NCERT Solutions for Class 11 Business Studies Chapter 1

NCERT Solutions for Class 11 Business Studies Chapter 1 Business, Trade and Commerce. Answers of all short and long answers in proper explanation are given here on this webpage. Completely solved chapter end exercise and extra question answers are also included for practice.

Important Questions for viva and practical are also given to revise this chapter.

11th Business Studies Chapter 1 Business, Trade and Commerce

Class: 11Business Studies
Chapter: 1Business, Trade and Commerce
Contents:NCERT Solutions and Extra Questions

Class 11 Business Studies Chapter 1 Solutions

Short Answer Questions

List any five major commercial cities of ancient India?

Five major commercial cities of ancient India are:
Patliputra: Major centre of export of stones.
Taxila: City of financial and commercial banks.
Indraprastha: Commercial junction for roads.
Mathura: Emporium of trade and commerce.
Varanasi: Major centre for textile industry and gained fame for the gold silk cloth.

What is Hundi?

It is a document which is used for carrying out transactions in which money is passed from one hand to another hand.
Hundi is a tool of exchange, which was well-known in the subcontinent. It involved a contract which:
(i) licence or warrant the payment of money, the promise or order which is unconditional
(ii) capable of change through transfer by valid negotiation.

List the major exports and imports in ancient India.

Major exports and imports in ancient India are as follows:
Imports: Copper, lead, animal products, horses, gold silver, coral, glass, tin etc.
Exports: Sugar, indigo, cotton, spices, opium, wheat, sesame oil, crystal, granites, copper etc.

What were the different types of Hundi in use by traders in ancient times?

The different types of Hundi used by traders are as follows:

    1. Dhani-jog: This type of Hundi is payable to any person without putting any liability on the person who receives the payment.
    2. Sah-jog: This is payable to a specific person, someone who is deemed as respectable while putting a liability on the person who receives the payment..
    3. Firman-jog: This Hundi is payable on order.
    4. Dekhan-har: This is payable to the presenter or the bearer.
    5. Dhani-jog: This is payable to a person (called Dhani, who purchases it) without putting any liability over who receives the payment. However, the payment is done over a fixed time period.
    6. Firman-jog: This type of Hundi is payable to order following a fixed term..
    7. Jokhmi: This type of Hundi is drawn against dispatched goods. Herein, in case the goods are lost during the transit, then the drawer bears all the costs without putting any liability on the Drawee.

What do you understand by maritime trade?

Maritime trade or marine trade was an important branch of worldwide or global trade network. The Malabar Coast, on which Muzir is situated, has a fairly long history of International maritime trade going back to the era of the Roman Empire. Pepper was mainly valued in the Roman Empire and was known as Black Gold.
For centuries, it remained the reason for opposition and conflict between various empires and trade powers to dictate the route for this trade. It was in the search for an alternate route to India for spices that led to the discovery of America by Columbus in the closing years of 15th century and also brought Vasco- da- Gama to the shores of Malabar in 1498.

State the different types of economic activities.

Economic activities involve production, distribution, exchange and consumption of services and goods to consumers. Our livelihoods depend on these activities.
The different types of economic activities are as follows:
Business: It refers to all those activities which involve production, purchase, sale and supply of goods and services on a regular basis. The main motive of any business is to earn maximum amount of profit.
Profession: A profession is an occupation where individuals with an expertise or specialized knowledge and qualification provide specialised services in the relevant field to the masses to earn a living. Each profession is distinct from the other.
Employment: People are hired to work regularly by different organisations. Salaries or wages are paid to employees in exchange for the working hours which they provide to a company.

Why business is considered an economic activity?

Any activity which has its main goal of earning profit is called an economic activity. However, there are certain other objectives which a business would like to attain along with earning profit such as increasing market share, improvement in productivity, employee satisfaction, consumer satisfaction, social objectives, but the core and basic objective of a business is to make profits. Therefore, it is called economic activity.

State the meaning of business.

Human beings, for earning a living, involve themselves in various economic activities. Business, an economic activity, is all about production, purchase, sale and supply of goods and services. The main motive behind engaging in a business is to earn adequate amount of profit. A businessman produces goods and services which are in demand so that he/she can earn maximum amount of profit.

How would you classify business activities?

Business activities are categorised as follows:

    • Industry: It refers to the economic activities that involve the constituent of production where raw materials undergo change and get converted to finished products. It results in utility as the raw materials are converted into useful finished products. It is also the group of firms that are producing the same type of goods. For example, the sugar industry comprises of all the firms producing sugar. Industries are again classified into three categories-primary, secondary and tertiary.
    • Commerce: After manufacturing and production, is the task of distributing goods. Activities that fall under the category of commerce involve helping directly or indirectly in the distribution of goods and services from the producers to the users or final consumers. Sometimes, goods that are high in demand , are produced at one place and need to be circulated and dispersed to consumers living at different places. In such situations, commerce or commercial activities take a lead in distributing and delivering the goods. Thus, the major commercial activities are transport, advertisement, packaging, warehousing, banking and communication. Hence, the gap between producers and consumers is removed by commerce. Commerce can then be further classified into¬ trade and auxiliaries to trade.

What are the various types of industries?

Different types of industries are as follows:
1. Primary industries: These include all those activities which are concerned with the extraction and production of natural resources.
2. Secondary industries: These are concerned with using the materials which have already been extracted at the primary stage.
3. Tertiary industries: These are concerned with providing support services to primary and secondary industries as well as activities relating to trade. These industries provide service facilities.

Explain any two business activities which are auxiliaries to trade.

Two business activities which are auxiliary to trade are explained below:
1. Transport and communication: Transport resolves the problem of movement of goods from the place of production of goods to the place where these are demanded in different parts of the country. The hindrance of place is eliminated by transport- road, rail or coastal shipping. Along with transport, communication is helps in exchange of information between producers, consumers and traders.
2. Advertising: Advertising is one of the most important methods of promoting the sale of products, particularly

What is the role of profit in business?

Profits play a vital role in any business. Earning of profits is essential for any business because of the following reasons given below:
(a) Means of Livelihood: It is the most important source of income and provides livelihood
for the businessman. Everyone has to satisfy his basic needs of food and shelter.
(b) Rewards for taking risks: Profit is as reward earned by taking risk associated with the business. The profit element keeps the zeal alive in a business.
(c) Funds for Growth: Profit is the source of finance for expansion and diversification of business activities. A business should not be restricted; rather it should be expanded whenever possible.
(d) Symbolic of efficiency and efficacy: Profits symbolize that management is efficient and business is operating in a healthy manner.
(e) Enhancement in goodwill: Profit help in building the reputation or goodwill of the business firms. With profit increasing over time, a business enterprise gains reputation in the market.

What is business risk? What is its nature?

Business Risk refers to the possible situation of inadequate profits or losses occurring due to uncertainties or unexpected events in the business. For example, the demand for a particular product may decline due to change customer mindset, tastes or preferences. Fall in demand will result in lesser sales and thereby lesser profits. These are of two types-speculative and pure.
Nature of Business Risks

    • Natural calamities, change in demand and prices, change in technology etc. are some of the examples of uncertainty which create risks.
    • Business risk is unavoidable. Risk can be minimised but cannot be eliminated.
    • Degree of risk depends mainly upon the nature and size of business: For small scale business it is less and for large scale business it is more.
    • An entrepreneur takes risks and in consideration he gets rewarded with profit. Greater the risk higher is the chance of profit.

Long Answer Questions

Discuss the development of indigenous banking system in Indian subcontinent.

Indigenous banking system is a banking system that was developed in the ancient times wherein individuals or private firms (also known as indigenous bankers) performed different functions like accepting deposits, lending money by way of currency or letter of credit etc.
As the economic life progressed, metals began to complement other merchandise as money because of its sturdiness and divisibility. Money served as a medium of exchange and the introduction of metallic money and its use accelerated the economic activities. Documents such as Hundi and Chitti were in use for carrying out trade transactions in which money passed from hand to hand.
Hundi was an instrument of exchange, which was prominent in the subcontinent. It involved a contract which(i) warrant the payment of money, the promise or order which is unconditional (ii) capable of change through transfer by valid negotiation.
Indigenous banking system played an important role in lending money and financing domestic and foreign trade with currency and letter of credit. With the expansion of banking, people started depositing the precious metals with lending individuals carrying out banking as bankers or Seths, and money became an instrument for supplying the manufacturers with a means of producing more goods.
Agriculture and the domestication of animals were important mechanism of the economic life of ancient people. Due to the favourable climatic conditions, they were able to grow two or sometimes three crops in a year. In addition to this, by doing weaving of cotton, dyeing fabrics, making clay pots, utensils, and handicrafts, sculpting, cottage industries, masonry, manufacturing, transports (i.e., carts, boats and ships), they were able to produce surplus and save for further investment.
Workshops (Karkhana) were well-known for there skilled artisans who worked and converted raw materials into finished goods which were high in demand. Family-based apprenticeship system was in practice and was duly followed within the family in acquiring trade-specific skills. The artisans, craftsmen and skilled labourers of different kinds learnt and developed skills and knowledge, which were passed on from generation to generation.

Define Business. Describe characteristics of business.

Human beings, in order to earn a living were involved in various economic activities. Business, being an economic activity, is all about production, purchase, sale and supply of goods and services. The principle motive behind engaging in a business is to earn adequate amount of profit. A businessman produces goods and services which are in demand so that he/she can earn maximum amount of profit.
The characteristics of business are as follows:
1. Economic activity: Business is conducted by entrepreneurs to earn an adequate amount of profit and not to fulfil psychological needs. Thus, we can conclude that it is an economic activity.
2. Production or procurement of goods and services: Business involves procurement of raw materials and semi-finished goods and services. It either manufactures the goods or acquires them from producers and then sells to the final consumers at higher prices.
3. Profit earning: Profit is the main purpose of business. A business can continue and grow only if it is earning a good amount of profit. If the profit motive is missing in a business, then it cannot be considered a business activity.
4. Sale or exchange of goods and services: Business involves the sale or exchange of goods and services between the seller and buyer (producer and consumer) for value. Thus, production of goods for self-consumption will not be considered business, but if production of goods is for sale in the market, then it will be called business.
5. Dealings in goods and services regularly: Business involves an exchange of goods and services done on a regular basis. One single transaction of sale does not constitute a business. Business transactions regularly are a must for the business to survive.
6. Risk element: Business risk may be defined as the possibility of incidence of losses or insufficient profits because of various unexpected events which cannot be controlled by business. Every type of business faces risk although the degree of risk may be different from business to business. A business risk can be reduced but cannot be eliminated.
7. Uncertainty of return: Uncertainty of return means lack of knowledge regarding the returns on investment. That is, a businessman does not know the amount of profit which he is going to earn in the future.

Compare business with profession and employment.
1. Commencement: By an entrepreneur and after the fulfilment of certain legal formalities.After the completion of a professional degree or a course from an institute.After receiving an appointment letter and service agreement
2. Capital investment: Depends on the scale and nature of the business.Limited capital investment is required.No capital investment is required.
3. Risk: Risk and uncertainty are always there.A comparatively low degree of risk is involved.Negligible risk involved.
4. Transfer of ownership: Possible on fulfilment of certain legal formalities.Not possible as professional has the required degree and skills which cannot be transferred to the other person.Not possible.
5. Reward: Profit earned.Professional fees.Salary or wages.
6. Code of conduct: No code of conduct.Prescribed by professional associations.According to the terms and conditions laid down by the concerned organisation.
7. Qualification: No minimum qualification is necessary.Prescribed professional qualification is necessary.Depends on the nature of the job.

Define Industry. Explain with examples the various types of industries.

4 Following are the various types of industries:
Primary industry: Under these industries, activities related to extraction and production of natural resources and reproduction and development of living species are involved. Farming, mining, lumbering, hunting, fishing operations, breeding farms and poultry farms are examples of primary industries. These industries are classified into extractive industries and genetic industries.
Extractive industries: Products are extracted (taken out) from the natural resources such as soil and water. Then the manufacturing industries convert the products of these industries into useful goods or finished products. Examples: Farming, mining, lumbering, hunting and fishing operations
Genetic industries: They include breeding and reproduction of plants and animals. Examples: Cattle breeding farms, poultry farms, fishing hatcheries
Secondary industries: The final products of primary industries are processed and changed to final goods by secondary industries. Iron mining belongs to the primary industries, whereas manufacturing of steel comes under secondary industries. Secondary industries are further classified as manufacturing industries and construction industries.
Manufacturing industries: These industries convert raw materials or semi-finished products into finished products. For example, sugarcane is converted to sugar. These industries are divided into the following categories.
1. Analytical industry: A raw material is analysed and separated into different products. Example: Oil refinery.
2. Synthetic industry: Different raw materials are combined to produce a new product. Examples: Cement industry, cosmetic industry.
3. Processing industry: This industry involves successive stages in order to produce the product. Examples: Sugar industry, paper industry.
4. Assembling industry: different parts are assembled to make a new product. Examples: Television, car, washing machine, computer.
Construction industries: These industries are engaged in construction of buildings, dams, roads and bridges. These industries require engineering and architectural skills.
Tertiary industries: These industries are the service providers for the primary and secondary industries and for trade-related activities. Examples: Transport, banking, insurance, warehousing, advertising

Describe the activities relating to commerce.

Activities that are related to commerce are¬ -trade and auxiliaries to trade.
Trade means buying and selling of goods and services. It is only through trade that goods are made available to the consumers from manufacturers end. Trade can be classified into two types:
Internal trade: When the trade occurs within the geographical boundaries of the country (within the country), it is called internal/home/domestic trade. It is further classified into wholesale and retail trade.
i. Wholesale trade: It deals with buying and selling of goods on a large scale.
ii. Retail trade: It deals with buying and selling of goods in smaller quantities.
External trade: When trade occurs beyond the geographical boundaries of the country between people and organisations (with other countries), it is called external trade. External trade can be classified into import, export and entrepôt.
i. Import trade: Goods purchased from foreign countries come under import trade.
ii. Export trade: Goods sold to foreign countries fall under export trade.
iii. Entrepôt trade: Importing goods for exporting them to the other country again is termed entrepôt trade.

Auxiliaries to trade: It refers to those activities which support the activities of trade. These activities are also called services as they eliminate various obstacles which take place while the goods are being produced and distributed. The following are the auxiliaries to trade.
Transport and Communication: Production and consumption of goods take place at different places. Thus, it is essential to move goods from the place of production to the place of consumption. Transport facilitates this movement and transfers raw materials to the place of production. In addition to transport facility, communication is required so that information can be exchanged between producers, traders and consumers.
Banking and Finance: A business cannot be get going unless it has funds and investments available for its expenses like purchasing raw materials and meeting day-to-day expenses. It can obtain funds from banks and financial institutions by taking loans, and thus, banks overcome the business’ problem of funds. Banks help businessmen in both internal and external trade.
Insurance: Every business involves different types of risks such as risk of loss due to fire, theft and damage and risk of accident. To be safe from such risks, a business can opt for insurance. Insurance provides protection from all kinds of risks and in return charges fees (which is called premium).
Warehousing: Production and consumption of goods does not take place simultaneously. There is a time gap between them. Hence, some place is needed for storing the goods before supplying them to the ultimate consumers.
Advertising: It is a tool for promoting a product. Promotion of the product increases its sales. It is a way of letting the customers know about the features of a product to convince them to buy it.

Explain any five objectives of business.

Objectives are the end product of a business towards which all the business activities are directed. Although the main objective of every business is to earn maximum amount of profit, with growing competition and multiplicity, manifold objectives have been put in place. All the efforts of a business are inclined to achieve those objectives.
Keeping the prime objective in mind, a business strives to achieve the following objectives:

    • Market standing: It means the position of the firm in a market. A firm can hold a strong position in the market by providing a good quality product to its customers and offering product-related benefits.
    • Innovation: It means the development or invention of new ideas, techniques and methods to meet the new and upcoming demands of the flourishing business and competitive market. It is one of the important objectives as no business can survive in the market without innovation or new ideas.
    • Productivity: It is calculated by making a comparison between the output and input. Competence and efficiencyare measured through productivity. To survive and grow, it is essential for the organisation to be productive.
    • Maximum profit: Profit is the excess of revenue over cost. The purpose of every business is to earn adequate amount of profit. A business can sustain and grow only if it is earning a good amount of profit.
    • Physical and financial resources: Physical resources such as plants, machines, furniture and office and financial resources ( funds) are required by every business organisation to run the organisation.

Explain the concept of business risk and its causes.

Business risk may be defined in terms of the possibility of occurrence of losses or insufficient profits because of various unexpected events which cannot be controlled by business.
For example, customer preferences for a certain product declines after a certain period because of some competitors’ policies or change in taste; in such cases, it is extremely difficult for a businessperson to correctly anticipate consumer preferences, as a result of which he or she always faces the risk of unforeseen fluctuations in demand. This results in the business going for a loss because of the fall in demand.
Two types of business risks are speculative risk and pure risk.
Speculative risk: Risks taken on the basis of forecasts and guesses can be termed speculative risk. It involves an equal possibility of earning gains or incurring losses. It arises because of change in market conditions like changes in government policies and fluctuation in demand and supply.
Pure risk: Risks which cannot be predicted precisely is pure risk. A firm can incur only losses or incur no loss at all. Pure risk can be the risk associated with theft, fire and various natural calamities.
Causes of business risk:
Natural causes: The one thing which humans have no control over is nature. So, when unforeseen natural calamities occur, it causes heavy and irreplaceable losses to life, property and income.
Economic causes: Price fluctuations and change in government policies, preferences, taste and demand of consumers are some of the economic causes which will cause the downfall of a business.
Human causes: One of the common causes of business loss is humans. For example, dishonest behaviour of employees, carelessness of employees and strikes.
Other causes: Political disturbances, exchange-rate and interest-rate fluctuations, budget amendments, physical or technical disabilities and mechanical failures can be some other causes which may result in a business risk.

What factors to be considered while starting a business? Explain.

Factors to be considered while starting a business:
1. Selecting a business line: The basic decision which needs to be taken at the start is choosing a line of business. This decision is dependent on many factors such as demand of consumers, interest area of entrepreneur and profit margin in the production of a particular product. Besides these, technical knowledge which an entrepreneur has for the production of a particular product influences the selection of a line of business.
2. Size of the business: The size of the business, i.e. whether to operate on a large scale or small scale, is also one of the important decisions to be considered while starting a business. A business can be operated on a large scale if the entrepreneur is confident regarding the demand for the product and the capital can be easily arranged. On the contrary, operations will be started on a small scale if the risk is high; there is difficulty in arranging large amount of capital and market conditions are unstable.
3. Location: The choice regarding the place of starting a business depends on the following factors.
a) Availability of raw materials and labour
b) Power supply
c) Services such as banking, transport, communication and warehousing
4. Venturing into a business started at a wrong location will result in high cost of production, inconvenience in getting the right kind of raw materials and low demand.
5. Financial requirement: Finance is required at every stage of a business from the start point of business and purchase of fixed assets to continuous investment in the business. In this regard, a proper financial analysis helps determine the required capital amount, capital sources and the best ways to use capital.
6. Tax planning: Tax laws influence the profit margin and working of the business. Hence, it becomes essential for the business to do tax planning well in advance.
7. Physical facilities: Before starting a business, physical facilities such as machines, equipment, building and other important physical resources should be carefully considered. This is because physical resources add to the efficiency of a business. This decision is based on the nature, size and production process of the business as well as the availability of funds.