Class 11 Business Studies

Introduction All human beings, wherever they may be,

require different types of goods and services
to satisfy their needs. If we look around, we
observe people require different types of
products and services to satisfy their needs.
How do they buy them? They go to market,
either physical or electronic over internet,
where they find a variety of shops and
sellers offering the required commodities
and choose the best which they require.
Business starts with production and ends
with consumption. Making the finished
products reach the consumer involves a
series of steps.
 Role of
 Business which includes trade and commerce has played a vital
Business in the role since times memorial.
 The archaeological evidence has shown that trading activities
Development were the mainstay of the economy in ancient time.
of Economy  The goods were traded both internally and to the foreign lands,
which generated surplus income. As a result, the people were
engaged in various economic activities such as agriculture and
domestication of animals, weaving cotton, dyeing fabrics,
making clay pots, utensils and handicrafts, sculpting, cottage
industries, masonry, etc. Family based workshops (karkhanas),
for manufacturing, were important components of economic
life.
 An example of it is the use of age old Hundi and Chitties (used
in southern region). These were used as documents to facilitate
transfer of money from one hand to another for trading
activities. As an instrument of exchange 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.
Hundi as Practiced by Indian Merchant Communities :
Payable to any person-no liability over who
Dhani-jog Darshani
received payment.
Payable to a specific person, someone ‘respectable’.
Sah-jog Darshani
Liability over who received payment.
Firman-jog Darshani Hundi made payable to order.
Dekhan-har Darshani Payable to the present or bearer.
Payable to any person-no liability over who
Dhani-jog Muddati
received payment, but payment over a fixed term.
Hundi made payable to order following a fixed
Firman-jog Muddati
term.
Drawn against dispatched goods. If goods lost in
Jokhmi Muddati transit, the drawer or holder bears the coasts, and
the Drawee carries no liability.
 Major trade centres in ancient times
It is known as Patna today. It was not only a commercial
Pataliputra town, but also a major center for exports of stones.

It was an important exporting center for wool and for the import of
Peshawar horses. It had a huge share in commercial transactions between India,
China and Rome in the first century A.D.

It served as a major center on the important land route between India

and Central Asia. It was also a city of financial and commercial banks.
Taxila The city occupied an important place as a Buddhist center of learning.
The famous Taxila University flourished here.

It was the commercial junction on the royal road where most routes
Indraprastha leading to the east, west, south and north converged.
 It was an emporium of trade and people here subsisted on commerce.
Mathura Many routes from south India touched Mathura and Broach.

It was well placed as it lay both on the Gangetic route and on the
highway that linked North with the East. It grew as a major center of
Varanasi textile industry and became famous for beautiful gold silk cloth and
sandalwood workmanship. It had links with Taxila and Bharuch.

The traders of Mithila crossed the seas by boats, through the Bay of
Bengal to the South China Sea, and Traded at ports on the islands of
Mithila Java, Sumatra and Borneo. Mithila established trading colonies in
South China, especially in Yunnan.

Agate, carnelian, muslin and mallow cloth were exported from Ujjain
Ujjain to different centres. It also had trade relations through the land route
with Taxila and Peshawar.
Hundi
A hundi is a financial
instrument that was
developed in Medieval
India in order to
facilitate trade and
credit transactions.
 Types of Hundis
The term ‘Dhani’ means ‘owner’ 9i.e., the owner of the
Dhani Jog dhan (amount) of the hundi. It is hundi payable to the Dhani
Hundi or owner – a holder or bearer owner. It is transferable by mere delivery.

It is a hundi drawn by one merchant on another, asking the latter to pay the
amount to a shah. Shah is a rich, respectable and responsible person, a man
Shahjog of worth and known in the bazaar. A shah-jog hundi passes from one hand
Hundi to another till it reaches a shah, who after reasonable enquiries, presents it
to the drawee for acceptance of the payment.

The ‘Firman’ means ‘Order’. This type of hundi can be paid either to the
Firman Jog person whose name is mentioned in the hundi or to any person so ordered by
Hundi him. This hundi is similar to a cheque payable on order and no endorsement
is required on such a hundi.

The term ‘Dekhanhar’ means the one who sees it. Thus, a Dekhanhar Jog
Dekhanhar Hundi is the one which is made payable to its sees or its holder, i.e., it is
Jog Hundi made payable to the bearer.
 The term ‘Jokham’ means ‘risk’ and the term “Jokhami’ means ‘risky’. That
is why a jokhami Hundi, has been termed by Justice Baley, in the case titled
Jokhami Raisey. A merchant vs Jusraj Vizpal (1871), as being in the nature of an
Hundi insurance policy. But with a difference in that, in the case of a Jokhami
Hundi, the amount mentioned therein is paid in advance, which may,
however be recovered in case the slip is not lost.

There are the The drawer or the shipper (consigner) of the

following three goods;
parties in a
Jokhami Hundi : The hundiwala, i.e., the underwriter, who
undertakes the risk; and
The malwala, i.e., the consignee of the goods.

Jawabee Hundi refers to the hundi which is used as a means of

Jawabee
remittance of money from one place to another, through a
Hundi banker.
 Business  The term business is derived
from the word ‘busy’. Thus,
business means being busy.
Human  Business refers to an
Activities occupation in which people
regularly engage in activities
Non- related to the purchase,
Economic
Activities
economic production and sale of goods
Activities and services to earn profits.
 Economic  Economic activities are those human activities
Activities which are performed to earn a livelihood.
 For example : A worker working in a factory, a
doctor operating his clinic, a teacher teaching
in a school etc.

 Non-economic activities are those human Non-

activities which are performed out of love, economic
sympathy, sentiment, patriotism etc. Activities
 For example : A housewife cooking food for her
family, a girl helping a blind man etc.

Business Firm : Those organizations which perform business is

called business firm.
The Differences Between Economic Activities and Non-economic Activities are :
Basis Economic activities
Those human activities which
are performed to earn
Definition
livelihood are called economic
activities.
The main aim of these
Aim
activities is to earn profits.
The result of economic
Result activities is the production of
goods and services.
Example Teacher, lawyer, doctor etc.
Non-economic activities
Those human activities which
are performed out of love,
sympathy, sentiment,
patriotism etc. are called non-
economic activities.
The main aim of these
activities is psychological
satisfaction.
The result of these activities is
the mental satisfaction of the
person performing them.
A teacher teaching his son, a
doctor treating his son etc.
 Business

Industry Commerce

Primary Secondary Tertiary Trade Auxiliaries to Trade

Extractive Construction Internal External Transport

Manufactu- Wholesale Import Banking

Genetic ring
Retail Export
Processing Insurance
Entrepot
Assembling Warehousing

Analytical
Advertising
Synthetical
 Types of Economic Activities

There are three types of

Economic Activities

Business Profession Employment

The Differences Between Business, Profession And Employment are :
Basis Business Profession Employment
Business is established by the The profession can be commenced by getting Employment commences an acceptance
Mode of
entrepreneur’s decision or other legal membership in a professional body and a of the appointment letter and service
Establishment
formalities, if required. certificate of practice. agreement.
Employment involves doing the work as
Business involves the provision of goods The profession involves rendering personalized
Nature of Work per the service contract or rules of
and services to the public. expert services.
service.
Professionals are required to be experts in In employment qualification and
In business no minimum qualification is
Qualification their fields possessing a high degree of training are required as prescribed by
necessary.
expertise and training. the employer.
Reward or Profit is the reward for performing The fee is the reward for providing Salary and wages are the rewards in the
Return business activities. professional services. course of employment.
Capital Capital investment is required as per the Limited capital is required for establishment Capital investment is not required in
Investment nature and size of the business. in the Profession. case of employment.

In business, the profits are uncertain and The fee is generally regular and certain. Employment doesn’t involve any risk as
Risk
irregular. Hence, the risk is present. Hence, little risk is involved. compared to business and profession.

The rules and regulations are laid down

No code of conduct is prescribed in A professional code of conduct is to be
Code of Conduct by the employer and need to be
business. followed in the case of the profession.
followed.
Transfer of In business, transfer of interest is possible In the case of a profession, transfer of interest In the case of employment, transfer of
Interest with some legal formalities. is not possible. interest is not possible.
Chartered Accountant (C.A), lawyers, Jobs in banks, insurance companies,
Example Shop, factory etc.
teachers etc. government departments etc.
Industry  Industry refers to economic activities,
which are connected with conversion
of resources into useful goods.
Activities like producing, processing
of goods and breeding and raising of
animals are also included in the
industry.
 Groups or firms producing similar or
related goods come under industry.
For e.g.- The Electronic industry
would include all firms producing
electronic goods, and so on.
 Types of Industry

There are three types of

Industries

Primary Secondary Tertiary

 Primary It refers to those industries which are
Industries concerned with the extraction and
production of natural resources and the
reproduction and development of living
organisms, plants, etc.
Primary Industries are further divided as follows :
Extractive Industries : Genetic Industries :
 This industry involves the extraction of products  Genetic industries are concerned with the
from natural sources. breeding of plants and animals for their use
 These industries provide such products which are
in further reproduction.
used as raw materials by many manufacturing
industries.  For example : Seeds and nursery
 For example : Mining, agriculture, fishing, companies, cattle breeding farms, dairy
farming etc. farms, fish hatcheries, poultry farms etc.
 Secondary  These are concerned with using materials, which have already
Industries been extracted at the primary state and processing such goods
for final consumption.
 For example : Mining of iron ore is a primary industry, but the
manufacturing of steel is part of a secondary industry.

Secondary Industries are further divided as follows :

Construction Industries :
The industries which are involved in engineering and architectural skills to construct dams, bridges, buildings etc.

Manufacturing Industries :
 Manufacturing industries are those which involve the conversion and processing of that material into finished goods. They
create utilities. For example : The conversion of iron into steel, sugarcane into sugar etc.
 Manufacturing industries are further divided as :
 Processing Industries : These industries involve the processing of raw materials through various stages of production for
getting finished goods. For example : The paper industry, textile industry, sugar industry etc.
 Assembling Industries : These industries are concerned with assembling different parts to make a new product. For example :
Television, car, computers etc.
 Analytical Industries : These industries are concerned with analyzing and separating different elements from the same
materials. For example : Oil refinery.
 Synthetical Industries : These industries combine various products to make a new product. For example : Cement, paint etc.
 Tertiary
Industries  It provides various services to
the primary and secondary
industries.
 They also provide help to
trading activities.
 For example : Transport,
banking, insurance,
warehousing, communication
and advertising etc.
  The activities which are necessary for
Commerce facilitating the exchange of goods and
services are included under commerce.
The main function of commerce is to
Commerce facilitate the free flow of goods and
includes two services by removing various hindrances
in the process of exchange.
types of activities
 The hindrances may be in respect of
person, place, time, risk, finance etc.
These hindrances are removed by
various activities in commerce like
Auxiliaries
Trade to Trade
advertising, warehousing, and banking.
 Commerce provides the necessary link
between producers and consumers.
 Trade Activities relating to the
sale, transfer or exchange
Trade can be
classified into two of goods are known as
categories components of the trade.
Trade is that part of
External business activities which
Internal
Trade or
Trade or
Foreign
is involved in buying and
Home Trade
Trade selling of goods.
1) Internal Trade : Internal trade refers to buying and
selling of goods within the geographical boundaries
of the country.
It may be divided into wholesale and retail trade :

Wholesale When goods are bought and sold in

large quantities it is known as
wholesale trade.
When goods are bought and sold in Retail Trade
smaller quantities it is known as retail
trade.
2) External Trade : External trade refers to buying and
selling of goods and services between persons and
organizations belonging to different countries.
It is further divided into three categories :
Import It means purchasing goods from another
country.
It means selling goods to another Export
country.
Entrepot It means importing goods to export them to
other countries.
Auxiliaries  The activities which help in the
process of trading are known as
to Trade auxiliaries to trade. These activities
play a supportive role in the free
flow of goods and services.
 These help in removing various
hindrances may be in respect of
place, finance, time, risk,
persons/knowledge etc. The various
auxiliaries are transport, banking,
insurance, warehousing and
advertising etc.
1) Transport :
 Goods are produced at a particular location but are needed at different places in the country. For example :
Sugar is mainly produced in Uttar Pradesh but it is consumed all over the country.
 This hindrance of place is removed by various means of transportation like railways, waterways, roadways etc.
These services not only facilitate the movement of finished goods but also the movement of raw materials.

2) Banking :
 Every business requires funds for long-term or short-term purposes. The money required for a short-term period is known as
working capital requirements. Whereas the money required for a long-term period is known as fixed capital requirements.
 All these financial needs are fulfilled with the help of finance. Therefore, banking helps in removing the hindrance of finance.
 Main source of finance is a bank. Commercial banks accept deposits and provide funds as per the requirements of the persons. They
also perform some basic functions like collection and payments of various items etc.

3) Insurance :
 Risk is always associated with the business. Various assets like plant and machinery, buildings, furniture etc.
kept in warehouses are subject to the risk of loss or damage.
 Also, employees of every organization require protection against accidents due to the use of complex machines.
This hindrance of risk is removed by insurance as in case of loss any loss suffered can be recovered from the insurance company.

4) Warehousing :
 Generally, goods are not consumed immediately after production. There is always a time gap between the production and
consumption of goods.
 Thus, it becomes essential to store goods in such a way that these are available whenever they are required. Thus, the hindrance of
storage is removed by warehousing. It ensures a continuous supply of goods which helps in maintaining a reasonable level of prices.

5) Advertising :
 Advertising is always the most important tool of sales promotion. It is not possible for a producer to
personally contact every consumer and provide information about products.
 Advertisement provides the necessary information to the consumers about the product like price, quality, uses,
availability etc. It also motivates consumers to buy them. Thus, advertising helps in removing the hindrance of information.
 Role of Commerce in the Removal of Hindrances in the Process of Exchange
 Commerce includes two types of activities, viz.,
a) Trade and
b) Auxiliaries to trade.
 Buying and selling of goods is termed trade. But there are a lot of activities that are required to
facilitate the purchase and sale of goods. These are called services or auxiliaries to trade and
include transport, banking, insurance, communication, advertisement, packaging and warehousing.
 Commerce provides the necessary link between producers and consumers. It embraces all those activities, which are
necessary for maintaining a free flow of goods and services. Thus, all activities involving the removal of hindrances in the
process of exchange are included in commerce. The hindrances may be in respect of persons, place, time, risk, finance, etc.

1) Trade removes the ‘hindrance of persons’ by making the goods available to the consumers from the producers.
2) Transportation removes ‘hindrance of place’ by moving goods from the places of production to the markets for sale.
3) Storage and warehousing activities remove the hindrance of time by facilitating the holding of stock of goods to be sold as
and when required.
4) Insurance removes 'hindrance of risk’. Goods held in stock, as well as, goods in course of transport are subject to a risk of
loss or damage due to theft, fire, accidents, etc. Protection against these risks is provided by insurance of goods.
5) Banking removes ‘hindrance of finance’. The capital required to undertake the above activities is provided by banking
and financing institutions.
6) Advertising removes ‘hindrance of information’. Advertising makes it possible for producers and traders to inform
consumers about the goods and services available in the market.

Conclusion : Commerce is said to consist of activities of removing the hindrances of persons, place, time, risk, finance and
information in the process of exchange of goods and services.
 Characteristics of Business Activities
 Business is concerned with an economic activity
An Economic because it is undertaken to earn money.
Activity  It doesn’t include such activities which are done
out of love, sympathy, affection etc.
 The business enterprise either produces gods or procures them
Production or from the producers before they are offered for sale.
Procurement of
Goods and
 The goods can be consumable goods (like sugar, pen, clothes
Services etc.) or capital goods (like machinery, tools etc.) and services
like transport, banking etc.
 Business involves the sale or exchange of goods or services for
Sale or Exchange money. It cannot be called a business activity if goods are
of Goods and produced for self-consumption and not for sale.
Services  Thus, the sale or exchange of goods or services between the
seller and the buyer is an essential feature of business.
  One single transaction of sale and purchase can’t be termed a
business. Business must involve the exchange of goods and
Dealing in Goods services on a regular basis.
and Services on a  For example : If a person sells his personal computer, it can’t be
Regular Basis termed as a business. However, if he continuously
deals in the sale and purchase of computers, it will
be regarded as a business.

 The main aim of every business is to earn profits. Profit earning

Profit Earning is essential for the survival of the business. Hence a businessman
always tries to minimize costs and maximize profits.

 Another important feature of every business is the uncertainty

of return. A businessman invests money into the business but he
Uncertainty of
Return
is not certain about the amount of profit that he may earn.
 Moreover, there is a chance of losses despite the best
efforts put into the business.
 Business The term business risk refers to
Risk the possibility of inadequate
profits or even losses due to
There are two types uncertainties or unexpected
of business risks events. For example : Change in
fashion or taste and preferences
of customers the demand for a
Speculative particular product may decrease
Pure Risk
Risk which results in a reduction in
sales as well as profits.
 Speculative  It involves both the possibility of gain as well as the
Risk possibility of loss. In case of favorable market
conditions, there would be gains but in case of
unfavourable conditions, there are possibilities of
losses.
 It is the risk which arises due to changes in the
condition of the market. E.g.- changes in fashion,
technology, price, etc.

It involves only the possibility of loss or no Pure Risk

loss, it is the risk which arises due to fire,
theft or strike. The occurrence may result
in loss whereas non-occurrence will result
in the absence of loss instead of gain.
 Causes of Business Risks
Natural  Human beings have little control over natural calamities.
 Natural calamities like flood, earthquakes, heavy rains, famines etc.
Causes results in heavy loss of life, property and income of the business.

Human  Unexpected events like dishonesty, carelessness or negligence of

employees, stoppage of work due to power failure etc. are some
Causes examples of human causes that result in business risk.

 These include uncertainties relating to demand for goods, competition,

Economic price, collection of dues from customers, method of production etc.
Causes  These also include some financial problems like an increase in
interest rate, tax rate etc. which results in higher costs of operations.

Other  These include uncertainties like political disturbances, mechanical

failures, fluctuations in exchange rates etc. which leads to the
Causes possibility of business risk.
 Nature of Business Risks
1) Business Risks arise due to Uncertainties :
 Uncertainty refers to the lack of knowledge about what is going to happen in future.
 Therefore, uncertainty like natural calamities, change in government policies, change in
demand etc. create risk for business.
1) Risk is 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.
1) Degree of Risk Depends Mainly upon the Nature and Size of Business :
 Nature of business (i.e., type of goods and services produced and sold) and size of business
(volume of production and sale) are the main factors which determine the amount of risk in a
business.
 For example : A business dealing in fashionable items has a high degree of risk. Similarly, a
large-scale business generally has a higher risk than a small-scale business.
4) Profit is the Reward for Risk-taking :
 Profit and risk are directly related to each other.
 Profit is the reward for risk-taking. Greater the risk higher is the
chance of profit whereas if the risk is low profit may also be low.
 Multiple Objectives of the Business
1) Market Standing :
 It refers to the position of an enterprise in relation to its competitors.
 A business enterprise must aim at standing on stronger footing in terms of offering
competitive products to its customers and providing them maximum satisfaction.

2) Innovation :
 Innovation is the introduction of new ideas or methods in the way something is done.
 There are two kinds of innovation in every business:
 Innovation in goods and services.
 Innovation in various skills and activities needed to supply products and services.

3) Productivity :
 Productivity is ascertained by comparing the value of output with
the value of inputs.
 It is used as a measure of efficiency. Greater productivity ensures
continuous growth through the best utilization of resources.
4) Earning Profits :
 One of the objectives of the business is to earn profits on the capital employed.
Profitability refers to the profit in relation to capital investment.
 Every business must earn a reasonable profit which is so important for its
survival and growth.

5) Manager Performance and Development :

 Business enterprises need managers to conduct and coordinate business activity.
 Hence, manager performance is an important objective and enterprises must actively work
for this purpose.

6) Worker Performance and Attitude :

 Workers’ performance and attitudes determine their contribution
towards the productivity and profitability of any enterprise.
 Therefore, every enterprise must aim at improving its worker’s performance.

7) Social Responsibility :
 It refers to the obligation of business firms to contribute resources for solving social problems
and work in a socially desirable manner.
 Basic Factors Which are Considered Before Starting a Business
Selection of Line of Business
 The first thing to be decided by an entrepreneur is the nature and type of
business to be undertaken.
 For example : Fashionable goods, grocery shops, refreshments etc.
Size of the Firm
 Size of the firm or scale of its operations is another important decision taken while starting a
business.
 If market conditions are uncertain and risks are high, a small-scale business would be better
choice and if the conditions are certain and there is moderate risk and the owner is confident
then he may go for a large-scale business.
Choice of Form of Ownership
 Concerning ownership, the business organization may take the form of
a sole proprietorship, partnership, or joint stock company.
 The choice will depend on such factors as the line of business,
capital requirements, legal formalities and so on.
Location of Business Enterprise
 An important factor to be considered at the start of the business is the place where the enterprise
will be located.
 Availability of raw materials and labour; power supply and services like banking, transportation,
communication, warehousing etc. are important factors while choosing a location.

Finance
 Before starting the business, proper finance planning must be done with the main
objective of determining i.e., requirement of capital, the source from where capital
will be raised, and the best ways of utilizing the capital.

Tax Planning
 Tax planning becomes necessary because of the multiple taxes in the country.
 Therefore, the founder of the business has to consider the tax liability under various tax laws and
their impact on the business decisions.

Launching the Enterprise

 After the above decisions related to various factors the entrepreneur can go ahead
with the actual launching of the business which means making utilization of resources,
fulfilling legal formalities, starting the production and initiating the sales promotion campaign.