role in economic development from ancient times to modern India, classification into industry and commerce, objectives, risks, and factors for starting a business. These solutions provide clear, concise, and CBSE-aligned answers for effective exam preparation. You can also download the free PDF for revision.
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NCERT Solutions Class 11 Business Studies Chapter 1: Business, Trade and Commerce
This section provides detailed and student-friendly answers for the Class 11 Business Studies Chapter 1 exercise questions. Each answer is explained clearly to strengthen understanding and exam preparation.
Exercise
Short Answer Questions:
1. Why is business considered an economic activity?
Business is considered an economic activity because it is undertaken with the objective of earning money or livelihood and not out of love, affection, sympathy or any other emotion. It involves regular engagement in activities related to the purchase, production and/or sale of goods and services to earn profits. This activity can be on a small individual level, like a shopkeeper, or on a large organised level, like a company.
2. How does business contribute to the economic development of a country?
Business contributes to economic development by facilitating production, manufacturing, distribution and exchange of goods and services to satisfy needs. In ancient India, it led to prosperity through trade, surplus income, growth of industries like agriculture, weaving, handicrafts, and indigenous banking systems like Hundi. It supported trade centres, a favourable balance of trade, and aids like transportation and finance. Post-independence, it aided planned development, modern industries, and reforms for self-reliance and integration with the global economy.
3. State the different types of economic activities.
Economic activities are those by which people earn their livelihood. They are divided into three categories: business (production and sale of goods and services for profit), profession (personalised services requiring specialised knowledge and fees), and employment (work for an employer for wages or salary).
4. State the meaning of business.
Business refers to an occupation in which people regularly engage in activities related to the purchase, production and/or sale of goods and services with a view to earning profits. It is an economic activity involving the production and sale of goods and services undertaken with the motive of earning profit by satisfying human needs in society.
5. How would you classify business activities?
Business activities are classified into two broad categories: industry and commerce. Industry is concerned with the production or processing of goods and materials, including primary (extractive, genetic), secondary (manufacturing, construction), and tertiary (support services). Commerce includes trade (buying and selling of goods) and auxiliaries to trade (transport, banking, insurance, warehousing, communication, packaging, advertising).
6. What are the various types of industries?
Industries are divided into three broad categories: primary, secondary, and tertiary. Primary industries involve the extraction and production of natural resources (extractive, like farming, mining; genetic, like breeding plants/animals). Secondary industries process materials from primary industries for consumption or further use (manufacturing: analytical, synthetic, processing, assembling; construction: buildings, roads). Tertiary industries provide support services to primary/secondary and trade (transport, banking, insurance, warehousing, communication, packaging, advertising).
7. Explain any two business activities which auxiliary to trade.
Two auxiliaries to trade are: (i) Transport and Communication: Transport removes the hindrance of place by moving goods from production to markets via road, rail or shipping; communication, like postal and telephone, facilitates information exchange among producers, traders and consumers. (ii) Banking and Finance: Banking provides funds for acquiring assets, raw materials and expenses through overdraft, cash credit, loans, advances; it also handles cheque collection, fund remittance, bill discounting, and helps in foreign trade and raising capital.
8. What is the role of profit in business?
Profit is the excess of revenue over cost and is essential as: (i) a source of income for business persons; (ii) a source of finance for meeting expansion requirements; (iii) an indicator of efficient working; (iv) society’s approval of the utility of business; (v) a builder of the reputation of the enterprise. No business can survive long without profit, though excessive focus on it can neglect responsibilities and lead to opposition.
9. What is meant by business risk?
Business risk refers to the possibility of inadequate profits or even losses due to uncertainties or unexpected events. It arises from factors like changes in consumer taste, production methods, competition, fire, theft, accidents, and natural calamities. Risks are of two types: speculative (possibility of gain or loss from market changes) and pure (only loss or no loss, like fire or strike).
10. State the causes of risks involved in business.
Causes of business risks are: (i) Natural causes: calamities like flood, earthquake, lightning, heavy rains, famine, over which humans have little control, affecting property and income. (ii) Human causes: unexpected events like dishonesty, carelessness, negligence of employees, power failure, strikes, riots, and management inefficiency. (iii) Economic causes: uncertainties in demand, competition, price, collection of dues, technology changes, interest rate rise, and higher taxes leading to unexpected costs. (iv) Other causes: unforeseen events like political disturbances, mechanical failures, and exchange rate fluctuations.
Long Answer Questions
1. Discuss the development of the indigenous banking system in the Indian subcontinent.
The indigenous banking system in the Indian subcontinent developed from ancient trading activities generating surplus income, channelised into investments. Family-based workshops and economic activities like agriculture, handicrafts led to the need for finance. Systems like Hundi (meaning ‘to collect’, written in vernacular, facilitating safe money transfer via unconditional payment promise, transferable by negotiation) and Chitties (in southern regions) emerged to avoid travel risks of theft. Credit transactions and loans enhanced commercial operations. This benefitted manufacturers, traders, and merchants with capital for expansion, leading to a favourable balance of trade. Later, commercial and industrial banks financed trade/commerce, and agricultural banks provided loans to farmers.
2. Define business. Describe its important characteristics.
Business is defined as an economic activity involving the production and sale of goods and services undertaken with the motive of earning profit by satisfying human needs in society. Its characteristics are: (i) An economic activity: undertaken for money or livelihood, not emotion. (ii) Production or procurement of goods and services: manufacture or acquire consumable/capital goods or services like transportation, banking. (iii) Sale or exchange of goods and services: transfer for value, not personal consumption. (iv) Dealings in goods and services on a regular basis: not single transactions. (v) Profit earning: main purpose for survival, maximised by sales increase or cost reduction. (vi) Uncertainty of return: lack of knowledge on profit amount, possibility of losses. (vii) Element of risk: uncertainty of loss from unfavourable events like taste changes, competition, and accidents.
3. Compare business with profession and employment.
Business, profession and employment are economic activities but differ: Business involves production/sale of goods/services for profit; no minimum qualification; reward is profit (uncertain); high risk; capital investment required; not transferable. Profession involves personalised services with specialised knowledge; requires qualification/training; reward is fees; low or no risk; limited capital; not transferable. Employment involves fixed work for an employer; qualification as per the job; reward is salary/wages (fixed); no risk; no capital; not transferable. Business has the highest risk and reward potential, while employment is the most secure.
4. Define Industry. Explain various types of industries, giving examples.
Industry refers to economic activities connected with the conversion of resources into useful goods, involving mechanical appliances and technical skills, including producing/processing goods and breeding animals. Types: (i) Primary: extraction/production of natural resources and reproduction of organisms. Extractive: draw from nature, e.g., farming, mining, fishing. Genetic: breeding for reproduction, e.g., seeds/nursery, poultry farms, fish hatchery. (ii) Secondary: process primary materials for consumption/further use. Manufacturing: create form utilities; analytical (separates elements, e.g., oil refinery); synthetic (combines ingredients, e.g., cement); processing (successive stages, e.g., sugar); assembling (components into a product, e.g., car). Construction: buildings, dams, roads, using engineering skills. (iii) Tertiary: support services to industry/trade, e.g., transport, banking, insurance, warehousing, advertising.
5. Describe the activities relating to commerce.
Commerce includes activities necessary for facilitating the exchange of goods and services, providing a link between producers and consumers by removing hindrances in the process. It consists of trade (buying and selling of goods, physical or virtual) and auxiliaries to trade (services assisting trade and industry). Auxiliaries: (i) Transport and Communication: move goods, exchange information. (ii) Banking and Finance: provide funds, handle transactions. (iii) Insurance: protects against risks like fire, theft. (iv) Warehousing: store goods to create time utility. (v) Advertising and Public Relations: inform and persuade customers about features, price, quality; paid advertising in media, unpaid PR via press releases. These remove hindrances of persons, place, time, risk, finance, and information.
6. Explain any five objectives of business.
Objectives of business are multiple for survival and prosperity: (i) Market standing: stronger footing vs competitors by offering competitive products at reasonable prices and satisfying customers. (ii) Innovation: introduction of new ideas/methods in products/services or skills/activities to give a competitive edge and growth. (iii) Productivity: comparing output value with inputs as an efficiency measure; aim for greater output through best resource use. (iv) Physical and financial resources: acquire plants, machines, and funds as required and use them efficiently. (v) Earning profits: reasonable profit on capital for survival, growth, income, finance, efficiency indicator, and reputation.
7. Explain the concept of business risk and its causes.
Business risk is the possibility of inadequate profits or losses due to uncertainties or unexpected events, an essential part of every business that can be minimised but not eliminated. Its nature: arises from uncertainties (future unknown like calamities, policy changes); the degree depends on the business nature/size (fashionable or large-scale higher); profit is a reward for risk-taking. Causes: (i) Natural: calamities like floods, earthquakes. (ii) Human: dishonesty, negligence, strikes, inefficiency. (iii) Economic: demand/price changes, competition, technology, interest/taxes rise. (iv) Other: political disturbances, mechanical failures, exchange fluctuations.
8. What factors are to be considered while starting a business? Explain.
Factors for starting a business (entrepreneurship: identifying need, mobilising resources, organising production for value amid risks) are: (i) Selection of type: nature/type with profit potential, based on customer requirements, technical knowledge, interest. (ii) Size: scale (MSME/large, manufacturing/tertiary); large if demand is good and capital is available. (iii) Location: place considering raw materials, labour, power, banking, transport, communication, and warehousing to avoid high costs. (iv) Financing: capital for fixed/current assets, expenses; determine requirement, sources, utilisation. (v) Physical facilities: machines, buildings, services based on nature, size, funds, and production. (vi) Competent workforce: identify skilled/unskilled, managerial; train, motivate. (vii) Tax planning: consider tax laws’ impact on decisions. (viii) Launching: mobilise resources, legal formalities, start production, sales promotion; form (sole, partnership, company).
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