BUSINESS STUDIES CHAPTER -1 NATURE AND PURPOSE OF BUSINESS ,IMPORTANT NOTES

BUSINESS STUDIES

CHAPTER -1

NATURE AND PURPOSE OF BUSINESS

 TYPES OF HUMAN ACTIVITIES

1.   Economic activity

2.   Non – economic activity

·      ECONOMIC ACTIVITY– The activities undertaken with the main objective of earning money and creation of wealth are known as economic activity. E.g. – working in a factory, running shop, working as a teacher etc.

·      NON-ECONOMIC ACTIVITY- The activities refer to activities undertaken with the main motive of getting psychological satisfaction e.g.-social services, charity, visiting, temple doing household work etc.

Ø TYPES OF ECONOMIC ACTIVITIES – The economic activities can be classifieds in three categories. These are :-

1. BUSINESS – It refers to activities concerns with the production or purchased and sale of goods or supply of services with the main objective of earning profit.

2. PROFESSION– Profession includes those activities which required special knowledge and skill to be applied by individual in their occupation.

3. EMPLOYMENT- It refers to occupations in which people work for others regularly with the main aim of getting remuneration.

CONCEPT AND CHARACTERISTICS OF BUSINESS

Business is an economic activity which involves production, or purchase of goods for sale, transfer or exchange of goods for earning profit. The main characteristics of business are:

1.             An economic activity

2.             Production and procurement of goods and services

3.             Sale or exchange of goods and services for satisfaction of human needs

4.             Dealing in goods or services on regular basis

5.             Profit earning

6.             Uncertainty of return/risk

OBJECTIVE OF BUSINESS- Business objectives can be classified into three categories. These are:

1.             Economic objectives

·      Survival

·      Profit

·      Growth

2.             Social objectives

·      Supply of desired quality of products

·      Avoidance of unfair trade practices

·      Employment generation

·      Social service

·      Avoidance of pollution.

3.             Human/ individual objectives

·      Providing good working condition

·      Personal growth and development

·      Peer recognition

·      Competitive and fair remuneration

ROLE OF PROFIT

1.             Survival

2.             Expansion

3.             Symbol of efficiency

4.             Reward for bearing risk

5.             Goodwill

CLASSIFICATION OF BUSINESS ACTIVITIES –business activities can be classified as:

1.             Industry

2.             Commerce

Industry refers to economic activities which are concerned with conversation of resources into useful goods. Industries can be of two types:

1.primary industry- it refers to all those activities which is concerned with extraction of natural resources  and rearing and breeding  living beings. Primary industries of two types:
(a) extractive industry
(b) Genetic industry

2. Secondary industry- it refers to industries which convert raw materials into finishing goods. The secondary industry can be of two types:
(a) manufacturing industry
(b) construction industry

3. Tertiary industry - (a) transport  (b) warehousing (c) advertising (d) communication.

Commerce- activity related to the distribution of goods and services. Commerce is considered as the backbone of industry. it helps is removing various hindrances  and problems which are given below:

1. Helps in removing of hindrance of person.
2. Helps in removing hindrance of place.
3. Helps in removing hindrance of time.
4. Help in removing hindrance of exchange.
5. Help in removing hindrance of risk.
6. Health in removing hindrance of knowledge.

Commerce includes two types of activities:
1.Trade
2.Auxiliary to trade

● Trade -It refers to sale, transfer of goods and services. Trade can be broadly classified into two categories:

(a) internal trade or domestic trade- it refers to sale transfer of exchange of goods within in a country. There are two types of internal trade: wholesale trade, retail trade

(b) foreign trade- it refers to sale transfer of exchange of good beyond the geographical limits of a country. External trade is of three types:
export, import and entrepot.

● Auxiliary to trade- activities which helps in smooth flow of goods and services in the market are known as auxiliaries to trade. These are also referred as service sector the common auxiliaries to trade are:  transport, banking, insurance, warehouse and advertising.

Business risk - it refers to probability of losses due to unforeseen circumstances and events.

Nature of risk

1. Arises due to uncertainty.
2. Essential part of every businessman.
3. Degree of Risk depends upon nature and size of business.
4. Profit is the reward for bearing the risk.

Causes of risk
1. Natural causes
2. Human causes
3. Economic causes
4. Physical causes

Types of business risk
1. Insurable risk - The risk against which production is offered by insurance companies example fire, theft etc.
2. Non-insurable risk - The risks against which no production is offered by insurance companies’ example:  change in demand change in competition policy etc.

Role of profit in the business - The profit plays a very important role. Profit earning is the must because of the following reasons:
1. Survival
2. Symbol of efficiency
3. Growth
4. Price paid for bearing the risk
5. Improves goodwill.