MITTAL EDUCATION INSTITUTION (M.E.

I) {9997479300, 8273326450}
Ch-1 - NATUrE AND PUrPOSE Of BUSINESS
E very human is busy in one activity or the other to satisfy his unlimited wants and desires. The sum total of
human activities may be broadly, be divided into two categories:
(A) Economic Activities
(B) Non-Economic Activities.
Economic Activities: All human activities related to production, exchange, distribution and consumption of
wealth are known as Economic Activities. For e.g., Ploughing the field by a farmer(production of wealth), selling
goods to customers by a shopkeeper (exchange of wealth), payment of salary to employees, rent to the landlord,
interest to the leader by the entrepreneur (distribution of wealth) and wearing clothes (consumption of wealth)
etc. All these activities performed by man either to satisfy his material needs or to earn money are known as
economic activities. The economic activities are directly related to money
Non-economic Activities: All those activities which are not related to production, exchange, distribution or
consumption of wealth or which are not performed to satisfy human wants or which cannot be measured in
terms of money are known as non-economic activities. For e.g., nourishing a child by a mother, playing cricket
for entertainment, praying to god for mental peace, service of wife and husband fowards each other are known
as non-economic activities because these are not performed to earn money.
DIffErENCE BETwEEN ECONOMIC ACTIvITIES AND NON-ECONOMIC ACTIvITIES
BUSINESS
Business refers to that economic activity which is conducted on regular basis to earn profit through the sale and
production of goods and services

“hUMAN ACTIvITy DIrECTED TOwArDS PrODUCINg Or ACqUIrINg wEALTh ThrOUgh BUyINg AND
SELLINg gOODS.” ……...Lewis H. Haney
“Business includes all those economic activities which are concerned with the production and distribution of
goods and distribution of goods and services and further: also Includes all those activities which indirectly help
in production and exchange of goods like banking, transport, Insurance and warehousing etc."
ChArACTErISTICS Of BUSINESS
 Economic activity: Business includes only those economic activities which are performed by human
beings. Economic activity mean the change of goods and services with the purpose of earning money. It is,
therefore, essential to see that any activity performed by an individual should be economic in nature in order
to be called business. For e.g., The purchase-sale of goods by a shopkeeper.
 Production or Procurement of goods and services: For business the exchange of goods or services is
essential. It means that if an individual purchases a thing or service for his personal use, the activity will not
be called business
 Dealing in goods and service on a regular basis: In reality business is that economic activity which is
done regularly, i.e., purchase-sale should be regularly done. But if the activity is not regular but intermittent
it does not come under business.
 Profit earning: The main purpose of business is earning profit. If the profit motive is missing in a
transaction, then it cannot be considered as business transaction.
 Uncertainty of return: Uncertainty of return refers to the lack of knownledge relating to the amount of
money that the business is going to earn in a given period. Every business invests money (capital) to run its
activities with the objective of earning profit. But it is not certain as to what amount of profit will be earned.
 Wide scope: The scope of business is very wide. It includes all activities starting from the production of
goods till it teaches to the customers.
 Human activity: Business is an activity which can be executed only by men and women. Although for
execution of these business activities they can use different material sources.
 PrOfESSION
Profession refers to that economic activity which is conducted by a person having some special knowledge and
skill which is used impartially to serve various section of the society
“BUSINESS IS ThAT PrOfESSION IN whICh ONE PErSON PrOfESSES TO hAvE ACqUIrED SPECIALIzED
kNOwLEDgE, whICh IS USED EIThEr IN INSTrUCTINg, gUIDINg Or ADvISINg OThErS.”
………….Webster Dictionary
ChArACTErISTICS Of PrOfESSION
 Well-defined and organized body of knowledge: A profession is an organized body of specialized
knowledge pertaining to a particular field. This body of theoretical knowledge contains principles, theories
and techniques. These principle establish cause and effect relationships and can be applied universally. They
must be solved through scientific methods of observations, experiment and experience.
 Learning and experience: They must be satisfactory formalized arrangements for imparting theoretical
and practical training to those desiring to enter the profession. A professional is a person who has undergone
certain vigorous training to acquire specific knowledge and skills. The knowledge must be transferable
through the medium of formal teaching, training and practice. There must be competent application of
knowledge to problems.
 Ethical code of conduct: There must be a suitable code of conduct or ethics. Such a code lays down the
norms which the members must observe while dealing with their clients. It must be fairly homogenous over
all the members of the professions, wherever they function. Members who violate the code can be
derecognized and disqualified from the profession. Professionals derive their social status from success in
their work not from birth or political power.
 Recognized national body: There must be an institute, association or similar well-accepted authority.
Such a representative body is needed to prescribe minimum qualifications for entry to impart education and
training, to conduct examinations, to award diplomas and degrees and to enforce discipline among
professionals, It regulates and develops the professional activities and enjoys legal powers as a statutory
body.
 Dominance of the service motive: A professional is expected to give priority to service in preference to
selfish gain. Financial gain is subsidiary. A profession and its aim must be in tune with the objectives and
changing needs of the society. A profession, however, provides full-time occupation and means of livelihood
with reasonable remuneration (fee) for its members
DIffErENCE BETwEEN BUSINESS AND PrOfESSION
EMPLOyMENT
Employment refers to the occupation in which people work for others and get remunerated in return. Those who
are employed by others are known as employees.
Thus, people who work in factories and receive wages and salaries are in the employment of factory owners and
are employers of the factory. Similarly, people Work in the offices of banks, insurance companies or government
department, as managers, assistants, clerks, peons security guards are the employees of these organizations.
ChArACTErISTICS Of EMPLOyMENT
The distinctive features of employment or service are as follows:
(1) Employment commences on joining service of another person or a firm.
(2) The employee gets wages/salaries and related benefits as a reward for the services.
(3) An employee has to follow the rules and norms prescribed by the employer.
(4) There are no standard qualifications to get employment. It all depends upon the nature and requirements
of the job.
(5) It involves performing the duties assigned by the employer.
DIffErENCE AMONg BUSINESS, PrOfESSION AND EMPLOyMENT

OBJECTIvES Of BUSINESS
 •EARNING PROFIT
•CREATING CUSTOMERS
ECONOMIC •INNOVATIONS
OBJECTIVES •BEST USE OF SCARCE RESOURCES

•AVOIDANCE OF ANTI-SOCIAL AND UNFAIR TRADE PRACTICES

•EMPLOYMENT GENERATION
SOCIAL •EMPLOYEE WELFARE
OBJECTIVES •COMMUNIITY SERVICE

•FAIR WAGES AND OTHER BENEFITS OF EMPLOYEES

•TREATING WORKERS AS PARTNERS IN BUSINESS
HUMAN •JOB SATISFACTION OF EMPLOYEES
OBJECTIVES •DEVELOPMENT OF EMPLOYEES

BUSINESS rISkS
The term ‘business risks’ refers to the possibility of inadequate profits or even losses due to uncertainties or
unexpected event.
Business risk refers to the possibilities of inadequate profits or losses in the business on account of uncertainties,
For e.g., Demand for a particular product may decline due to change in tastes and preferences of customers or
due to increased competition from other producers. Decrease in element will result in lesser sales and profits.
In other situation, the shortage of raw materials will have to pay more for buying them. As a result, cost of
production may increase which, in turn, may reduce profits
NATUrE Of BUSINESS rISkS
Nature of business risks can be understood in terms of their peculiar characteristics:-
❖ Business risks arise due to uncertainties- Uncertainty refers to the lack of knowledge about what is
going to happen in the future. Natural calamities, change in demand and prices, changes in government
policy, improvement in technology, etc. are some of the example of uncertainty which create risks for
business Because the outcome of these future event is known is not known in advance.
❖ Risk in an essential part of every business- Every business has some risk. No business can avoid risk,
although the amount of risk may vary from business to business. Risk can be minimized but cannot be
eliminated.
❖ Risk is unavoidable- It is difficult to come out of the web of business risks. The only reason of it is that
business is carried on for future and future is uncertain. Yes, the risk can certainly be minimized.
CAUSES Of BUSINESS rISkS
Business risks arise due to a variety of causes, which are classified as follows:-
o Natural causes- Nature is an independent phenomenon and human beings have no control over it. Natural
calamities like earthquake, flood,, drought, famine
BUSINESS
etc. affect the busines a lot and can result in heavy RISK
losses. The natural causes are such type of uncertain
factors that human beings cannot make any NATURE HUMAN ECONOMIC PHYSICAL
preparation against them. CAUSE CAUSE CAUSE CAUSE
o Human causes- Human causes are related to chance
of loss due to human beings or employees of the organization. The dishonesty of employees can bring heavy
losses for business e.g., the employees may leak the business secret to the competitors and may commit
fraud also. The employees may be careless and may mishandle the machinery and resources which can also
bring heavy losses by wastage of resources. The employees may hamper the production by going on strikes,
riot etc. This can also lead to heavy loss for business.
o Economic causes- Economic causes are related to chance of us due to change in market condition. There
can be price fluctuations in the market condition. There can be price fluctuations in the market; there can
be change in degree of competition. All these have direct impact on the earnings of the business. Even
change in Government policy affects the business a lot.
o Physical causes- All the causes which result in damage of assets are considered as physical causes. For e.g.,
Change in technology may result in machinery being outdated, use of old technology, mechanical defects
may also result in damage of assets such as bursting of boiler, accident to employee etc.
o Other causes- These can be divided into following ports.......
rOLE Of PrOfIT
• Meaning of livelihood for businessman
Profit earning is thus, an important economic objective
• Source of funds for business growth.
of business, it helps in business scoring victory over the
• Index of performance.
competitors, win over the customers, Improve the
• Reward for risk taking
productivity of labor and prevent its own stagnation.
• Better employee remuneration and amenities
ShOULD PrOfIT-MAXIMISATION BE ThE gOAL Of BUSINESS
➢ Arguments in favor of maximization of profit- Experts like Joel Dean and Friedman are in favor of
the goal of profit maximization.
We can give the following arguments in favor of the maximization of profit:-
▪ Profit is the reward of labor.
▪ Profit is the means of satisfaction of human needs. “MAXIMIzATION Of PrOfIT IS ThE ChIEf
▪ Profit is a measure of business efficiency. SOCIAL rESPONSIBILITy Of MANAgEMENT
▪ Profit is the cause of extension of various economies. IN A COMPETITIvE ECONOMy.”
▪ Profit is the base of social responsibilities. ...JOEL DEAN
▪ Profit is the base of exchange.
▪ Profit is an incentive.
▪ Profit is the base of business protection, growth and stability.
 Arguments against maximization of profit- The experts who are against the above opinion criticize the
goal of profit maximization. According to Urwick, “Earning of profits cannot be the objective of a business
any more than eating is the objective of living.
“PrOBLEM Of ANy BUSINESS IS NOT ThE MAXIMIzATION Of PrOfITS BUT ThE AChIEvEMENT Of SUffICIENT
PrOfITS TO COvEr ThE rISkS Of ECONOMIC ACTIvITy AND ThUS TO AvOID LESS.”
...Peter F. Drucker
INDUSTry
Industry includes those economic activities which are concerned with extraction, production, conversion,
processing of fabrication products. Three types of goods are manufactured in the industry:- (1) Producer's or
capital goods, (2) Consumer's goods, and (3) Intermediate good

“INDUSTry IS A BrANCh Of COMMErCE CONCErNED wITh ThE PrODUCTION Of wEALTh.”

.....S. R. Davar

TYPES OF INDUSTRIES

PRIMARY INDUSTRY SECONDARY INDUSTRY TERTIARY/SERVICE INDUSTRY

GENETIC EXTRACTIVE MANUFACTURING CONSTRUCTION

INDUSTRY BANKING INSURANCE TRANSPORT ADVERTISING WAREHOUSING
INDUSTRY INDUSTRY INDUSTRY
 Primary Industry- Primary industry includes all those industries which are concerned with extraction of
natural resources and reproduction of living species. These industries can further be classified into two
categories:
(i) Extractive Industry- Extractive industries are those which involve extraction of something from natural
resources such as minerals from earth, fish from rivers and seas, timber from forest etc. The products of
extractive can be directly used of become the raw materials for other industries.
(ii) Genetic Industry- The Industries involved in the activities of rearing and breading of living organisms
i.e., birds, plants, animals etc. are known as a genetic industry. For e.g., Rearing of cattle for milk, dairy
farms, poultry farms, rearing of plants in nursery, growing fish in ponds (pisciculture) etc. include in
genetic industry.
 Secondary Industry- These are concerned with using the materials, which have already been extracted at
the primary stage. These industries process such materials to produce goods for final consumption or for
further processing by other industrial units. For e.g., the mining of iron ore is primary industry, but
manufacturing of steel is a secondary industry. Secondary industries may be further divided as follows:
(1) Manufacturing Industry- These industries are engaged in producing goods through processing of raw
materials and thus, creating from utilities. They turn out diverse finished products, that we consume, through
the conversion of raw material or partly finished material in their manufacturing industries. Industries may
be further divided into four categories on the basis of method of operation for production.
 Analytical Industry:- In analytical industry, the basic raw material is broken into different part to
produce finished product.
 Synthetic Industry:- In synthetic industry two or more material are mixed to manufacture some new
product. For Example, Various chemicals are mixed to produce soap, paints, cosmetics etc.
 Processing Industry:- In processing industry the raw material is processed through various stages of
production and then finished goods are manufactured. For Example, Textile industry, iron and steel
industry, sugar industry etc.
 Assembling Industry:- In assembling industry the various finished products are combined to produce
the new finished product. For Example, Manufacturing of computers, television, watches, auto mobiles
cars etc.
(2) Construction Industry:- These industries are concerned with the construction of buildings, dams, roads
etc. These industries use the products of manufacturing industries, such as cement, iron and steel, lime etc.
The unique feature of these industries is that their products cannot be transferred or shifted to market. They
are constructed and remain at a fixed site only.
 Tertiary Industries:- These are concerned with providing support services to primary and secondary
industries as well as activities relating to trade. These industries provide services facilitates. As business
activities these may be considered part of commerce because as auxiliaries to trade they asset trade.
Included in this category is transport, banking, insurance, warehousing, communication, packaging and
advertising
The various types of services provided by Tertiary Industry are:-
Transport:- It facilitates movement of goods from one place to another
Banking:- Provides credit facilities to industries and trading firms.
Insurance:- Provides coverage from various types of risks
Warehousing:- Provides storage place for goods produced by primary and secondary industry.
Advertising:- Provides information to consumer
COMMErCE
Commerce includes all those activities which are linked with transferring goods from produces to ultimates
consumers. It includes buying, selling of goods and the services associated with the facilitation of exchange of
goods. These services are transport, banking, warehousing, insurance and advertising. Thus, commerce includes
both trade and auxiliaries of trade or aids to trade.
 Commerce = Trade + aids to trade
Functions of commerce:- The basic function of the commerce is to make the trading of goods and services
simple and easier. For purpose all those hindrances are to removed which come in the way of getting of goods
from producer to consumers. These are as follows:
(1) Hindrance of person:- Commerce helps finding the buyer and sellers for each other. It removes all those
hindrances which come in the way of finding the buyer and seller
(2) Hindrance of exchange:- Banks helps the importers and exporters in providing them foreign exchange for
their foreign trade. They also convert foreign exchange earned by exporters into local currency.
(3) Hindrance of place:- Buyer and Seller may belong to different place and there can be hindrance of taking
goods from one place to another. This hindrance is removed by means of transport.
(4) Hindrance of time:- Hindrance of time is removed by keeping the goods in warehouse.
(5) Hindrance of knowledge:- The knowledge about availability of goods in the markets is a hindrance which
is removed by advertisement.
(6) Hindrance of risk:- There are different types of risk to trade. These risks can be minimized by the way of
insurance
TrADE
Trade is an essential part of commerce. It refers to the sale, transfer or exchange of goods. It helps in making the
goods produced available to ultimate consumers or users. These days goods are produced on a large scale and
it is difficult for producers themselves reach individual buyers for sale of their products. Businessmen are
engaged in trading activities us middlemen to make the goods available to consumer in different markets. In the
absence of trade, it would not the possible to take production activities on a large scale.
Trade is that branch of commerce which deals with exchange or transfer of goods and services. Trade is of two
types:
(1) Home Trade: Home trade means sale and purchase of goods within one country. It may be a retail or
wholesale trade.
Home trade is further of three types:
(a) Local Trade: This trade belongs to a particular place. The seller as well as purchaser belongs to same city,
town or village. The commodities which are usually traded locally are vegetables, milk, fruits, bricks etc.
(b) Intra-state Trade: When the goods are exchanged within one state, it is called Intra-State Trade. For
example, When goods are sold from Amritsar to Ludhiana it will be an intra-state trade transaction.
(c) Inter-state Trade: When goods are sold from one state to another within one country, it constitutes inter-
state. For Example, Goods are sold from Punjab ta Haryana.
(2) Foreign Trade: Foreign trade means the goods are traded between traders belonging to two different
countries. The goods are delivered in the territory of other country. e.g., trade between India and Pakistan.
Foreign trade is of three types:
(a) Import: Under import a trader of one country purchaser goods from another country and brings goods inside
the country e.g., goods purchased from Bangladesh by an Indian trader will be import for Indian trader.
(b) Export: Export takes place when a trader sells the goods outside the country. Here goods go outside to some
other country e.g., goods sold from India to England will be called exports
(c) Entrepot Trade: Entrepot is a trade where a trade when trader belonging to one country purchases goods
from other countries as sells them to yet another country e.g. An Indian trader purchase goods from England
and sells it to Japan after arrival of goods at port. It includes both import as well as export.
Auxiliaries to Trade: Activities which help in smooth flow of good and services in the market are known as
auxiliaries to trade. These are also referred as service sector. The comman auxiliaries to trade are: Transport,
Banking, Insurance, Warehousing and Advertising.
(a) Middlemen: There are limited numbers of producers of any product while the consumers are unlimited.
Hence, it is not possible for consumers to purchase goods directly from producers. This is first problem in
sale and purchase of goods which is called as hindrances of persons. To establish contacts between
producers and consumers, the services of middleman are required. Middlemen consist of wholesalers,
 retailers etc.
(b) Transportation: The consumers of the goods are spread at a vast area. Goods are produced or one place
and have to sell to its consumers various other distant places. For this purpose, we need transport services.
Without transport services the trade becomes standstill. Therefore trade, now-a-days is completely
dependent of the transport service.
Transportation is of three categories (i) Road transport e.g., Trucks, Vans, Carts, etc. (ii) Rail Transport e.g.
Trains, and (iii) Air Transport. e.g., Air Craft, Ship and Helicopters.
(c) Communication: Apart from postal department various other communication services are available in
sending and receiving trade related information, documents, letter. These are telegrams, telex, telephone,
cable, e-mail etc. The services transfer information at a very fast speed.
(d) Insurance: Insurance is an integral part of trade. It provides cover against risks to the goods. There can be
many risks to goods like risks of accidents during transit of goods from one place to another, loss to fire in
godown, risk of loss during shipment of goods in sea foreign trade etc. Sometimes these risks can be
substantial which can bring a trader on roads. To avoid these risks insurance companies plays an important
role in home trade as well as in foreign trade. It has help in expansion of trade.

(e) Banking: Banks are very helpful in the development of trade. They give financial help to traders from time
to time. Backs play an important role in the capital formation. They collect deposits from public and lend
them to traders according to their needs. Apart from that, the bank plays very important function on behalf
of traders as agents e.g., collecting debts, transferring money, telling about the financial position of
customers, providing foreign exchange etc. Without help of banks the becomes difficult.
(f) Advertisement: Present age is the age of advertisements, It will not be wrong to treat a advertisement as
life blood of trade. Through advertisement people come know about the variety of goods available in the
market. New products can be introduced to customers through advertisement. Advertisement creates
demand for the product it helps in selling the goods. Therefore, advertisement promotes trade.
(g) Warehousing: After the production or purchase of good trader las to keep the goods with him until these
are sold. Sometimes it takes days or sometimes months to keep the goods. For keeping the goods safe until
sale of goods trader requires facility of warehousing. Sometimes when goods are imported the trader is
unable to get the clearance of goods then again goods are kept safety in the warehouses. Therefore, the
warehouses are very useful in trade.