Category: Class 11 Business Studies

Free PDF download of NCERT Solutions for Class 11 Business Studies Chapter 6 Social Responsibilities of Business and Business Ethics solved by Expert Teachers as per NCERT (CBSE) Book guidelines. All Chapter wise Questions with Solutions to help you to revise complete Syllabus and Score More marks in your examinations.

NCERT Solutions For Class 11 Business Studies Social Responsibilities of Business and Business Ethics

 

NCERT Solutions Class 11 Business StudiesBusiness Studies Sample Papers

TEXTBOOK QUESTIONS SOLVED

I. Multiple Choice Questions
Question 1. Social responsibility is
(a) Same as legal responsibility (b) Broader than legal responsibility
(c) Narrower than legal responsibility (d) None of them
Question 2. If business is to operate in a society which is full of diverse and complicated problems, it may have
(a) Little chance of success (b) Great chance of success
(c) Little chance of failure (d) No relation with success or failure
Question 3. Business people have the skills to solve
(a) All social problems (b) Some social problems
(c) No social problems (d) All economic problems
Question 4. That an enterprise must behave as a good citizen is an example of its responsibility towards
(a) Owners (b) Workers
(c) Consumers (d) Community
Question 5. Environmental protection can best be done by the efforts of
(a) Business people (b) Government
(c) Scientists (d) All the people
Question 6. Carbon monoxide emitted by automobile directly contributes to
(a) Water pollution (b) Noise pollution
(c) Land pollution (d) Air Pollution
Question 7. Which of the following can explain the need for pollution control?
(a) Cost savings (b) Reduced risk of liability
(c) Reduction of health hazards (d) All of them
Question 8. Which of the following is capable of doing maximum good to society?
(a) Business success (b) Laws and regulations
(c) Ethics (d) Professional management
Question 9. Ethics is important for
(a) Top management (b) Middle-level managers
(c) Non-managerial employees (d) All of them
Question 10. Which of the following alone can ensure effective ethics programme in a business enterprise?
(a) Publication of code
(b) Involvement of employees
(c) Establishment of compliance mechanisms
(d) None of them
Answers:
1. (b) 2. (a) 3. (b) 4. (d) 5. (d)
6. (d) 7. (c) 8. (c) 9. (d) 10. (c)

II. Short Answer Type Questions
Question 1. What do you understand by social responsibility of business? How is it different from legal responsibility?
Answer: Social responsibility of business refers to its obligation to take those decisions and perform those actions which are desirable in terms of the objective and values of our society. It refers to the obligation of business towards various social groups like employees, consumers, investors, government etc. In the words of H. R. Bowen, “Social responsibility of business is to pursue those policies, to make those decisions or to follow those lines of action which are desirable in terms of the objectives and values of our society
Legal responsibility is the responsibility that a business has by virtue of law. Differences between Social and Legal Responsibility.

• Legal responsibility is compulsory under any of the laws, acts and constitution. Social responsibility is not backed by legal provisions.
• Legal responsibility is compulsion while social responsibility is a choice.
• Many a time, legal responsibility is fulfilled in the name of social responsibility.
• There are no punishments for organizations not following their social responsibility but legal action can be taken against organizations not following their legal responsibility.

Question 2. What is environment? What is environmental pollution?
Answer: By environment, we mean our surroundings, which have an impact on our lives. It is the sum total of the surroundings and resources, including both biotic resources (i.e., living creatures such as plants and animals) and abiotic resources (i.e., non-living things, such as air, water and land) that affect our existence and quality of life. However, because of the rapid increase in population and industrialisation, the excessive use of resources has resulted in their degradation and depletion. Also, the discharge of harmful substances into the environment has contributed towards pollution. Environmental pollution can be classified into the following four types.

1. Air Pollution: It is caused by the emission of harmful gases into the atmosphere.
2. Water Pollution: It is caused by the discharge of industrial and household wastes into the rivers, thereby degrading the quality of water.
3. Land Pollution: This is caused by dumping toxic wastes on land, which in turn damages it, making it unfit for agriculture.
4. Noise Pollution: It is caused by noise from factories and vehicles, which may cause serious health problems such as loss of hearing or mental disorders.

Question 3. What is business ethics? Mention the basic elements of business ethics.
Answer: Business ethics refers to the values and principles that govern the behaviour of individuals in an organisation such that the business activities are desirable from the viewpoint of society. The main purpose of business ethics is to guide managers and other employees to perform their jobs in a manner that is socially acceptable.
The following are some of the elements of business ethics.

1. Top management commitment: Top-level officers, such as CEO’s and senior managers, must strongly follow the ethical codes and guide the other employees in adopting such behaviour.
2. Publication of a code: Enterprises must clearly define the ethical code of conduct, which would include quality standards, laws governing production and health and safety standards for the employees.
3. Establishment of compliance mechanism: In addition to standards, an enterprise must also devise a mechanism through which compliance with the code of conduct can be measured.
4. Involvement of employees at all levels: The successful implementation of ethical standards requires the involvement of all the employees at all levels.
5. Measurement of results: Although it is difficult to measure the end results of implementation of ethical standards, the top management should take steps to measure the degree of compliance with the ethical codes.

Question 4. Briefly explain (a) Air pollution, (b) Water pollution, and (c) Land pollution.
Answer: (a) Air Pollution: This kind of pollution is caused by the emission of harmful gases into the atmosphere. Smoke and chemicals emitted by factories and vehicles degrade the air quality and causes air pollution.
(b) Water Pollution: Discharge of industrial and household wastes into rivers, streams or lakes causes degradation of the water quality. Over time, the increase in water pollution often results in the deaths of several animals and poses serious threats to human beings.
(c) Land Pollution: This is caused due to the dumping of toxic materials and wastes on land, which in turn damages the quality of land, making it unfit and unproductive for agriculture and crop plantation.

Question 5. What are the major areas of social responsibility of business?
Answer: Major areas for social responsibility of business are given below:

• Shareholders or investors who contribute funds for business.
• Employees and others that make up its personnel.
• Consumers or customers who consume and/or use its outputs (products and/or services).
• Government and local administrative bodies that regulate its commercial activities in their jurisdictions.
• Members of a local community who are either directly or indirectly influenced by its activities in their area.
•  Surrounding environment of a location from where it operates.
• The general public that makes up a big part of society.

III. Long Answer Type Questions
Question 1. Build up arguments for and against social responsibilities.
Answer: Arguments for Social Responsibility:

1. Justification for Existence and Growth: Although the main motive of any business is profit but the prosperity and growth of business is not possible without a continuous service to the society. Therefore, it is justified for a business to assume social responsibility.
2. Avoidance of Government Regulation: Businessmen can avoid the problem of government regulations by assuming social responsibilities voluntarily which helps to reduce the need for new laws.
3. Maintenance of Society: Those people who do not get a return for their hardships get indulged in anti-legal activities. Therefore, it is advisable for business enterprises to assume their social responsibilities.
4. Long Term Interest of the Firm: If consumers, workers, shareholders, government officials feel that they are not getting what they deserve, they start to withdraw their hands from business. It may prove more expensive for an enterprise.
5. Availability of Resources with Business: A business enterprise has effective human and financial resources to solve many of the social problems.
6. Converting Problems into Opportunities: Business can make risky situations useful by using their efficiency.
7. Better Environment for Doing Business: Business system should do something to meet needs before it is confronted with a situation when its own survival is endangered.
8. Holding Business responsible for Social Problems: Environmental pollution, unsafe workplaces, corruption in public institutions and discriminatory practices in employment are some of the problems which have caused due to business enterprises.

Arguments against Social Responsibility:

1. Violation of Profit Maximization: As per this argument, business enterprises claim that our objective is profit maximization. Business can reduce its cost and raise profits and then only it can meet its social responsibility.
2. Lack of Social Skills: Business enterprises neither have skill nor experience to solve all types of social problems. Therefore, it should be handled by specialized agencies.
3. Burden on Consumers: Many of the social responsibilities cost a lot and its burden falls on consumers only.
4. Lack of Broad Public Support: Business cannot operate successfully because of lack of cooperation and confidence on behalf of public to business enterprises.

Question 2. Discuss the forces which are responsible for increasing concern of business enterprises towards social responsibility.
Answer: The following are the forces which are responsible for increasing the concern of business enterprises for social responsibility.

• Threat of Public Regulation: The government is meant to safeguard the interests of society. Thus, in case the government feels that a business enterprise is behaving in a manner that is not socially desirable, then it can regulate the operations of that enterprise accordingly.
• Pressure of Labour Movement: The increase in capital mobility over time has increased the pressure on business enterprises to pay attention to the welfare of workers, by providing them with healthy working conditions along with good remuneration.
• Impact of Consumer Consciousness: As consumers today are aware of their rights and responsibilities, they take their decisions more rationally. Thus, business enterprises are made to work more efficiently and produce better products at reasonable rates to satisfy their customers.
• Development of Social Standards: Business enterprises are not merely profit-making entities. For their long-term growth and existence, they require fulfilling the new standards of social welfare.
• Development of Business Education: The spread of education over time has made consumers, investors, employees and owners aware of social problems, thereby making them more sensitive to social issues.
• Relationship Between Social Interest and Business Interest: No business enterprise can work in isolation from society. Thus, there should be a balance between business interests and social interests, such that the business can grow by doing the maximum good to society.
• Development of a Professional Managerial Class: Every business professional pursues the goal of profit maximization. But today’s professional managers make efforts to satisfy the interests of all members of society.

Question 3. ‘Business is essentially, a social institution and not merely a profit making activity.’ Explain.
Answer: The primary objective of any business enterprise is profit maximization. This is because profit acts as a measure of success and at the same time is the main source of income for an enterprise. Also, profits are often used to finance the expansion projects of a business enterprise. However, it is argued that business enterprises are not merely profit-making entities. They are considered as social institutions, too, as they are created by society. As every business makes use of society’s resources in terms of human and physical capital, it cannot work in isolation from society. Its operations are affected by social problems such as unemployment and poverty. Thus, a need arises to create a balance between the business interests and social interests of a business enterprise, such that it can grow by doing the maximum good to society. Hence, we can say that a business enterprise is a social institution and not merely a profit-making entity. In this regard, the following are some of the responsibilities that must be fulfilled by an enterprise:

• Paying taxes on time.
• Paying fair wages to employees.
• Supplying quality products at reasonable prices to customers.
•  Cooperating with the government in solving social problems, such as unemployment, poverty and illiteracy.

A business has some responsibility towards:

• Shareholders or investors who contribute funds for business.
• Employees and others that make up its personnel.
• Consumers or customers who consume and/or use its outputs (products and/or services).
•  Government and local administrative bodies that regulate its commercial activities in their jurisdictions.
• Members of a local community who are either directly or indirectly influenced by its activities in their area.
•  Surrounding environment of a location from where it operates.
•  The general public that makes up a big part of society.

Question 4. Why do the enterprises need to adopt pollution control measures?
Answer: Pollution control is necessary for preserving and improving the quality of environmental resources. As business activities such as production, transportation, distribution, storage and consumption are often assumed to cause the maximum destruction to society’s resources, a need arises for adopting pollution control measures. Following are some of the reasons why business enterprises need to adopt pollution control measures,

• Reduced health hazards: Pollutants in the environment cause diseases such as cancers and respiratory problems. Thus, pollution control measures will not only
  help in reducing the incidence of diseases but also help people enjoy a good and healthy life.
• Reduced risk of liability: Enterprises are often held responsible for polluting the environment and are asked to compensate. Pollution control helps in reducing the risk of such liabilities.
• Cost savings: Efficient pollution control mechanisms help in reducing the cost of waste disposal and the cost of cleaning up production plants. This in turn helps firms to reduce their costs.
•  Improved public image: An increase in the education level has made people more aware about environmental problems. As a result, they have started realising the need to protect the environment. Thus, business enterprises which adopt pollution control measures enjoy a good reputation in the society.
• Other social benefits: Pollution control helps a firm to enjoy various other benefits such as cleaner surroundings, better quality of life for its employees as well as owners and increased availability of good quality resources.

Question 5. What steps can an enterprise take to protect the environment from the dangers of pollution?
Answer: Various business activities such as production, transportation and consumption of goods often result in over exploitation of natural resources. Thus, it is the responsibility of every business enterprise to control discharge of pollutants into the environment. The following steps can be taken by the business enterprises to control pollution.

• Control by top managers: The top management of every organisation should be committed to creating, developing and maintaining a work culture conducive to environmental protection and pollution prevention.
• Control by employees: Employees at all the levels of an organisation should be committed to keeping the environment clean and protected.
•  Better technology: Enterprises should employ good and superior technologies of production and use scientific techniques for waste disposal. This will ensure environmental protection and pollution control.
• Follow rules: Enterprises must conform to the rules and regulations enacted by the government for the prevention of environmental pollution.
• Increased awareness: By conducting workshops and training programmes, business enterprises must make an effort to spread awareness among its employees of the need to conserve the environment.
• Assessment programmes: An efficient mechanism for the periodic assessment of pollution control programmes may also be adopted, in order to weigh their costs and benefits.

Question 6. Explain the various elements of business ethics.
Answer: Business ethics can be defined as the code of conduct that a business must follow, such that it takes up only those activities that are desirable from the viewpoint of society. The purpose of business ethics is to guide managers and other employees in an organisation in performing their jobs in a manner that is socially acceptable. Business ethics should be followed in the day-to-day working of a business enterprise. The following are some of the elements of business ethics.

• Commitment by top management: Top-level officers, such as the CEO’s and other higher level managers, must sincerely follow the ethical code of conduct. They should also guide other employees in their organisation in adopting the code.
• Publication of a code: An enterprise must clearly define the ethical code of conduct to be followed in the organisation. The code should include quality standards for work, laws governing production and employee’s health and safety standards.
• Establishment of compliance mechanism: In addition to setting performance standards, an enterprise must also devise a mechanism through which it can measure the actions of individual employees. This should be done in order to confirm whether the ethical standards are being met.
• Involvement of employees at all levels: The successful implementation of ethical standards depends to a large extent on the involvement of employees at different levels. This is because it is the employees who actually implement the ethical codes.
• Measurement of results: Although it is difficult to measure the end results of implementation of ethical standards, the top management should take steps to monitor compliance. Also, it must take serious action against any unethical behaviour in the organisation.

MORE QUESTIONS SOLVED

I. Very Short Answer Type Questions
Question 1. Define corporate social responsibility.
Answer: Corporate social responsibility is a comprehensive set of policies, practices and programmes which are integrated into business operations, supply claims, and decision making process throughout the company, wherever the company does business and includes responsibility for current actions as well as past and future actions.

Question 2. What is the relation between ethics and moral values?
Answer: Ethics refer to the entire body of moral values which a society attaches to the actions of human beings.

Question 3. What do you mean by the principles derived from social values which guide and govern the conduct of businessmen?
Answer: Business ethics are principles derived from social values which guide and govern the conduct of businessmen.

Question 4. Mention two responsibilities of business towards customers.
Answer: Supply of right quality of goods and proper precaution against adulteration.

Question 5. Give any two reasons supporting social responsibilities.
Answer: (i) It is in long term interest of the business.
(ii) It is justified for growth and existence of business.

Question 6. Give any two reasons against social obligation.
Answer: (i) It violates the goal of profit maximization (ii) Its burden falls on consumers.

Question 7. Name any two factors which affect the ethical behaviour of a business.
Answer: Awareness amongst people, overall environment of the area where business is located.

Question 8. Define pollution.
Answer: Pollution is change in the physical, chemical and biological characteristics, air, land and water.

Question 9. Give any one point of difference between ethics and law.
Answer: Ethics are self-imposed while laws are imposed by an external governing authority.

Question 10. Do businessmen have skill to tackle social problems?
Answer: Yes, businessmen have skills to tackle some but not all social problems.

Question 11. What is environmental pollution?
Answer: When the quality of environment degrades due to mixture of unwanted elements in it, it is called environmental pollution.

Question 12. What is the reality of social responsibilities?
Answer: In reality, social responsibility takes form of lip service only. There is no genuine effort from a business. Many a time firms play their legal roles in the name of social responsibility.

Question 13. What is code of ethics?
Answer: An enterprise must clearly define the ethical code of conduct to be followed in the organisation. The code should include quality standards for work, laws governing production and employee’s health and safety standards.

Question 14. Give any one difference between ethics and law.
Answer: Business ethics refer to the socially determined moral principles which should govern business activities. Laws are determined by the legal bodies of a country.

II. Short Answer Type Questions
Question 1. What are the core objectives of social responsibility of business?
Answer: The core objectives of social responsibility of business are as follows:

1. It is a concept that implies a business must operate (function) with a firm mindset to protect and promote the interest and welfare of society.
2. Profit (earned through any means) must not be its only highest objective else
   contributions made for betterment and progress of a society must also be given a prime importance.
3.  It must fulfill its social responsibilities honestly in regard to the welfare of society in which it operates and whose resources and infrastructures it makes use of to earn huge profits.
4. It should never neglect (avoid) its responsibilities towards society in which it flourishes.

Question 2. What are the obligations of a business in the name of social responsibility?
Answer: The social responsibility of business comprises of the following obligations:

• A business must give a proper dividend to its shareholders or investors.
• It must provide fair wages and salaries with good working conditions.
• It must provide a regular supply of good quality goods and/or services to its consumers/customers at reasonable prices.
• It must abide by all government rules and regulations, support its business related policies and should pay fair taxes without keeping any delays or dues.
•  It must also contribute for the betterment of a local community by doing generous activities like building schools, colleges, hospitals, etc.
• It must take immense care to see that its activities neither directly nor indirectly create havoc on the vitality of its surrounding environment.
•  It should maintain a stringent policy to curb or control pollution in regard to contamination of air, water, land, sound and radiation leakages. It must hire experienced professional individuals who are experts in their respective fields.
•  It should also offer social-welfare services to the general public.

Question 3. Name any four elements of business ethics.
Answer: Business ethics can be defined as the code of conduct that a business must follow, such that it takes up only those activities that are desirable from the viewpoint of society. The purpose of business ethics is to guide managers and other employees in an organisation in performing their jobs in a manner that is socially acceptable.
The following are some of the elements of business ethics.

• Top-level officers, such as the CEO’s and other higher level managers, must sincerely follow the ethical code of conduct. They should also guide other employees in their organisation in adopting the code.
• An enterprise must clearly define the ethical code of conduct to be followed in the organisation. The code should include quality standards for work, laws governing production and employee’s health and safety standards.
•  In addition to setting performance standards, an enterprise must also devise a mechanism through which it can measure the actions of individual employees. This should be done in order to confirm whether the ethical standards are being met.
• The successful implementation of ethical standards depends to a large extent on the involvement of employees at different levels. This is because it is the employees who actually implement the ethical codes.
• Although it is difficult to measure the end results of implementation of ethical standards, the top management should take steps to monitor compliance. Also, it must take serious action against any unethical behaviour in the organisation.

Question 4. Explain the obligations of business towards owners and investors.
Answer: It is the responsibility of a business to pay attention on the maintenance and expansion of returns for all of its shareholders on important management issue, and constantly strives to improve its business performance and financial structure. The company’s dividend policy calls for maintaining stable dividends, and Casio determines the allocation of profit by taking into account all factors such as profit levels, financial position, the dividend pay out ratio, and future business development and forecasts.

Question 5. How can a business enterprise improve its public image by performing social responsibilities?
Answer: Public relations is a potent tool for shaping consumer perception and building a company’s image. Corporations that actively promote their social responsibility activities often take steps to publicise these efforts through the media. Getting the word out about corporate donations, employee volunteer programmes, or other CSR initiatives is a powerful branding tool that can build publicity for you in both online and print media.

Question.6. What obligation does a businessman have towards the government?
Answer: Social responsibility of business towards government’s regulatory bodies or agencies is quite sensitive from the license point of view. If permission is not granted or revoked abruptly, it can result in huge losses to an organization. Therefore, compliance in this regard is necessary.
Furthermore, a business must also function within the demarcation of rules and policies as formulated from time to time by the government of state or nation. It should respect laws and abide by all established regulations while performing within the jurisdiction of state.
Some examples of activities a business can do in this regard:

• Paying fair taxes on time,
•  Following labor, environmental and other laws, etc.
• Seeking permissions wherever necessary,
• Licensing an organization,

If laws are respected and followed, it creates goodwill of business in the eyes of authorities. Overall, if a government is satisfied it will make favourable commercial policies, which will ultimately open new opportunities and finally benefit the organization sooner or later.

Question 7. Give any four reasons against the social responsibilities of business.
Answer: Arguments against social responsibility

1. Violation of Profit Maximisation: As per this argument, business enterprises claim that our objective is profit maximisation. Business can reduce its cost and raise profits and then only it can meet its social responsibility.
2. Lack of Social Skills: Business enterprises neither have skill nor experience to solve all types of social problems. Therefore, it should be handled by specialised agencies.
3. Burden on Consumers: Many of the social responsibilities cost a lot and its burden falls on consumers only.
4. Lack of Broad Public Support: Business cannot operate successfully because of lack of cooperation and confidence from public to business enterprises.

Question 8. What are the responsibilities of business towards employees and customers?
Answer:  Social responsibility of business towards its employees: It is important because they are the wheels of an organization. Without their support, the commercial institution simply can’t function or operate.
If a business takes care of the needs of its human resource (for e.g. office staff, employees, workers, etc.) wisely, it will boost the motivation and working spirit within an organization. A happy employee usually gives his best to the organization in terms of quality labour and timely output than an unsatisfied one. A pleasant working environment helps in improving the efficiency and productivity of working people. A
good remuneration policy attracts new talented professionals who can further contribute to its growth and expansion.Thus, if personnel are satisfied, then they will work together very hard and aid in increasing the production, sales and profit.
Social responsibility of business towards its consumers or customers: It matters a lot from sales and profit point of view. Its success is directly dependent on their level of satisfaction. Higher their rate of satisfaction, greater is the chances to succeed.
If a business rolls out good-quality products and/or delivers better quality services that too at reasonable prices, then it is natural to attract lots of customers. If the quality- price ratio is maintained well and consumers get worth for their money spends, this will surely satisfy them. In the long run, customer loyalty and retention will grow, and this will ultimately lead to profitability.

Question 9. Describe the obligations of business towards owners and shareholders .
Answer: Social responsibility of business towards its shareholders or investors is most important of all other obligations.
If a business satisfies its investors, they are likely to invest more money in a project. As a result, more funds will flow in and the same can be utilized to modernise, expand and diversify the existing activities on a larger scale. Happy financiers can fulfill the rising demand of funds needed for its growth and expansion.

1. They need to give a fair return to shareholders.
2. They need to give true and fair information to shareholders.
3. They need to give them proper opportunity to participate.

Question 10. Which eight problems have been identified by the United Nations which cause damage to natural environment?
Answer: Following eight problems have been identified by the United Nations which cause damage to natural environment:
1. Ozone depletion 2. Global warming
3. Fresh water quality and quantity 4. Deforestation
5. Land degradation 6. Solid and hazardous waste
7. Water pollution 8. Danger to biological diversity.

III. Long Answer Type Questions
Question 1. Social responsibility is not an area of business. Do you agree? Justify.
Answer: It can be justified by considering case for and case against social responsibility:
The case in favour of taking up social responsibilities.

1. Existence and growth: Business enterprises exist to make profits by providing goods and services to consumers. Thus, we can say that their long-term growth prospect depends not only on their profits but also on how efficiently they serve the society. Therefore, taking up social responsibilities supports the existence and growth of a business enterprise.
2. Avoidance of government intervention: Business enterprises should always work in line with society’s values and ethics. This would help them fulfill their social responsibilities, which in turn would make them less prone to government intervention.
3. Better environment for doing business: Businesses make use of society’s resource of human capital. Thus, by providing employment to people, they help solve the social problems of unemployment and poverty, thereby creating a favorable environment for business.

The case against taking up social responsibilities:

1. Violation of profit maximization objectives: It is argued that a business enterprise exists to make a profit. Thus, if it engages itself in solving social problems, then it may not have enough resources to meet its primary objective of profit maximization.
2. Burden on consumers: It is argued that when a business enterprise is engaged in solving social problems such as environment pollution and unemployment, its expenditures increase. This increased financial burden is ultimately passed on to the consumers in the form of higher prices of products.
3. Lack of social skills: Business persons are basically trained to solve business- related problems such as minimizing cost, maximizing profits and increasing sales. However, they are not specialised in solving social problems. Thus, it is argued that social problems must be solved only by specialised agencies, which have the required training and skills.

Question 2. Explain the need for social responsibility.
Answer: Need of social responsibility is essentially a moral question because it can be answered differently by different people depending on what is right and what is wrong for a person. Social responsibility is needed to be followed because:

1. Showing a true commitment: The most successful corporate social responsibility programmes integrate these two types of CSR together to show a true commitment to a cause. For example, a company that uses sustainable materials in their products, donates financial resources to environmental causes, and allows employees to take paid time off for volunteering at environmental charities would be showing a true commitment to the environment that goes beyond any single CSR initiative.
2.  Social media visibility: One of the reasons that corporations should have visible CSR campaigns is due to the importance and prevalence of social media. Corporations that want to protect their brand understand that social media is an integral part of public perception. When a corporation exercises social responsibility in the form of fund raising or setting up employee giving programmes, using social media to promote these actions helps to create a positive branding environment and it is a great way to engage with your audience on a deeper level that goes beyond your products or services.
3. Public relations benefits: Public relations is a potent tool for shaping consumer perception and building a company’s image. Corporations that actively promote their social responsibility activities often take steps to publicise these efforts through the media. Getting the word out about corporate donations, employee volunteer programmes, or other CSR initiatives is a powerful branding tool that can build publicity for you in both online and print media.
4.  Government relations: Corporations that put an emphasis oh corporate social responsibility typically have an easier experience when dealing with politicians and government regulators. In contrast, businesses that present a reckless disregard for social responsibility tend to find themselves finding off various inquiries and probes, often brought on*at the insistence of public service organizations. The more positive the public perception is that a corporation takes social responsibility seriously, the less likely it is that activist groups will launch public campaigns and demand government inquiries against it.
5. Building a positive workplace environment: Finally, one of the greatest benefits of promoting social responsibility in the workplace is the positive environment you build for your employees. When employees and management feel they are working for a company that has a true conscience, they will likely be more enthusiastic and engaged in their jobs. This can build a sense of community and teamwork which brings everyone together and leads to happier, more productive employees.

Question 3. What is corporate social responsibility? Is it similar to business ethics?
Answer: The World Business Council for Sustainable Development in its publication Making Good Business Sense by Lord Holme and Richard Watts, used the following definition. Corporate Social Responsibility is the continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the workforce and their families as well as of the local community and society at large. The same report gave some evidence of the different perceptions of what this should mean from a number of different societies across the world.
Definition: CSR is about capacity building for sustainable livelihoods.
It respects cultural differences and finds the business opportunities in building the skills of employees, the community and the Government from Ghana, through to CSR is about business giving back to society from the Philippines.
Traditionally in the United States, CSR has been defined much more in terms of a philanthropic model. Companies make profits, unhindered except by fulfilling their duty to pay taxes. Then they donate a certain share of the profits to charitable causes. It is seen as tainting the act for the company to receive any benefit from the giving. It is not same as business ethics. Business ethics is a personal concept and is wider in many senses than CSR.

Question 4. Why should a business do any thing for society at large?
Answer: The term “Corporate Social Responsibility” is still widely used even though related concepts, such as sustainability, corporate citizenship, business ethics, stakeholder management, corporate responsibility, and corporate social performance, are vying to replace it. In different ways, these expressions refer to the ensemble of policies, practices, investments, and concrete results deployed and achieved by a business corporation in the pursuit of its stakeholders’ interests.
There is no single CSR business case—no single rationalisation for how CSR improves the bottom line. Over the years, researchers have developed many arguments. In general, these arguments can be grouped based on approach, topics addressed, and underlying assumptions about how value is created and defined. According to this categorization, CSR is a viable business choice as it is a tool to:

• implement cost and risk reductions;
•  gain competitive advantage;
• develop corporate reputation and legitimacy; and
• seek win-win outcomes through synergistic value creation.

Question 5. Explain the reality of social responsibility.
Answer: In reality, social responsibility receives only lip service. Some business houses fulfill its legal responsibility in the name of social responsibility. There are some factors and reasons which have forced and persuaded business organizations to fulfill their social responsibility which are as follows:

1. Threat of public regulation: India is a democracy where Government is expected to be welfare state. If any business organization acts in a socially irresponsible manner, then an action may be taken against them to safeguard people’s interest. In reality, business houses do not assume their social responsibility on their own but due to threat of public action.
2. Pressure of labour movement: In the last century, labour movement for extracting gains for the working class throughout the world has become powerful. Labour laws are also followed not out of a sense of social responsibility but because of increasing pressure of labour movement.
3. Impact of consumer consciousness: Consumers are also becoming aware of their rights since enactment of Consumer Protection Act, 1986. Under this Act, consumers are entitled to file a case if he is cheated in any ways.
4.  Development of social standard for business: As per new social standards, a business is considered to be legitimate only if it fulfills its social responsibilities. No business can be done in isolation with the society. The performance of a business is judged on social standards.
5. Development of business education: Nowadays businessmen are professionally qualified due to changing pattern of form of business. It is also making it socially more responsible. Education has made people more conscious as employees, customers, investors and owners.
6. Relationship between social interest and business interest: Businessmen are able to find that social interest and business interest are correlated. The concept which existed earlier that no business can grow without exploitation of others does not exist any more.
7. Development of professional, managerial class: Professional management is also educated of the benefits it can get by fulfilling its social responsibility. Professional managers are more interested in satisfying a multiple group of interest groups in society for running their enterprises successfully than attaining goal of profit maximization only.

Question 6. “A business owes curtain obligations towards different groups.” Identify those groups and explain the obligation of business towards those groups.
Or
Explain social responsibility of a business towards different interest groups.
Answer: Social responsibility of government towards different groups is explained below:

1. Shareholders or investors: Social responsibility of business towards its shareholders or investors is most important of all other obligations.
   If a business satisfies its funders, they are likely to invest more money in a project. As a result, more funds will flow in and the same can be utilised to modernize, expand and diversify the existing activities on a larger scale. Happy financiers can fulfill the rising demand of funds needed for its growth and expansion.
2.  Personnel: Social responsibility of business towards its personnel is important because they are the wheels of an organization. Without their support, the commercial institution simply can’t function or operate.
   If a business takes care of the needs of its human resource (for e.g. of office staff, employees, workers, etc.) wisely, it will boost the motivation and working spirit within an organization. A happy employee usually gives his best to the organization in terms of quality labour and timely output than an unsatisfied one. A pleasant working environment helps in improving the efficiency and productivity of working people. A good remuneration policy attracts new talented professionals who can further contribute in its growth and expansion.
   Thus, if personnel are satisfied, then they will work together very hard and aid in increasing the production, sales and profit.
3.  Consumers or customers: Social responsibility of business towards its consumers or customers matters a lot from sales and profit point of view. Its success is directly dependent on their level of satisfaction. Higher their rate of satisfaction greater is the chances to succeed.
   If a business rolls out good-quality products and/or delivers better quality services that too at reasonable prices, then it is natural to attract lots of customers. If the quality-price ratio is maintained well and consumers get worth for their money spends, this will surely satisfy them. In the long run, customer loyalty and retention will grow, and this will ultimately lead to profitability.
4. Government: Social responsibility of business towards government’s regulatory bodies or agencies is quite sensitive from the license’s point of view. If permission is not granted or revoked abruptly, it can result in huge losses to an organization. Therefore, compliance in this regard is necessary.
   Furthermore, a business must also function within the demarcation of rules and policies as formulated from time to time by the government of state or nation. It should respect laws and abide by all established regulations while performing within the jurisdiction of state.
   Some examples of activities a business can do in this regard:
   (a) Licensing an organization,
   (b) Seeking permissions wherever necessary,
   (c) Paying fair taxes on time,
   (d) Following labour, environmental and other laws, etc.
   (e) If laws are respected and followed, it creates goodwill of business in the eyes of authorities. Overall, if a government is satisfied it will make favourable commercial policies, which will ultimately open new opportunities and finally benefit the organization sooner or later.
   Therefore, satisfaction of government and local administrative bodies is equally important for legal continuation of business.
5. Local community: Social responsibility of business towards the local community of its established area is significant. This is essential for smooth functioning of its activities without any agitations or hindrances.
   A business has a responsibility towards the local community besides which it is established and operates from. Industrial activities carried out in a local area affect the lives of many people who reside in and around it. So, as a compensation for their hardship, an organization must do something or other to alleviate the intensity of suffering.
   (a) As a service to the local community, a business can build.
   (b) A trust-run hospital or health centre for local patients.
   (c) A primary and secondary school for local children.
   (d) A diploma and degree college for local students.
   (e) An employment centre for recruiting skilled local people, etc.
   Such activities to some extent may satisfy the people that make local community and hence their changes of agitations against an establishment are greatly reduced. This will ensure the longevity of a business in the long run.
6. Environment: Social responsibility of business with respect to its surrounding environment can’t be sidelined at any cost. It must show a keen interest to safeguard and not harm the vitality of the nature. A business must take enough care to check that its- activities don’t create a negative impact on the environment. For example, dumping of industrial wastes without proper treatment must be strictly avoided. Guidelines as stipulated in the environmental laws must be sincerely followed. Lives of all living beings are impacted either positively or negatively depending on how well their surrounding environment is maintained (naturally or artificially). Humans also are no exception to this. In other words, health of an environment influences the health of our society. Hence, environmental safety must not be an option else a top priority of every business.
7. Community: Finally, social responsibility of business in general can also contribute to make the lives of people a little better.
8. Some examples of services towards public include: (a) Building and maintaining devotional or spiritual places and gardens for people,
   (b) Sponsoring the education of poor meritorious students,
   (c) Organizing events for a social cause, etc.
   (d) Such philanthropic actions create a goodwill or fame for the business organization in the psyche of general public, which though slowly but ultimately pay off in the due course of time.

IV. Higher Order Thinking Skills (HOTS)
Question 1. “Like an individual, business enterprise should also be a loyal citizen to the state.” Discuss.
Answer: It has been rightly said that like an individual, a business enterprise should also be a loyal citizen to the state. Therefore, it has to be kept in mind.

• Social needs of our country while deciding on what goods and services are to be produced. Therefore, a businessman in India must prefer necessities to cosmetics and dog food in a country like India where 26% people are below poverty line.
•  Production of liquor, tobacco and other undesirable products should be avoided.
• Production method should be used. If a country is labour abundant, the business
  should give preference to labour intensive techniques.

Question 2. Describe the reality of social responsibilities of a company.
Answer: The biggest problem with CSR is not that it has limitations, nor is it concerning its questionable ability to sufficiently address the problems it intends to ameliorate. Rather, it is the fact that it takes people to a completely wrong direction. For many large corporations, CSR is primarily a strategy to divert attention away from the negative social and environmental impacts of their activities. In the Asian context, CSR mostly involves activities like adopting villages for what they call a ‘holistic development’, in which they provide medical and sanitation facilities, build school and houses, and helping villagers become self-reliant by teaching them vocational and business skills. Such corporate strategies have been effectively hegemonic, providing a strong legitimacy and license for corporations to sustain the exploitation of human and natural resources. More importantly, it leads people to wrongly assume that the business houses, and not the states, are responsible for citizens’ basic rights to better education, clean water, healthcare, etc. It disciplines the uninformed poor motivating them to behave in ways that make state regulation obsolete, while leaving them at the mercy of market forces.

Question 3. Business ethics and social responsibility are not synonyms but are closely related. Substantiate.
Answer: Business ethics and social responsibility are the words that are almost used as a common parlance interchangeably. While social responsibility is self explanatory, ethics is a word that puts one in a dilemma. Social responsibility looks clearly defined and demarcated. Companies have a policy of social responsibility known as Corporate Social Responsibility whereby they commit to follow their businesses in such a way so as to benefit the community at large. But ethics is a loose term that is dependent upon a person’s conscience. There are certain differences between the two and the two are not overlapping completely.
Business Ethics
To understand business ethics, first we need to understand and spell out clearly the word ‘ethics’. Derived from ancient Greek word ethos, ethics has come to mean moral character. Ethical behaviour is what is good or right. Ethical senses always make use of good, bad, right and wrong. Applying this definition to business, we come to a conclusion that though the primary objective of any business or company is to maximize by the decisions taken by the company for the operation of business.
Business ethics is the behaviour of any business that it indulges in its dealings with the community or society. For some, making money is all they are interested in, and this is capitalism in its dirtiest form. These people are least concerned with the bad effects of their business practices and the harm they are doing to the society at large. When companies do not engage in good business ethics, they are penalised by the law. But such cases are rare and the profits of companies engaging in unethical behaviour are far more than these punitive fines.
Social Responsibility
Man is a social animal and cannot live in isolation. He is expected to behave in a manner that is socially and morally acceptable to others. The same applies to businesses. Though the primary objective of any business is to earn maximum profits for the owners and shareholders, it is also expected to conduct its operations in a manner that it fulfills its social obligations also. For example, though it is not binding on any private sector company to provide employment to the disabled or weaker sections of the society, it is considered to be a part of the social responsibility of the company to absorb people from such sections of the society. Similarly though there is not written law to compel a company to engage in acts to do something to reduce pollution or to do something for the betterment of environment, taking up projects to clean up environment are considered to be a part of the social responsibility of the company. Difference between Business Ethics and Social Responsibility Though business ethics and social responsibility seem to be overlapping, there has always been a contradiction between the two.

1. Companies, though they are committed to be socially responsible for their behaviour have been found to be engaging in acts that cannot be called ethical.
2. What is good for the society is sometimes not good for the business, and what is good for the business is almost always not good for the society.
3. If the society is conscious, it responds in such a way that businesses are forced to behave responsibly. The same applies to the administration and the judiciary of any country.
4. For example, selling of liquor and tobacco in any society is not against business ethics though it may be against the principles of social responsibility. The same applies to lotteries and gambling. But it is certainly against business ethics as well as against social responsibility to entice minors to engage in smoking and drinking.

V. Value Based Questions
Question 1. If you start a business, which objective will be of utmost importance to you and why?
Answer: If I start my own business, my social objectives will be of utmost importance to me because:

• It will create employment opportunities in the economy. I will make use of such methods which are desirable from society point of view.
• It will help me to provide good quality product at reasonable prices to my customers.
• It will keep environment pollution free.
• When I will concentrate on these objectives. It will satisfy my consumers and employees. Consumer satisfaction will lead to improvement in my goodwill and market standing. Employee satisfaction will lead to increase in productivity. These two factors will increase profits in the long run automatically.

Question 2. What do you mean by the principle derived from social values which guide and govern the conduct of businessmen? Explain the factors governing these principles and values.
Answer: Social Return on Investment (SROI) is a principle based method for measuring extra-financial value (i.e., environmental and social value not currently reflected in conventional financial accounts) relative to resources invested. It can be used by any entity to evaluate impact on stakeholders, identify ways to improve performance, and enhance the performance of investments.
A network was formed in 2006 to facilitate the continued evolution of the method. Over 570 practitioners globally are members of the SROI Network.
The SROI method as it has been standardized by the SROI Network provides a consistent quantitative approach to understanding and managing the impact of a project, business, organisation, fund or policy. It accounts for stake holders views of impact, and puts financial ‘proxy’ values on all those impacts identified by stakeholders which do not typically have market values. The aim is to include the values of people that are often excluded from markets in the same terms as used in markets, that is money, in order to give people a voice in resource allocation decisions.
Some SROI users employ a version of the method that does not require that all impacts be assigned a financial proxy. Instead the “numerator” includes monetized, quantitative but not monetized, qualitative, and narrative types of information about value. Benefits that cannot be Monetized: There will be some benefits that are important to stakeholders but which cannot be monetized. An SROI analysis should not be restricted to one number, but seen as a framework for exploring an organization’s social impact, in which monetization plays an important but not an exclusive role. Focus on Monetization: One of the dangers of SROI is that people may focus on monetization without following the rest of the process, which is crucial to proving and improving. Moreover, an organisation must be clear about its mission and values and understand how its activities change the world – not only what it does but also what difference it makes. This clarity informs stakeholder engagement. Therefore, if an organisation seeks to monetize its impact without having considered its mission and stakeholders, then it risks choosing inappropriate indicators; and as a result the SROI calculations can be of limited use or even misconstrued.
Needs considerable Capacity: SROI is time and resource, intensive. It is most easily used when an organisation is already measuring the direct and longer term results of its work with people, groups, or the environment.
Some outcomes not easily associated with monetary value: Some outcomes and impacts (for example, increased self-esteem, improved family relationships) cannot be
easily associated with a monetary value. In order to incorporate these benefits into the SROI ratio proxies for these values would be required. SROI analysis is a developing area and as SROI evolves it is possible that methods of monetizing more outcomes will become available and that there will be increasing number of people using the same proxies.

Question 3. “The business is responsible for aggravating pollution, so it becomes the moral duty of businessmen to take some positive steps for controlling this problem.” In the light of this statement explain the role of businessmen in checking pollution.
Answer: The statement is perfectly correct. In this regard, a businessman can play the following role:

• He may ensure that he makes use of eco friendly methods of production as far as possible.
• He may ensure that in case any pollution occurs, the waste is discharged in proper manner as per the provisions of pollution control boards.
• He may also create awareness amongst employees on how can they minimize this pollution by initiating workshops, seminars etc.

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NCERT Solutions For Class 11 Business Studies Emerging Modes of Business

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TEXTBOOK QUESTIONS SOLVED

I.Multiple Choice Questions
Tick mark (✓) the most appropriate answer to the following questions:
Question 1. e-commerce does not include:
(а) A business’s interactions with its suppliers
(b) A business’s interactions with its customers
(c) Interactions among the various departments within the business
(d) Interactions among the geographically dispersed units of the business
Question 2. Outsourcing:
(a) Restricts only to the contracting out of Information Technology Enabled Services. (TIES)
(b) Restricts only to the contracting out of non-core business
(c) Includes Contracting out of manufacturing and RandD as well as services processes -both core and non-core, but restricts only to domestic territory
(d) Includes off-shoring
Question 3. The payment mechanism typical to e-business
(a) Cash on delivery!CoD) (b) Cheques
(c) Credit and Debit Cards (d) E-cash
Question 4. A Call Centre handles:
(а) Only in-bound voice based business (b) Only out-bound voice based business
(c) Both voice based and non-voice based business (d) Both customer facing and back-end business
Question 5. It is not an application of e-business:
(a) Online bidding (b) Online procurement
(c) Online trading (d) Contract RandD
Answer:
1. (c) 2. (b) 3. (d) 4. (d) 5. (d)

II. Short Answer Type Questions
Question 1. State any three differences between E-business and traditional business.
Answer: The differences between e-business and traditional business can be summarized as below:

1. Logistics: The logistics of e-business typically have lesser constraints than traditional business. E-businesses are not limited to venue; they can be located anywhere and still serve the same customer. Their product capacity is “infinite” in that they are not limited to the space of a brick-and-mortar store. E-businesses mainly depend on shipping methods to deliver and receive items, while traditional stores conduct an instant exchange. This timing difference can be a significant factor for some consumers. For example, refunds would typically take much longer to process for e-businesses than in a neighborhood store.
2. Human Resources: The two types of business differ in talent recruitment. E-businesses significantly emphasize technology and hire more people from the web design and development fields. In some cases, every employee may be required to have a technical background or receive in-house training for basic web development. On the other hand, traditional businesses are more diverse in hiring for non-technical positions, such as sales representatives and display managers.
3. Marketing and Finance: In marketing for traditional business, marketers can focus on all five human senses to influence the sale. For example, maintaining a proper display keeps the product aesthetically appealing. Consumers can also physically touch the product in a traditional store; this is particularly vital for physically sensitive items such as clothes. E-businesses typically have to rely mainly on sight. The physical display is replaced with digital images. The inability to touch and test the product first hand is replaced with technical text to visualize the details of the product; online retailers may also have the ability to present many more choices because they do not need to have the physical product on hand.
   The major financial difference between e-business and traditional business is cost. E-businesses usually have lesser start up and operational costs, buying an online domain is much cheaper than renting land and building facilities and buying equipment.
4. Management: E-business management is typically flatter than traditional management. A flat company happens when there are few levels in between top management and the entry-level employee. In most E-businesses, low level management, such as store managers and division managers, is unnecessary. Instead, E-businesses expand horizontally by hiring external consultants and contract web development positions. These entities specialize in a business service, such as e-commerce setup and online marketing. They may work for the company but are not necessarily included in or affected by management decisions.

Question 2. How does outsourcing represent a new mode of business?
Answer: Outsourcing represents a new mode of business. It is fast becoming an emerging mode of business. Firms have started increasingly outsourcing one or more of their processes which can be efficiently and effectively carried on by others. Outsourcing can be qualified as emerging mode of business because its acceptance is increasing as a fundamental business policy and philosophy, as opposed to the earlier philosophy of doing it all by yourself.

Question 3. Describe briefly any two applications of E-business.
Answer: Two applications of E-business are discussed below:

1. e-Procurement: It involves internet based sales transactions between business firms including both, “reverse auctions” that facilitate online trade between a single business purchaser and many sellers, and, digital market places that facilitate online trading between multiple byers.
2. e-Delivery: It includes electronic delivery of computer software, photographs, videos, books (e-journals) and other multimedia content to the other’s computer. It also includes rendering of legal, accounting, medical and other consulting services electronically. In fact, internet provides the firms with opportunities for outsourcing of a host of Information Technology Enabled Services (ITES).

Question 4. What are the ethical concerns involved in outsourcing?
Answer: Following are the major ethical concerns involved in outsourcing:

1. Confidentiality: When a company outsources any of its functions, it has to share a lot of information and knowledge with outsourcing partner. He may not preserve confidentiality. If company adopts outsourcing of complete processes or products, there is further risk that outsourcing partner may start his own business which may increase competition.
2. Sweat Shopping: The firms which opt for outsourcing aim at lowering their costs, try to get maximum benefit from the low cost manpower of the host countries. Secondly, such works are outsourced which do not build much of competency and ability of outsourcing partners. So, they build blue collar workers by handing over doing skills rather than creating white collar workers by transferring thinking skills.
3. Using Child Labour and not following Labour Laws: Outsourcing is engaging child labour and women in the factories. Moreover, there exists wage discrimination on the basis of sex of the worker. Workers are exploited by giving less than minimum wages.
4. Resentment in the Countries: When MNC& contract out manufacturing, marketing, accounting, R and D etc. to developing countries, it may create resentment in home country. The people from developed countries may not like that the jobs which they could get have been transferred to developing nations for cost cutting.

Question 5. Describe briefly the data storage and transmission risks in E-business.
Answer: In the present century, information is acting as power. If the relevant information of the business reaches into wrong hands, it may create a lot of loss for the company concerned. There is a risk of en route being stolen or modified by wrong people for their selfish motives. It is exposed to the risk of VIRUS and hacking. VIRUS stands for Vital Information Under Seize. Installing and timely updating anti-virus programmes and scanning the files and disks with them provides protection to the files, folders and systems from the attack of virus.
Another risk involved is interception of data in the course of transmission. To protect data against this, cryptography is used. Cryptography refers to the art of protecting information by transforming it into an unreadable format called ‘cyphertext’. Thereafter only those who have a secret key can decrypt the message into ‘plaintext’. It is like coding and decoding.

III. Long Answer Type Questions
Question 1. Why are E-business and outsourcing referred to as the emerging modes of business? Discuss the factors responsible for the growing importance of these trends.
Answer: E-business and outsourcing are referred to as emerging modes of business. Prefix ‘emerging’ puts emphasis on the fact that these businesses are in the process of development. These changes are happening here and now, and, that these changes are likely to continue. In fact, three changes are taking place most strongly:

• Digitizaton: The conversion of text, sound, images, video and other content into a series of ones and zeroes that can be transmitted electronically.
• Outsourcing: Contracting out non core activities to outside firms.
• Internationalisation and globalisation: More and more foreign companies are entering into India and sending Ashia and Indian companies becoming MNCs. Therefore, E-business and outsourcing referred to as the emerging modes of business.

Following factors are responsible for the growing importance of these trends:

• Improvement in Information Technology: With the improvement in information technology and emergence of internet the process of outsourcing and e-business is on an expansionary path.
• More and More Interactive Websites: Websites are becoming more and more interactive. It is removing the problem of ‘low touch’.
• Improvement in Communication Technology: Communication technology is continually evolving and increasing the speed and quality of communication through internet.
• Diffusion of E-Commerce in all nooks and corners of the country: In order to diffuse e-commerce in all nooks and corners, India has undertaken about 150 such projects. It is also growing importance of these trends.
•  Global Competitive Pressures for higher quality products: Due to adoption of new economic policy of 1991 in India, there has been an increase in competitive pressure from giant sized MNCs and global enterprises.
• Ever Demanding Consumers: There is increasing demands from consumers for high quality products at minimum cost. Therefore, e-business and outsourcing are being chosen as newer options. But e-business and outsourcing are not emerging out of compulsion but also out of choice because of its benefits to consumers as well as producers.

Question 2. Elaborate the steps involved in online trading.
Answer: Operationally, following steps are involved in online trading:

1. Registration: First step in online trading is registration with the online trader by filling up a registration form. With registration buyer has opened an account with online trader. A password is created for the account which protects account and shopping cart which can be misused otherwise.
2. Placing an Order: An account holder can drop the items in the shopping cart. Shopping cart is an online record of what a person has picked up while browsing the online store. Once being sure of what a person wants to buy, one can check out and choose his payment options.
3. Payment Mechanism: In online trading payment may be made in any of the following ways:
   • Cash On Delivery: Under this, the payment for goods ordered online may be made in cash at the time of physical delivery of the goods.
   •  Cheque: Another option is that the online vendor may arrange for the pickup of the cheque from the customer’s end. Upon realization, goods may be delivered.
   • Net Banking Transfer: These days banks provide facility to the customers for electronic transfer of funds using internet. Therefore, a buyer can also make use of net banking money transfer to pay for the goods ordered.
   • Credit or Debit Cards: These are also called plastic money. These cards are most popularly used in payment for online transactions. To accept credit card as an online payment type, the seller first needs a secure means of collecting credit card information from its customer. Payments through credit cards can be processed either manually, or through online authorization system like SSL Certificate.
   • Digital Cash: It is a kind of electronic currency which exists only in cyberspace. It has no real physical properties, but offers the ability to use real currency.in an electronic format. For this, the buyer has to deposit cash in bank account which issues equivalent digital cash to the person which can be used for online trading. It is more secure than credit or debit cards.

Question 3. Evaluate the need for outsourcing and discuss its limitations.
Answer: Outsourcing has emerged as a way of doing business due to global competitive pressures for higher quality products at lower costs, ever-demanding customers and emerging technologies. Need for outsourcing can be understood from the benefits which are given below:

• Focusing of Attention: Business firms are realizing the importance of focusing on core areas where they have distinct ability and core competence and contracting out the rest of the activities to their outsourcing partners. A business organization needs to decide its core areas and non-core areas. Once they outsource non-core areas, they can focus their attention on selected activities. It will increase efficiency and effectiveness.
• Quest for Excellence: Outsourcing enables the firms to attain excellence in two ways:
  (a) By focusing on activities selected, their excellence in those activities increases.
  (b) They excel by extending their capabilities through contracting out the remaining activities to them who excel in them.
• Cost Reduction: In the age of globalization, cost reduction is of vital importance to survive in the market. Division of labour not only enhances quality but also reduces cost. For example, India is preferred as an outsourcing destination because of cost factors.
• Growth through alliance: When some activities are outsourced then these alliance partners invest for the outsourced activities. Business can be expanded by same amount of investible funds as now these funds are to be invested in limited number of activities.
• Fillip to Economic Development: Outsourcing stimulates entrepreneurship, employment and exports in the host countries. For example, in India there has been remarkable growth in entrepreneurship, employment and exports that today India is an undisputed leader in software development and IT enable services.

But outsourcing is not an unmixed blessing. It has its own limitations. Some of which are discussed below:

• Confidentiality: When a business opts for outsourcing, it has to share a lot of vital information and knowledge. This information may be leaked by the outsourcing partner. It may be against the outsourcing firm. It is also possible that the outsourcing partner starts a business of same line after getting such information.
• Ethical Concerns: Many a time, outsourcing makes use of child labour and violates labour laws to reduce costs. They also discriminate in wages on the basis of sex.
•  Sweat Shopping: A firm which goes in for outsourcing actually transfers ‘doing’ skills rather than ‘thinking’ skills. Therefore, they do not create skilled manpower in developing countries but just take maximum benefit of low cost labour by transferring non intellectual tasks.
•  Resentment in their Home Countries: Outsourcing is being disliked by people in developed countries because the jobs which they could get are being transferred to developing countries through outsourcing. The problem is still more severe if there is problem of unemployment in home country of outsourcing firm.

Question 4. Discuss the salient aspects of B2C commerce.
Answer: In this, both the parties involved are business firms and therefore, it has been named as B2B i.e., business to business. Historically, the term e-commerce originally meant for facilitation of B2B transactions using Electronic Data Interchange (EDI) technology to send and receive commercial documents like purchase orders and invoices. Salient aspects of B2B Commerce:

1. Need: Creation of utility requires a business to contact with a number of other businesses which
   • May be suppliers
   • May act as channel of distribution.
   •  Different middlemen in different locations;
   •  Changing production as per specifications of the customer.
2. Benefits:
   • It strengthens and improves the distribution system of a firm. For example, each consignment of goods from a warehouse and the stock in hand can be monitored and replenishments and reinforcements can be set in motion as and when needed.
   • A customer’s specifications can be routed through the dealers to the factory so that there may be customized production.
   • B2B E-commerce expedites the movement of information and documents.
   • It also expedites money transfers.
3. Example: The manufacture of an automobile requires assembly of a large number of components which in turn are being manufactured elsewhere. To reduce dependence on a single vendor, the automobile factory cultivates more than one vendor for each of the components. A network of computers is used for placement of orders, controlling production and delivery of components and making payments.

Question 5. Discuss the limitations of electronic mode of doing business. Are these limitations severe enough to restrict its scope? Give reasons for your answer.
Answer: The limitations of electronic mode of doing business are given below:

• Low personal Touch: It lacks the warmth of interpersonal interactions. Therefore, such products which need personal touch like beauty products, garments, fashion accessories etc. can’t be traded through e-business.
• Mismatch between order giving/taking speed and order fulfillment speed: Sometimes websites take a long time to open which may frustrate the user. Even after giving or taking order, it takes enough time to give physical delivery of goods. It also plays on the patience of the customer.
• Knowledge of technology is must: For e-commerce both the parties need fairly high degree of familiarity with the world of computers. It divides the society into two parts i.e; one who are familiar with digital technology and other who are not.
• Increased risk due to parties being unknown to each other: When two parties are involved in e-business, they are unaware of personal identities of each other. They do not even know the locations of the parties involved. It makes e-business risky. There may also be problems of virus and hacking.
•  People Resistance: People are resistant to change their ways and adopt new technology. Change is perceived as a source of stress and insecurity by many.
•  Ethical Concerns: These days companies use an electronic eye to keep track of the websites being used by employees, computer files that they use, their e-mal accounts etc. It is not ethical.

But in spite of these limitations, e-business is the way. No, these limitations are not severe enough to restrict its scope.

• Improvement in Information Technology: With the improvement in information technology and emergence of internet the process of outsourcing and e-business is on an expansionary path. Anti virus and improved security measures are increasing to make e-business more secure and safer option.
• More and more Interactive Websites: Websites are becoming more and more interactive. It is removing the problem of ‘low personal touch’.
•  Improvement in Communication Technology: Communication technology is continually evolving and increasing the speed and quality of communication through internet so that customer does not get frustrated in processing the order.
• Diffusion of E-Commerce in all nooks and corners of the country: An order to diffuse e-commerce in all nooks and corners, India has undertaken about 150 such projects. It is increasing the number of people acquainted with digital technology. We can conclude that e-business will continue to stay and reshape the businesses, governance and economies.

MORE QUESTIONS SOLVED

I. Multiple Choice Questions
Question 1. E-business and E-commerce are:
(a) Synonyms (b) Antonyms
(c) Former is wider than latter (d) Former is narrow than latter.
Question 2. When was Electronic Data Interchange (EDI) standardised?
(a) 1984 (b) 1995
(c) 2000 id) 1999
Question 3. In B2B, B2C, C2C etc B and C stand for:
(a) Business and Corporate (b) Biding and Customer
(c) Business and Customer (d) Business and Consumer
Question 4. When parties involved in the electronic transactions are from within a given business firm, it is called:
(a) B2B Commerce (b) Intra B Commerce
(c) C2C Commerce (d) B2C Commerce
Question 5. When a firm transacts with its employees, it is referred to as:
(a) B2B Commerce (b) B2E Commerce
(c) C2C Commerce (d) B2C Commerce
Question 6. Work from home using internet is covered under:
(a) Online Networking (b) Virtual Private Network
(c) Electronic Data Exchange (d) Paypal
Question 7. Which of the following is a benefit of e-business?
(a) Less Risky (b) Less Technological Requirements
(c) Convenience (d) All of the above
Question 8 Which of the following is not an application of e-business?
(a) E-procurement (b) e-bidding
(c) e-delivery (d) All of the above
Question 9. Which of the following can be used only for e-business?
(a) Cheques (b) Credit Card
(c) Debit Card (d) E-cash
Question 10. About 95% of online consumer transactions are executed through:
(a) Cheques (b) Credit Card
(c) Debit Card (d) E-cash
Question 11. When a customer claims that he has made payment but the seller does not get it, it is called:
(a) Default on Delivery (b) Default on Order Taking
(c) Bed Debts (d) Default on Payment
Question 12. Which of the following is used to handle data storage risk?
(a) VIRUS (b) Hacking
(c) Cryptography (d) All of the Above
Question 13. ——– is the largest captive BPO unit in India for providing certain kinds of services to the parent company in the United States as well as to its subsidiaries in other countries.
(a) Infosys (b) General electric (GE)
(c) Accenture (d) None of these
Question 14. BPO ———cost and———- excellence.
(a) Reduces, Reduces (b) Increases, Increases
(c) Reduces, Increases (d) Increases, Reduces
Question 15. InIndia————-and ——–are referred to as emerging modes of business.
(a) E-Business and E-Commerce (b) Outsourcing and E-business
(c) Outsourcing and E-Commerce (d) Online Trading and Networking.
Answers:
1. (c) 2. (a) 3. (d) 4. (b) 5. (b)
6. (b) 7. (c) 8. (d) 9. (d) 10. (b)
11. (d) 12. (c) 13. (b) 14. (c) 15. (c)

II. Short Answer Type Questions
Question 1. Differentiate between traditional business and e-business.
Answer: Differences between traditional business and e-business is summarized below:

Question 2. Write a short note on the scope of e-business.
Answer: Scope of e-business is very wide. It is summarized below:

1. B2B Commerce: Business to Business—Both the parties are business firms, e.g. Manufacturer of an automobile requires assembly of a large number of components which are being manufactured by different firms; Maruti Udyog, Bajaj Auto etc. use B2B commerce.
2. B2C Commerce: Business to Customer—Transaction taking place between business and individual customers. It facilitates promotion of products on line. e.g. music or film. Companies sell products and services on line to customer e.g. Amul.com sell Amul products online.
3. Intra – B. Commerce: Parties involved are from within a given business firm. It makes it possible for the marketing department to interact constantly with the production department to get information about customer requirement.
4. C2C Commerce: Consumer to consumer—Business originates from the consumer and the ultimate destination is also consumer. Its area of application is the formation of consumer forum, e.g. selling used books over the internet.

Question 3. Write a short note on the history of e-commerce.
Answer: The origin of e-commerce dates back to electronic media like telephone, fax, compact disc, cable and personal computer etc. These electronic media had several limitations like speed, accuracy, secrecy, geographical distance, authenticity etc. Business transactions were carried out using electronic devices. Let us look at the history chronologically.

1. In 1984, EDI or Electronic data interchange was standardized through ASC X12. It guaranteed that companies will be able to complete transactions with each other reliably.
2. In 1992, ‘Compursive’ offered online retail products to its customers.
3.  In 1994, Netscape arrived which provided a simple browser to surf the internet and launched a safe online transaction technology called Secure Socket Layer (SSL).
4. In 1995 two of the biggest names in e-commerce were launched namely, amazon.com and e-bay.com.
5. In 1998, Digital Subscribed Line was launched.
6. In 1999, retail spending over the internet reached $820 billion dollar as per business.com.
7.  In 2000, the USA government extended moratorium on internet taxes till 2005.

Question 4. Differentiate between e-commerce and e-business.
Answer: E-business and e-commerce are terms that are sometimes used interchangeably and sometimes they’re used to differentiate one vendor’s product from another. But the terms are different, and that difference matters to today’s companies.
Definition of E-Commerce
E-commerce is “any transaction completed over a computer-mediated network that involves the transfer of ownership or rights to use goods and services,” defines the U.S. Census Bureau. Transactions aren’t required to have a price and include both sales and items like free downloads. E-commerce includes transactions made on the internet, Intranet, Extranet, World Wide Web, by e-mail and even by fax.
Definition of E-Business
E-business is broader than e-commerce; including the transaction based e-commerce businesses and those who run traditionally but cater to online activities as well. An e-business can run any portion of its internal processes online, including inventory management, risk management, finance, human resources. For a business to be e-commerce and e-business, it must both sell products online and handle other company activities or additional sales offline.

•  E-commerce covers outward-facing processes that touch customers, suppliers and external partners, including sales, marketing, order taking, delivery, customer service, purchasing of raw materials and supplies for production and procurement of indirect operating expense items, such as office supplies. E-business includes e-commerce but also covers internal processes such as production, inventory management, product development, risk management, finance, knowledge management and human resources.
•  E-business strategy is more complex, more focused on internal processes, and aimed at cost savings and improvements in efficiency, productivity and cost savings than e-commerce.
• Scope of e-business is wider than e-commerce.

Question 5. What is digital divide? How is it relevant in context of e-business?
Answer: It is division of society on the basis of familiarity with digital technology and non-familiarity with digital technology. The digital divide causes a significant problem in many struggling parts of the world. “As of 2003, only seven per cent of the world’s 6.4 billion people have had access to the World Wide Web” [Ryder M, 2005]. The parts of the world that have a predominant amount of internet access is the Western World, the United States, Europe and Northern Asia, whereas access is more restricted in the poorer less developed parts of the world such as Africa, India and southern parts of Asia. These poorer nations are unable to afford the initial start up cost to be able to invest into technology to allow their nation to be able to have and maintain internet access. This puts these countries at a competitive and economic disadvantage. This is due to the fact that it impacts on society at many levels. By a country not having internet access, it means that schools are unable to teach IT skills and take advantage of the vast amount of information available on the web. With the lack of IT skills people from these countries are unable to compete at an international level.

Question 6. Explain various payment mechanisms under e-business.
Answer: Various payment mechanisms under e-business are described below:

• Cash on Delivery: Under this, the payment for goods ordered online may be made in cash at the time of physical delivery of the goods.
•  Cheque: Another option is that the online vendor may arrange for the pickup of the cheque from the customer’s end. Upon realization, goods may be delivered.
• Net Banking Transfer: These days banks provide facility to the customers for electronic transfer of funds using internet. Therefore, a buyer can also make use of net banking money transfer to pay for the goods ordered.
•  Credit or Debit Cards: These are also called plastic money. These cards are most popularly used in payment for online transactions. To accept credit card as an online payment type, the seller first needs a secure means of collecting credit card information from its customer. Payments through credit cards can be processed either manually, or through an online authorization system like SSL Certificate.
•  Digital Cash: It is a kind of electronic currency which exists only in cyberspace. It has no real physical properties, but offers the ability to use real currency in an electronic format. For this the buyer has to deposit cash in bank account which issues equivalent digital cash to the person which can be used for online trading. It is more secure than credit or debit cards.

Question 7. Explain the measures taken to protect the security and safety of e-transactions.
Answer: Following measures are taken to protect security and safety of e-transactions:

1. Cryptography: According to Pete Loshin, “It means use of such measures so as to keep the information out of the hand of anyone but its intended recipient. “Even if the message is intercepted the meaning shall not be apparent unless the interceptor is able to decode. This technique makes use of of codes and cyphers.
2. Password: The parties to an e-commerce transaction must use the password.
   Password is a code fed in computer by the user. It can be in alphabets or numeric or alpha-numeric characters. Unless a person feeds in the password, system shall neither respond nor give effect to the transactions. Therefore, one must keep a password.
3. Cookies: Cookies are very similar to creating ID in telephones that provide telecallers with such relevant information as the customer’s name, address and previous purchase payment record.
4. Creating Keys: Key is a secret algorithm. Only the person who has the key can read the data.

Question 8. What resources are required for successful implementation of e-business?
Answer: Three m’s are required for setting up any business: men, money and machines:
For e-business some additional sources are required. It needs a website with allotted
cyberspace. More is the cyberspace, more is the cost of website and vice-versa. Space
requirement depends on scale of operations and how interactive a website is.

III.Long Answer Type Questions
Question 1. Show the anatomy of outsourcing.
Answer: Anatomy of outsourcing has been shown with the help of chart given below:

Question 2. What are the threats to e-transactions? Which measures have been devised for their protection?
Answer: There are many threats to e-transactions. Risk here is referring to probability of any mishappening that can result into financial, reputational or psychological losses to the parties involved in the transaction. It includes:

1. Transaction risks: It can be of three types:
   • Default on Order Taking or Giving: Seller denies that the customer ever placed the order or customer denies that he ever placed the order.
   • Default on Delivery: It happens when either goods are delivered at a wrong address or wrong goods are delivered.
   •  Default on Payment: Seller does not get the payment for the goods delivered but customer claims that he has made the payment.
2. Data Storage and Transmission Risks: Data stored in the systems and en route is exposed to a number of risks. Major two risks are related to virus and hacking. Virus is a program which replicates itself on the other computer systems. The effect of computer viruses can range from mere annoyance in terms of some on-screen display (level -1 virus), disruption of functioning (level-2 virus) damage to target data files (level-3 virus) to complete destruction of the system.(level-4 virus). Hacking refers to unauthorized logging into the account and misusing it for selfish purposes or for fun only. Antivirus can help to protect files from virus and cryptography is used for protection against hacking.
3.  Risks of threat to Intellectual Property and Privacy: Once an information is uploaded on internet, it loses privacy and IPRs. It becomes difficult to protect it from being copied and being accessible to one and all.

The following measures have been devised for their protection:

1. Secure Socket Layer (SSL): It was designed by Netscape for use in electronic commerce for transactions involving confidential information like credit card numbers. SSL uses a system of public and private key authentication combined with schemes to verify electronic signatures. Public key is the password that the sender uses to encrypt the data and the private key is used by the receiver of a message to descrypt the data.
2. Cryptography: It refers to the art of protecting information by transforming it (encrypting it) into an unreadable format called ‘cyphertext’. Only those who possess a secret key can decrypt the message into plain text. It is like coding and decoding.
3. Password: The parties to an e-commerce transaction must use the password. Password is a code fed in computer by the user. It can be in alphabets or numeric or alpha-numeric characters. Unless a person feeds in the password, system shall neither respond nor give effect to the transactions. Therefore, one must keep a password.
4. Cookies: Cookies are very similar to creating ID in telephones that provide telecallers with such relevant information as the customer’s name, address and previous purchase payment record.
5. Anti-virus: There are anti-viruses which remove any type of virus from the system.

IV. Higher Order Thinking Skills (HOTS)
Question 1. “E-commerce is the need of the hour.” Comment.
Answer: In this century, lifestyle has undergone a drastic change. People have everything except time. Using e-commerce they can buy and sell almost everything at your doorstep with the magic of e-commerce in the 21st century which will be known for information revolution. E-commerce has changed your lifestyles entirely because you don’t have to spend time and money in travelling to the market. You can do your e-payments with the help of e-commerce.
There is no time barrier in selling the products. One can log on to the internet even at midnight and can sell the products at a single click of mouse. E-commerce reduces delivery time and labor cost. Thus it has been possible to save the time of both-the vendor and the consumer.
Its need is clear from its benefits given below:

1. Exploitation of New Business: Broadly speaking, electronic commerce emphasizes the generation and exploitation of new business opportunities and to use popular phrases: “generate business value” or “do more with less”
2. Enabling the Customers: Electronic Commerce is enabling the customer to have an increasing say in what products are made, how products are made and how services are delivered (movement from a slow order fulfillment process with little understanding of what is taking place inside the firm, to a faster and explore open process with customers having greater control.
3. Improvement of Business Transaction: Electronic Commerce endeavors to improve the execution of business transaction over various networks.
4. Effective Performance: It leads to more effective performance i.e., better quality, greater customer satisfaction and better corporate decision making.
5. Greater Economic Efficiency: We may achieve greater economic efficiency (lower cost) and more rapid exchange (high speed, accelerated, or real-time interaction) with the help of electronic commerce.
6. Execution of Information: It enables the execution of information laden transactions between two or more parties using interconnected networks. These networks can be a combination of ‘plain old telephone system’ (POTS), Cable TV, leased lines and wireless. Information based transactions are creating new ways of doing business and even new types of business.
7. Facilitating of Network Form: Electronic Commerce is also impacting business to business interactions. It facilitates the network form of organization where small flexible firms rely on other partner, companies for component supplies and product distribution to meet changing customer demand more effectively. Hence, an end to end relationship management solution is a desirable goal that is needed to manage the chain of networks linking customers, workers, suppliers, distributors and even competitors. The management of “online transactions” in the supply chain assumes a central roll.

Question 2. “E-commerce is giving way to paperless society and government is supporting it.” Substantiate.
Answer: It is right to say that E-commerce is giving way to paperless society. Government is also formulating laws to help in this creation. It is clear from the laws formulated under IT Act, 2000:

1. Legal recognition of electronic records: Where any law provides that information or any other matter shall be in writing or in the typewritten or printed form, then, notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied if such information or matter is rendered or made available in an electronic form; and accessible so as to be usable for a subsequent reference. For example, a company can send notice for AGM using e-mail.
2. Retention of electronic records: Where any law provides that documents, records or information shall be retained for any specific period, then, that requirement shall be deemed to have been satisfied if such documents, records or information Eire retained in the electronic form. For example, if results are preserved in electronic form it will work.
3. Legal recognition of digital signatures: Where any law provides that information or any other matter shall be authenticated by affixing the signature or any document shall be signed or bear the signature of any person, hence notwithstanding anything contained in such law, such requirement shall be deemed to have been satisfied, if such information or matter is authenticated by means of digital signature affixed in such a manner as may be .prescribed by the Central Government.
4. Use of electronic records and digital signatures in Government and its agencies: Where any law provides for the filling of any form, application or any other document with any office, authority, body or agency owned or controlled by the appropriate government in a particular manner; the issue or grant of any license, permit, sanction or approval by whatever name called in a particular manner; the receipt or payment of money in a particular manner, then, notwithstanding anything contained in any other law for the time being in force, such requirement shall be deemed to have been satisfied if such filing, issue, grant, receipt or payment, as the case may be, is effected by means of such electronic form as may be prescribed by the appropriate government. All these provisions of IT Act, 2000 are helping us to move towards a paperless society.

Question 3. Discuss the utility of E-Commerce in:
(a) Health,
(b) Education,
(c) Governance,
Answer: (a) Changes in Health: E-health is following the same path, with electronic patient records slowly being introduced and health insurance schemes starting to refund e-health services. This will be a user driven development as it is more likely that the users will be able to adapt to e-health much faster than the healthcare system can deliver it.
This will clear the way for a whole new e-health industry, worth billions of dollars. One has to look at some of the e-health systems linked to the high end private hospitals in the USA to see what is in store. They use their e-health facilities as a major marketing tool to attract customers, not just to the actual hospital, but to all the other facilities around it. The add on revenues are significant.
(b) Progress in e-education: It is moving at an enormous pace and already some schools are limiting the number of printed textbooks – some are going totally e-book. With over a million children now with laptops it is only a matter of time before the education system to switch over. The savings in books and other printed material alone will pay for this digital revolution. South Korean schools will be entirely e-book-based by 2015.
(c) Governance: Many e-government services on offer around the world already provide citizens with relatively sophisticated services and the establishment of a fiber based broadband network may see governments improve and broaden the range of web services even further. In addition, mobile services are being incorporated in service offerings and computing is becoming integrated. The Internet of Things (IoT) and M2M wifi also impact upon this sector. Those who are still talking about broadband as an end in itself; do not understand the situation. Broadband is simply the tool that will further enable and advance the digital economy.

V. Value Based Questions
Question 1. Which values are of utmost importance while we get involved in e-business?
Answer: Following values are of utmost importance when we get involved in e-business:

• Confidentiality: We must keep information of our clients confidential.
• Business ethics: Electronic eye should not be kept for personal usage. Its use must be minimized only for critical situations and in critical areas.
• No Undesirable Information: Our website must not advertise or promote any such thing which is not desirable from society point of view.
• Take all safety precautions: We must take safety precautions to ensure safety of data and to protect against risks of data storage.

Question 2. Hackers lack certain values. Which are these?
Answer: It will not be wrong to say that hackers lack certain values:

• They do not value the importance of other persons privacy.
• They are keen to use others efforts for their selfish means and even for fun.
• They wish to get many things without putting an effort for it using short cuts and illegal means.
  But remember in exceptional cases, hacking is also used to find criminals and to solve criminal cases.

NCERT SolutionsAccountancyBusiness StudiesIndian Economic DevelopmentCommerce

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NCERT Solutions For Class 11 Business Studies Business Services

NCERT Solutions Class 11 Business StudiesBusiness Studies Sample Papers

TEXTBOOK QUESTIONS SOLVED

I. Multiple Choice Questions
Tick the appropriate answer:
Question 1. DTH services are provided by
(a) Transport companies (b) Banks
(c) Cellular companies (d) None of the above
Question 2. The benefits of public warehousing includes
(a) Control (b) Flexibility
(c) Dealer relationship (d) None of the above
Question 3. Which of the following is not a function of insurance?
(a) Risk sharing (b) Assist in capital formation
(c) Lending of funds (d) None of the above
Question 4. Which of the following is not applicable in Life Insurance contract?
(a) Conditional contract (b) Unilateral contract
(c) Indemnity contract (d) None of the above
Question 5. CWC stands for
(a) Central Water Commission (b) Central Warehousing Commission
(c) Central Warehousing Corporation (d) Central Water Corporation
Answers:
1. (c) 2. (b) 3. (c) 4. (c) 5. (c)

II. Short Answer Type Questions
Question 1. Define services and goods.
Answer: A good is a physical product which can be delivered to a buyer and involves the ownership from seller to customer. For example; mobile phone, book, purse etc. Services are those separately identifiable, essentially intangible activities which provide satisfaction of wants, and are not necessarily linked to the sale of a product or another service. For example, communication services, teaching services, legal services etc.

Question 2. What is e-banking? What are the advantages of e-banking?
Answer: E-banking is a service provided by many banks, in which a customer is allowed to conduct banking transactions through internet. It includes ATMs, credit cards, debit cards, mobile banking and internet banking.
Advantages of e-banking

1. To Banks
   • It provides competitive advantage to a bank.
   •  Load on different branches gets considerably reduced due to centralised data base.
   • Banking network is no more limited to the number of branches. It expands far and wide due to facility of internet banking.
2. To Customers
   •  It provides 24 hours, 365 days a year service to the consumers.
   •  It can be used at any place and at any time even while travelling.
   • It reduces risk and ensures greater security.
   • It increases financial discipline by keeping record of each and every transaction.
   • Availability of banking facility at any time and anywhere increases satisfaction of the consumers.

Question 3. Write a note on various telecom services available for enhancing business.
Answer: Various telecom services available for enhancing business are as follows:

• Cellular Mobile Services: These companies provide all types of telecom services like voice and non-voice messages, data services, PCO connectivity etc.
• Radio Paging Services: It is one way information broadcasting solution and has spread its reach to a large area. It includes services including tone only, numeric only and alpha/numeric only.
• Fixed Line Services: These services utilise any type of network equipment connected through fibre optic cable laid across the length and breadth of the country.
•  Cable Services: These are linkages and switched services within a license area of operation to operate media services.
• VSAT Services: VSAT stands for Very Small Aperture Terminal. It is a satellite based communication service which is highly flexible and reliable communication solution in urban as well as rural areas. It is being used for tele-medicine, newspaper online, tele-education, online trading, e-banking etc.
•  DTH Services: DTH stands for Direct to Home. It is also a satellite based service provide by cellular companies which allows one to receive media services through a satellite with the help of a small dish antenna and a set up box.

Question 4. Explain briefly the principles of insurance with suitable examples.
Answer: The principles of insurance are explained below:

1. Principle of Utmost Good Faith:
   Under this insurance, contract both the parties should have faith over each other. As a client it is the duty of the insured to disclose all the facts to the insurance company. Any fraud or misrepresentation of facts can result into cancellation of the contract.
2. Principle of Insurable interest:
   Under this principle of insurance, the insured must have interest in the subject matter of the insurance. Absence of insurance makes the contract null and void. If there is no insurable interest, an insurance company will not issue a policy.
   An insurable interest must exist at the time of the purchase of the insurance. For example, a creditor has an insurable interest in the life of a debtor, A person is considered to have an unlimited interest in the life of their spouse etc.
3.  Principle of Indemnity: 
   Indemnity means security or compensation against loss or damage. The principle of indemnity is such principle of insurance stating that an insured may not be compensated by the insurance company in an amount exceeding the insured’s economic loss.
   In this type of insurance the insured would be provided compensation with the amount equivalent to the actual loss and not the amount exceeding the loss.
   This is a regulatory principle. This principle is observed more strictly in property insurance than in life insurance.
   The purpose of this principle is to set back the insured to the same financial position that existed before the loss or damage occurred.
4. Principle of Subrogation:
   The principle of subrogation enables the insured to claim the amount from the third party responsible for the loss. It allows the insurer to pursue legal methods to recover the amount of loss. For example, if you get injured in a road accident, due to reckless driving of a third party, the insurance company will compensate your loss and will also sue the third party to recover the money paid as claim.
5. Principle of Contribution:
   If the same subject matter, except life is insured by more than one insurers, then the actual loss will be shared by all the insurers.
6. Principle of Mitigation:
   If means that the insured should try to minimise the loss of the subject matter of the insurer even if it is insured.
7. Principle of Proximate Cause:
   Proximate cause literally means the ‘nearest cause’ or ‘direct cause’. This principle is applicable when the loss is the result of two or more causes. The proximate cause means; the most dominant and most effective cause of loss is considered. This principle is applicable when there are series of causes of damage or loss.

Question 5. Explain warehousing and its functions.
Answer: Warehousing refers to holding or keeping of goods from the time of their production or purchase until they are sold or consumed. It removes time gap between production and consumption and thereby creates time utility. In addition to providing services of storage, warehouse also provides logistical service in a cost effective manner.
Functions of Warehouses

1. Consolidation: There are certain goods which are produced in small quantities but are sold to consumers in bulk quantity. Such goods need consolidation. Warehouses receive goods in small quantities from different producers and dispatch them to consumers in bulk.
2. Break the Bulk: This function is just opposite of consolidation. Under it, the warehouse receives the quantity in bulk from the producers and sells them in small quantities to consumer. These small quantities are then sold to customers according to their requirements.
3. Stock Piling: Usually there is a time gap between production and consumption of goods. Warehouse fills this gap. It stores those goods which are in surplus i.e., whose supply is more than their demand. When demand exceeds supply, it makes goods available from its own stock.
4. Value Added Services: Warehouses also provide some value added services like transit mixing, packaging and labeling.
5. Price Stabilization: Warehouses help to equalize demand and supply and thereby stabilize the prices.
6.  Financing: Warehouse owners advance money to owners of goods on the security of these goods and they also provide these goods on credit to customers.

III. Long Answer Type Questions
Question 1. What are services? Explain their distinct characteristics.
Answer: A service is an act or performance offered by one party to another. They are economic
activities that create value and provide benefits for customers at specific times and places as a result of bringing desired change. According to Sir William B, “Service refers to social efforts which includes the Govt.to fight five giant evils – wants, disease, ignorance, squalor and illness in the society”.
Characteristics of Services
Service is an act or performance offered by one party to another. They are economic activities that create value and provide benefits for customers at specific times and places as a result of bringing about a desired change in or on behalf of the recipient of the service. The term, service, is not limited to personal services like medical services, beauty parlors, legal services, etc. According to the marketing experts and management thinkers the concept of services is a wider one. The term services are defined in a number of ways but not a single one is universally accepted. The distinct characteristics of services are mentioned below:

1. Intangibility: Services are intangible. We cannot touch them, it is not a physical object. According to Carman and Uhl, a consumer feels that he has the right and opportunity to see, touch, hear, smell or taste the goods before they buy them. This is not applicable to services. The buyer does not have any opportunity to touch, smell, and taste the services. While selling or promoting a service one has to concentrate on the satisfaction and benefit a consumer can derive having spent on these services.
   For example: Railways sells a train ticket from A destination to B destination. Here it is the matter of consumer’s perception of services than smelling it or tasting it.
2. Inventory: Services too, are perishable like labour. Service has a high degree of perishability. Here the element of time assumes a significant position. There will be complete loss of labour. If labour stops working, it is a complete waste. It cannot be stored. Utilized or unutilized services are an economic waste. An unoccupied building, an unemployed person, credit unutilized, etc. are economic waste. Services have a high level of perishability.
3. Inseparability: Services are generally created or supplied simultaneously. They are inseparable. For example, the entertainment industry, health experts and other professionals create and offer their services at the same given time. Services and their providers are associated closely and thus, not separable. Donald Cowell states ‘Goods are produced, sold and then consumed whereas the services are sold and then produced and consumed’. Therefore inseparability is an important characteristic of services which proves challenging to service management industry.
4. Inconsistency: This character of services makes it difficult to set a standard for any service. The quality of services cannot be standardized. The price paid for a service may either be too high or too low as is seen in the case of the entertainment industry and sports. The same type of services cannot be sold to all the consumers even if they pay the same price. Consumers rate these services in different ways. This is due to the difference in perception of individuals at the level of providers and users. Heterogeneity “makes it difficult to establish standards for the output of service firm.
5. Involvement: In the sale of goods, after the completion of process, the goods are transferred in the name of the buyer and he becomes the owner of the goods. But in the case of services, we do not find this. The users have only an access to services. They cannot own the service.
   For example: a consumer can use personal care services or medical services or can use a hotel room or swimming pool. However, the ownership remains with the providers.
   According to Philip Kotler, “A service is an activity or benefit that one party can offer to another that is essentially intangible and does not result in the ownership of anything” From this it is clear that the ownership is not affected in the process of selling the services.

Question 2. Explain the functions of commercial banks with an example of each.
Answer: The main functions of commercial banks are accepting deposits from the public and advancing them loans.
However, besides these functions there are many other functions which these banks perform. All these functions can be divided under the following heads:
1. Accepting deposits; 2. Giving loans;
3. Overdraft; 4. Discounting of Bills of Exchange;
5. Investment of Funds; 6. Agency Functions.

1. Accepting Deposits:
   The most important function of commercial banks is to accept deposits from the public. Various sections of society, according to their needs and economic condition, deposit their savings with the banks.
   For example, fixed and low income group people deposit their savings in small amounts from the points of view of security, income and saving promotion. On the other hand, traders and businessmen deposit their savings in the banks for the convenience of payment.
   Therefore, keeping the needs and interests of various sections of society, banks formulate various deposit schemes. Generally, there are three types of deposits which are as follows:
   (i) Current Deposits:
   The depositors of such deposits can withdraw and deposit money whenever they desire. Since banks have to keep the deposited amount of such accounts in cash always, they carry either no interest or very low rate of interest. These deposits are called Demand Deposits because these can be demanded or withdrawn by the depositors at any time they want. Such deposit accounts are highly useful for traders and big business firms because they have to make payments and accept payments many times in a day.
   (ii) Fixed Deposits:
   These are the deposits which are deposited for a definite period of time. This period is generally not less than one year and, therefore, these are called as long term deposits. These deposits cannot be withdrawn before the expiry of the stipulated time and, therefore, these are also called as time deposits.
   These deposits generally carry a higher rate of interest because banks can use these deposits for a definite time without having the fear of being withdrawn.
   (iii) Saving Deposits:
   In such deposits, money up to a certain limit can be deposited and withdrawn once or twice in a week. On such deposits, the rate of interest is very less. As is evident from the name of such deposits their main objective is to mobilise small savings in the form of deposits. These deposits are generally done by salaried people and the people who have fixed and less income.
2. Giving Loans:
   The second important function of Commercial Banks is to advance loans to its customers. Banks charge interest from the borrowers and this is the main source of their income.
   Banks advance loans not only on the basis of the deposits of the public rather they also advance loans on the basis of depositing the money in the accounts of borrowers. In other words, they create loans out of deposits and deposits out of loans. This is called as credit creation by Commercial Banks.
   Modern banks give mostly secured loans for productive purposes. In other words, at the time of advancing loans, they demand proper security or collateral. Generally, the value of security or collateral is equal to the amount of loan. This is done mainly with a view to recover the loan money by selling the security in the event of non-refund of the loan.
   At times, banks give loan on the basis of personal security also. Therefore, such loans are called unsecured loan. Banks generally give following types of loans and advances:
   (i) Cash Credit:
   In this type of credit scheme, banks advance loans to its customers on the basis of bonds, inventories and other approved securities. Under this scheme, banks enter into an agreement with its customers to which money can be withdrawn many times during a year. Under this set lip banks open accounts of their customers and deposit the loan money. With this type of loan, credit is created.
   (ii) Demand Loans:
   These are such loans that can be recalled on demand by the banks. The entire loan amount is paid in lump sum by crediting it to the loan account of the borrower, and thus entire loan becomes chargeable to interest with immediate effect.
   (iii) Short-term Loan:
   These loans may be given as personal loans, loans to finance working capital or as priority sector advances. These are made against some security and entire loan amount is transferred to the loan account of the borrower.
3. Over-Draft:
   Banks advance loans to its customer’s up to a certain amount through over-drafts, if there are no deposits in the current account. For this, banks demand a security from the customers and charge very high rate of interest.
4. Discounting of Bills of Exchange:
   This is the most prevalent and important method of advancing loans to the traders for short-term purposes. Under this system, banks advance loans to the traders and business firms by discounting their bills. In this way, businessmen get loans on the basis of their bills of exchange before the time of their maturity.
5. Investment of Funds:
   The banks invest their surplus funds in three types of securities—Government securities, other approved securities and other securities. Government securities include both, central and state governments, such as treasury bills, national savings certificate etc.
   Other securities include securities of state associated bodies like electricity boards, housing boards, debentures of Land Development Banks, units of UTI, shares of Regional Rural banks etc.
6. Agency Functions:
   Banks function in the form of agents and representatives of their customers. Customers give their consent for performing such functions. The important functions of these types are as follows:
   • Banks collect cheques, drafts, bills of exchange and dividends of the shares for their customers.
   • Banks make payment for their clients and at times accept the bills of exchange: of their customers for which payment is made at the fixed time.
   • Banks pay insurance premium of their customers. Besides this, they also deposit loan installments, income tax, interest etc. as per directions.
   • Banks purchase and sell securities, shares and debentures on behalf of their customers.
   • Banks arrange to send money from one place to another for the convenience of their customers.

Question 3. Write a detailed note on various facilities offered by Indian Postal Department.
Answer: Indian Post and Telegraph Department provides various postal services all over India. India has been divided into 22 postal circles for this. There are 1,54,149 post offices in India. It has 5,64,701 letter boxes, which transmits 1575 crore mails every year. 5,01,716 villages have a public telephone and 26000 post offices are connected through the network. It links major 97 countries across the world. It provides speed post facility for over 1000 destinations in India.
Facilities of postal department are broadly divided into:

• Financial Facilities: Post and Telegraph Department provides financial services using post office’s saving schemes like Public Provident Fund, Kisan Vikas Patra, National Saving Certificate, normal retail banking functions of monthly income schemes, recurring deposit account, savings account, time deposits and money order facility etc.
• Mail Facilities: It consists of parcel facilities which consists of transmission of articles from one place to another which can be registered and insured. It also provides facilities for greeting post, (a range of delightful greeting card on all occasions) and Media Post (a way for Indian corporate to advertise their brands through aerograms, telegrams and letterboxes).
• International Money Transfers: It enables money transfer from 185 countries in collaboration with Western Union Money Transfer.
• Passport Facilities: It has joint hands with Ministry of External Affairs and accepts application for passport.
• Speed Post: It has more than 1000 destinatiory in India. It covers 97 major countries of the world.
• E-Bill Post: It is the latest addition in facilities by Indian Post whereby it collects bill payment across the counter for BSNL and Bharti Airtel.

Question 4. Describe various types of insurance and exercise the nature of risks protected by each type of insurance.
Answer: There are many types of insurance. Some of them are shown with the help of diagram given below:

Question 5. Explain in detail the warehousing services.
Answer: Primary warehousing services include the following:

1. Consolidation: Warehouse receives and consolidates goods from different production stations and dispatches it to customer on a single transportation shipment.
2. Break the Bulk: Warehouse breaks the bulk received according to the requirements of the client.
3. Stock Piling: The next function of warehousing is the seasonal storage of goods to select business.

Secondary Functions of a Warehouse

1. Protection of goods: A warehouse provides protection to goods from loss or damage due to heat, dust, wind and moisture, etc. It makes special arrangements for different products according to their nature. It cuts down losses due to spoilage and wastage during storage.
2. Risk Bearing: Warehouses take over the risks incidental to storage of goods. Once goods are handed over to the ware housekeeper for storage, the responsibility of, these goods passes on to the ware housekeeper. Thus, the risk of loss or damage to goods in storage is borne by the warehouse keeper. Since it is bound to return the goods in good condition, the warehouse becomes responsible for any loss, theft or damage etc., thus, it takes all precautions to prevent any mishap.
3. Financing: When goods are deposited in any warehouse, the depositor gets a receipt, which acts as a proof about the deposit of goods. The warehouses can also issue a document in favour of the owner of the goods, which is called warehouse keeper’s warrant. This warrant is a document of title and can be transferred by simple endorsement and delivery. So while the goods are in custody of the ware housekeeper, the businessmen can obtain loans from banks and other financial institutions keeping this warrant as security. In some cases, warehouses also give advances of money to the depositors for a short period keeping their goods as security.
4. Processing: Certain commodities are not consumed in the form they are produced. Processing is required to make them consumable. For example, paddy is polished, timber is seasoned, and fruits are ripened, etc. Sometimes warehouses also undertake these activities on behalf of the owners.
5. Grading and branding: On request warehouses also perform the functions of grading and branding of goods on behalf of the manufacturer, wholesaler or the importer of goods. It also provides facilities for mixing, blending and packaging of goods for the convenience of handling and sale.

MORE QUESTIONS SOLVED

I. Multiple Choice Questions
Question 1. Which of the following is an example of E-banking?
(a) EFT (b) Online banking
(c) ATM id) All of the above
Question 2. Who can get an overdraft from a bank?
(a) A Current Account Holder (b) A Saving Account Holder
(c) A Fixed Deposit Account Holder (d) A Recurring Deposit Account Holder
Question 3. Give full form of ATM.
(a) Automatic Tele Money (b) Any Time Money
(c) Automatic Teller Machine (d) Automatic Transfer Money
Question 4. In which type of insurance, interest must exist only at the time of insurance?
(a) Life Insurance (b) Marine Insurance
(c) Fire Insurance (d) All of the above
Question 5. Which of the following companies offer DTH services in our country?
(a) Reliance (b) Idea
(c) Tata sky (d) All of the above
Question 6. Name the type of banking under which ATM, credit card and EFT facilities are available.
(a) Internet Banking (b) E-banking
(c) Modern Banking (d) Online Banking
Question 7. VSAT stands for:
(a) Very Small Aperture Terminal (b) Vidyut Supply and Transport
(c) Very Small Application Terminal (d) Video Screening Aperture Terminal
Question 8. Name the controlling authority of telecom services in India,
(a) TRAI (b) SEBI
(c) RBI (d) IRDA
Question 9. In which of the insurance policy loss cannot be measured?
(a) Life Insurance (6) Marine Insurance
(c) Fire Insurance (d) All of the above
Question 10. To which insurance, principle of indemnity is not applicable? (a) Life Insurance (b) Marine Insurance
(c) Fire Insurance (d) All of the above
Question 11. Speed post in India connects major countries of the world.
(a) 120 (b) 140
(c) 97 (c) 82
Question 12. Sports insurance is not available for:
(a) Professional Sportsmen (b) Non-professional Sportsmen
(c) Rural Area Sportsmen (d) Urban Area Sportsmen
Question 13. FCI, STC, CWC are examples of:
(a) Bonded Warehouses (b) Government Warehouses
(c) Private Warehouses (d) Cooperative Warehouses
Question 14. It is the duty of the insured to make an effort for minimization of loss. It is the principle of:
(a) Utmost Good Faith (b) Contribution
(c) Mitigation id) Insurable Interest
Question 15. Insurer must have some pecuniary interest in the subject matter of interest. It is the principle of:
(a) Mitigation (b) Contribution
(c) Utmost Good Faith (d) Insurable Interest
Answers:
1. (d) 2. (a) 3. (c) 4. (a) 5. (d)
6. (b) 7. (a) 8. (a) 9. (a) 10. (a)
11. (c) 12. (a) 13. (b) 14. (c) 15. (d)

II. Short Answer Type Questions
Question 1. What is the difference between goods and services?
Answer:

Question 2. Explain the functions of e-banking.
Answer: E-banking means banking transactions carried out with the help of computer systems (i.e., banking over the internet).

1. Electronic Fund Transfer (EFT): Under this system, a bank transfers wages and salaries directly from the company’s account to the account of employees of the company.
2.  Automatic Teller Machine (ATM): It refers to an electronic terminal that allows people with plastic card to perform simple banking transactions like withdrawal of cash 24 x 7 without any help of human teller.
3.  Debit Card: It refers to a plastic card that allows the bank to take money from the customer’s account and transfer it to a seller’s account.
4. Credit Card: It refers to a plastic card that allows the customer to buy now and pay back the loaned amount to bank at a future date.
5. Online Banking: Under this system, when the customer gives instruction on his computer, the bank computer transfers money from customer’s account to biller’s account.

Question 3. What do you mean by mode of transport? Name different modes of transport.
Answer: Modes Of Transport: Modes of transport can also be called as means of transport or transport mode or transport modality. It is a general term used to specify the
different kinds of transport facilities that are used by people to move from one place to the other and also to shift the goods from one place to other.
When more than one mode -of transport is used by a person for transportation then it can be described as a multi-model transport.
Generally there are four modes of transport that uses different types of vehicle, infrastructure and operation. Each mode of transport has its own advantages and disadvantages. The person will choose their mode of transport based on the cost, capability, routes and speed.
The general modes of transport are as follows:
1. Human powered transport; 2. Animal powered transport;
3. Roadways; 4. Waterways;
5. Railways; 6. Airways;
7. Other modes like pipe line, sewage, cable cars.

Question 4. Write short notes on different types of marine insurance.
Answer: Different types of marine insurance are as follows:

• Cargo Insurance: Cargo insurance caters specifically to the cargo of the ship and also pertains to the belongings of a ship’s voyagers.
• Hull Insurance: Hull insurance mainly caters to the torso and hull of the vessel along with all the articles and pieces of furniture in the ship. This type of marine insurance is mainly taken out by the owner of the ship in order to avoid any loss to the ship in case of any mishaps occurring.
•  Liability Insurance: Liability insurance is that type of marine insurance, where compensation is sought to be provided to any liability, occurring on account of a ship crashing or colliding and on account of any other induced attacks.
• Freight Insurance: Freight insurance offers and provides protection to merchant vessels’ corporations which stand a chance of losing money in the form of freight in case the cargo is lost due to the ship meeting with an accident. This type of marine insurance solves the problem of companies losing money because of a few unprecedented events and accidents occurring.

Question 5. What are different types of warehouses?
Answer: Different types of warehouses are as follows:

1. Public Warehouse: It is operated in accordance with the law for the purpose of storing goods for other people at profit. Sometimes a large amount of goods arrives in part when it is not convenient for the importer to take it into his custody. During such periods these goods have to be stored somewhere. Similarly, even in trade they have to be stored between the time they are made and the time they are required for use. A public warehouse provides facilities for storing all such goods. It thus renders many useful services to the trade. It enables smaller sellers to carry regional stocks. This factor is very important in competitive markets.
2. Private Warehouse: This type of warehouse belongs to the owner of goods, usually a wholesaler, who stored his goods. This is in order to supply to retailers in future. Goods are produced in large quantities in anticipation of future demand and for the unknown customers. The ultimate wholesaler finds it necessary to purchases goods in advance in large bulk and to store them for future supply.
3.  Bonded Warehouses: It is one which is licensed to accept imported goods for storage before payment of customs duties. By storing his goods in a bonded warehouse the importer gains some control without paying the duty. The goods in bonded warehouses are under the strict supervision of customs officers and before the owner can interfere with them, previous permission is necessary.
4.  Government Warehouse: This type of warehouse is mainly located at the important sea ports and in most cases is owned by the Dock Authorities. The general public can also use this group of warehouse on payment of fixed charges. If a customer cannot pay the rent within the specified period or time, then the authority can recover the rent by disposing of the goods

III. Long Answer Type Questions
Question 1. Explain different types of life insurance policies.
Answer: The life insurance policies Eire of many types. The principal types of policies are discussed below:

1. Whole life Policy: Under this policy premiums are paid throughout life and the sum insured becomes payable only at the death of the insured. The policy remains in force throughout the life of the assured and he continues to pay the premium till his death. This is the cheapest policy as the premium till his death. This is the cheapest policy as the premium charged is the lowest under this policy. This is also known as ‘ordinary life policy. This policy is suitable to persons who want to provide for payment of estate duty, make bequeathments for charitable purposes and to provide for their families after their death.
2. Children’s Endowment Policy: This policy is taken by the person for his or her children to meet the expenses of education or marriage. The agreement states that a certain sum of money will be paid by the insurer when the children attain a particular age. There will be no need of paying premium if the person entering into the contract dies before maturity.
3. Endowment Policy: It runs only for a limited period or up to a particular age. Under this policy the sum assured becomes payable if the assured reaches a particular age or after the expiry of a fixed period called the endowment period or at the death of the assured whichever is earlier. The premium under this policy is to be paid up to the maturity of the policy, i.e., the time when the policy becomes payable. Premium is naturally a little higher in the case of this policy than the whole life policy. This is a very popular policy these days as it serves the dual purpose of family and old age pension.
4. Double Endowment Policy: Under this policy the insurer agrees to pay to the assured double the amount of the insured sum if he lives on beyond the date of maturity of the policy. This policy is suitable for persons with physical disability who are otherwise not acceptable for other classes of assurance at the normal tabular rates. Premiums are to be paid for a selected term of years or until death, if earlier.
5. Joint Life Policy : This policy covers the risk on two lives and is generally available to partners in business. Policies are however, issued on the lives of husband and wife under specified circumstances. Sum assured becomes payable at the end of the selected term or on the death of either of the two lives assured, if earlier.
6. Fixed term (marriage) Endowment Policy and Education Annuity Policy: It is a policy suitable for making provisions for the marriage or education of children. Premiums are payable for a selected term or till prior death. The benefits are payable for selected term or till prior death. The benefits are payable only at the end of selected term. Tn case of the marriage endowment, the sum assured is paid in lump sum, but in case of the educational annuity, it is paid in equal half- yearly installments over a period of five years.
7.  Annuities : It is a policy under which the insured amount is payable to the assured by monthly or annual installments after he attains a certain age. The assured may pay the premium regularly over a certain period or he may pay the premium regularly over a certain period or he may pay a lump sum of money at the outset. These policies are useful to persons who wish to provide a regular income for themselves and their dependants.

Question 2. What is the difference between life, fire and marine insurance?
Answer: It is summarized in the table given below:

Question 3. Write a short note on GATS.
Answer: The creation of the GATS was one of the landmark achievements of Uruguay became Round, whose results entered into force in January 1995. While services currently account for over 60 percent of global production and employment, they represent no more than 20 percent of total trade (BOP basis). This—seemingly modest—share should not be underestimated, however. Many services, which have long been considered genuine domestic activities, have increasingly become internationally mobile. This trend is likely to continue, owing to the introduction of new transmission technologies (e.g., electronic banking, tele-health or tele-education services), the opening up in many countries of long entrenched monopolies (e.g. voice telephony and postal services), and regulatory reforms in hitherto tightly regulated sectors such as transport. Combined with changing consumer preferences, such technical and regulatory innovations have enhanced the “tradability” of services and, thus, created a need for multilateral disciplines.
All WTO members, some 140 economies at present, are at the same time members of the GATS and, to varying degrees, have assumed commitments in individual service sectors.
The GATS schedule largely follows a classification. It classifies services into 12 sectors which are as follows:

1. Business services;
2. Communication services;
3. Construction and related engineering services;
4. Distribution services;
5.  Educational services;
6. Environmental services;
7. Financial services;
8. Health related and social services
9. Tourism and travel related services;
10. Recreational, cultural and sporting services;
11.  Transport services;
12. And other services.

Question 4. Write a short note on Indian insurance sector.
Answer: The health of the insurance sector reflects a country’s economy. This sector not only generates long term funds for infrastructure development, but also increases a country’s risk taking capacity. India’s economic growth since the turn of the century is viewed as a significant development in the global economy. This view is helped in no small part by a booming insurance industry.
The future of the Indian insurance sector looks bright. The sector which stood at a strong US$ 72 billion in 2012 has the potential to grow to US$ 280 billion by 2020. This growth is driven by India’s favourable regulatory environment which guarantees stability and fair play. This environment has given rise to an insurance market which encourages foreign investors to tap into the sector’s massive potential.
Ever since the Indian government liberalised the insurance sector in 2000 and opened the doors for private participation, the sector has become stronger. The resultant competition has provided the’ consumer with a never-before-seen range of products and providers, and also enhanced service levels markedly. Consistent growth in the insurance sector depends on a few factors. Some of these are:

1. Effective distribution channels: The efficiency and cost of the various distribution strategies used by companies are significant to their success in the insurance business. This particularly holds true for the retail business.
2. Focus on overall financial inclusion: As time evolves, so must the approach of the insurance sector in India. The objective of the insurance sector should ideally be to offer a broader range of activities to a wider populace.
3. Consumer needs and preferences: The growth of India’s insurance industry can be attributed to product innovation, dynamic distribution channels, and vibrant publicity and promotional campaigns run by insurance companies. Benefits attached to the products and the manner in which they are delivered (through various marketing tie-ups) have helped bring customers and insurance companies closer to each other and made the latter more relevant.
4.  Health Insurance is an up-and-coming segment in this sector: Currently, it caters for 10 per cent of the overall US$ 30 billion healthcare expenditure in India. Consequently, there is plenty of scope for players in this area.
5.  The life insurance segment contributes about 4 per cent to India’s gross domestic product (GDP) in terms of total premiums underwritten annually. There are 23 private companies in the segment. The state owned Life Insurance Corporation (LIC) dominates the field, with about 71 per cent of the market share, according to Insurance Regulatory and Development Authority (IRDA).

IV. Higher Order Thinking Skills (HOTS)
Question 1. Manju obtained a life insurance policy of her husband. After 5 years, she divorced her husband. After one year of divorce, her husband died in a car accident. Can she claim the amount of policy from the insurance company?
Answer: Yes, she can claim because in life insurance insurable interest has to be present at the time of affecting the policy but need not be present at the time when the claim falls due.

Question 2. A person gets his stock of goods insured, but he hides the fact that the electricity board has issued him statutory warning letter to get his factory’s wiring changed later on, the factory catches fire due to short circuit. Can he claim compensation? State the name of “Principle”.
Answer: No, he cannot claim the compensation because the principle of utmost good faith is not followed. According to this principle, it is the duty of the insurer and insured to voluntarily make full accurate disclosure of all facts, material to the insurance contract.

Question 3. Anju has taken a loan from Avi against the security of his factory. Can Avi take a fire insurance policy of that factory?
Answer: No, she cannot. Because in case of fire insurance, insurable interest has to be present both at the time of affecting the policy and also when the claim falls due.

V. Value Based Questions
Question 1. A person took an insurance policy and did not disclose that he is a patient of cancer. Which value is missing in this case?
Answer: Honesty is missing in this case and the principle of utmost good faith is violated and hence the person’s beneficiary cannot get the claim for his policy.

Question 2. There are three types of services: Business Services, Social Services and Personal Services. Which of the services in your opinion are of utmost importance and why?
Answer: In my opinion, these services are complementary to each other and hence, they have their own importance. I can’t say that tourism or recreation (Personal Service) is less important than services of a charitable hospitals (Social Service) or vice-versa. Similarly I can’t say that banking (Business Service) is less important than services of restaurants (Personal Service) or vice-versa. Still if I have to choose one, I will select social services because:

• They benefit to a larger section of society.
• They are sometimes provided without a payment in lieu.
• They have long lasting effects on our society and economy.

NCERT SolutionsAccountancyBusiness StudiesIndian Economic DevelopmentCommerce

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NCERT Solutions For Class 11 Business Studies Private, Public and Global Enterprises

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TEXTBOOK QUESTIONS SOLVED

I. Multiple Choice Questions
Question 1. A government company is any company in which the paid up capital held by the government is not less than
(a) 49 per cent (b) 51 per cent
(c) 50 per cent (d) 25 per cent
Question 2. Centralised control in MNC’s implies control exercised by
(a) Branches (b) Subsidiaries
(c) Headquarters (d) Parliament
Question 3. PSE’s are organizations owned by
(a) Joint Hindu Family (b) Government
(c) Foreign companies (d) Private entrepreneurs
Question 4. Reconstruction of sick public sector units is taken up by
(a) MOFA (b) MoU
(c) BIER (d) NRF
Question 5. Disinvestments of PSE’s implies
(a) Sale of equity shares to private sector/public
(b) Closing down operations
(c) Investing in new areas
(d) Buying shares of PSE’s
Answers:
1. (b) 2. (c) 3. (b) 4. (c) 5. (a)

II. Short Answer Type Questions
Question 1. Explain the concept of Public Sector and Private Sector.
Answer: Private sector consists of business owned by individuals or a group of individuals. Examples of private sector include sole proprietorship, partnership, Joint Hindu Family system, cooperative and company. On the other hand, the public sector consists of various organizations owned and managed by the government, owned either wholly or partly by the central or the state government. These may be part of a ministry or come into existence by a special act of the parliament.
Public sector works for social welfare while private sector works for profit motive.
Public sector organizations may take form of departmental undertaking, statutory corporation and a government company. Private sector may take form of sole proprietorship, partnership, Joint Hindu Family, company or a cooperative.

Question 2. State the various types of organizations in the private sector.
Answer: Various types of organizations in the private sector include:

1. Sole Proprietorship: Sole proprietorship refers to a form of business organization which is owned, managed and controlled by an individual who is the recipient of all profits and bearer of all risks.
2. Hindu Undivided Family Business: It refers to a form of organization wherein the business is owned and carried by the members of the Hindu Undivided Family (HUF).
3. Partnership: Partnership is the relation between persons who have agreed to share the profit of the business carried on by all or any one of them acting for all.
4. Cooperative Society: Cooperative society is a voluntary association of persons, who join together with the motive of welfare of the members.
5. Joint Stock Company: A company is an association of persons formed for carrying out business activities and has a legal status independent of its members.
6. Multinational Corporations: An MNC is a company whose business operations extend beyond the country in which it has been incorporated.

Question 3. What are the different kinds of organizations that come under the public sector?
Answer: Following are the different kinds of organizations that come under the private sector.

1. Departmental Undertaking: This is the oldest and traditional form of public enterprises. It is managed by government officials as one of the government departments. It is under the control of concerned minister of the department, who is answerable to government through parliament.
2. Statutory Corporation: Statutory Corporation is a corporate body with a separate legal existence, set up under a special act of parliament or of the state legislature.
3. Government Company: According to the Indian Companies Act 1956, a government company means any company in which not less than 51 per cent of the paid up capital is held by the government or by any state government or partly by central government and partly by one or more state governments.

Question 4. List the names of some enterprises under the public sector and classify them.
Answer: Some of the enterprises under the public sector are as follows:

Question 5. Why is the government company form of organization preferred to other types in the public sector?
Answer: Government company form of organization is preferred to other forms of organizations due to it advantages over other forms. These advantages are as follows:

• It is registered or incorporated under Companies Act.
•  It has a separate legal entity.
• Management is regulated by the provision of Companies Act.
•  Employees are recruited and appointed as per the rules and regulations contained in Memorandum and Articles of Association.
• The government company obtains its funds from government shareholdings and other its private shareholdings. It can also raise funds from capital market.
• It can be easily formed as per the provision of Companies Act. Only an executive decision of government is required.
•  It enjoys autonomy in management decisions and flexibility in day to day working.
• It can appoint professional managers on high salaries.

Question 6. How does the government maintain a regional balance in the country?
Answer: The government is responsible for developing all regions of a country. Earlier, most of the development was limited to few areas like port towns. For providing employment to the people and for accelerating the economic development of backward areas many industries were set up by public sector in those areas.

1. Four major steel plants “were set up in the backward areas to accelerate economic development.
2. The government also makes efforts to prevent mushrooming growth of private sector units in already advanced regions.
3. Government provided many incentives to private sector like tax concessions, loan at cheap rate of interest etc. to motivate them to set up industries in backward regions.

III. Long Answer Type Questions
Question 1. Describe the Industrial Policy 1991, towards the public sector.
Answer: Development of a country originates from industrial development. Industrially developed countries are also economically prosperous. The 2nd Five Year Plan also called the Mahalnobis Model lead to the promotion of heavy and key industries in India. The period 1950 onwards witnessed development of infrastructure, research and development, establishment of large scale along with many small scale industries, co-existence of public and private sector enterprises, growth of both consumer and capital goods industries. The industrial sector made a significant contribution to agriculture and trade.
The industrial policy plays a key role in influencing the foreign trade policy, fiscal policy, the monetary policy, the economic policy of the country. Government of India declared its 1st Industrial Policy Resolution (IPR) in 1948. It divided the industries into four categories.

1. Industries that were to be state monopolies. These were limited to atomic energy, arms and ammunition and railways (3 in all).
2. Basic industries in which the state would have the exclusive right to new investment- 6 industries were included in this – iron and steel, shipbuilding, mineral oils, coal, aircraft production and telecommunication equipments.
3. Industries of national importance that the state might regulate and license in consultation with state government. 18 industries were placed in this category.
4. All other industries would be opened to the private sector without constraints. IPR 1948 remained in force till 1956. Two developments had taken place. One; the first plan which was initiated in 1951 was completed. Second, Parliament accepted the socialistic pattern of society. This led to IPR 1956.

Special features of IPR 1956 were as follows:

1. Specific and all-important roles assigned to the public sector – all industries were classified into 3 groups. These groups were called schedules A,B,C.
   • Schedule A – Exclusive responsibility of state. There were 17 industries in this.
   • Schedule B – Progressively state-owned – 12 industries.
   • Schedule C – Generally left to private sector. The state reserved the right to enter this if need be.
2. Protection to cottage and small scale industries.
3. Cautious approach towards foreign capital.
   IPR 1956 remained the basis of industrial policy till 1991.

Question 2. What was the role of the public sector before 1991?
Answer: Before 1991, public sector was supposed to perform the following role in India:

1. Rapid Economic Development: It was required to make efforts so that the rate of economic development accelerates.
2. Provision of Infrastructure: Another expectation from public sector was to provide infrastructure in the form of better roads, more hospitals, more schools, better irrigation facilities etc.
3. Sound Industrial Base: We also needed public sector to develop a sound industrial base because Private Sector either did not have huge capital required for these or were not interested in this sector as they had a long gestation period.
4. Development of Backward Regions: Public sector also aimed at developing backward regions as it is necessary for the balanced development of a country. Private sector being profit minded does not take interest in investing in backward regions.
5. Generation of Surplus: Another expectation from public sector was to generate a surplus that could be used for investment in other sectors whereby the growth rate could be accelerated.
6. Creation of Employment Opportunities: Public sector also played its role in creating employment opportunities in organized sector so that poverty can be reduced and standard of living can be enhanced.
7. Control of Monopoly and Restrictive Trade Policies: Public sector also aimed at controlling monopoly and restrictive trade policies. Otherwise few private industrialists would have gained extreme economic power. It could be harmful for the nation as a whole.
8. Serving of Strategic National Interests: Public sector also plays its role in serving strategic national interests. They provide law and order, administrative services, police, defence, and many infrastructural facilities even when they are not given any profit as such in monetary terms.

Question 3. Can the public sector companies compete with the private sector in terms of profits and efficiency? Give reasons for your answer.
Answer: It is difficult for a public sector undertaking to compete with a private sector undertaking in terms of profits due to following reasons:

1. Motive of public sector is not profit: Public sector works not for profit but for social welfare. It gives first priority to social welfare then it is almost impossible for it to compete with private sector enterprise on the basis of profit which mainly works for profit only.
2. Public sector takes care of strategic industries: Public sector invests in strategic areas even when these industries have low return generating capacity and long gestation period. These industries do not give monetary returns but if we consider their return in development of our economy otherwise their return is really high.
3. Public sector provides many facilities free of fast to the weaker section of society:
   We can’t expect a government hospital or a government school to generate profits. Many public sector undertakings provide many facilities for free or at a very low cost due to the benefits that it gives to other sectors of the society.

It is difficult for a public sector undertaking to compete with a private sector undertaking in terms of efficiency due to following reasons:

1. Dependence on authorities for taking minor decisions: Public Sector undertakings follow a protocol for everything. It leads to delay in decision making and inefficiency in operations.
2. Job security: Workers of Public Sector enjoy job security. It reduces their performance as they know that in spite of bad performance there is no fear of losing job.
3. Red tapism and bureaucracy: In public sector undertakings there is red tapism and bureaucracy. It leads to inefficiency in operations.

Question 4. Why are global enterprises considered superior to other business organizations?
Answer: Global enterprises are considered superior to other business organizations because it
has following advantages which other business organizations may not have.

1. Huge capital resources: MNCs possess huge capital resources and they are able to raise lot of funds from various sources.
2. International operations: A MNC has production, marketing and other facilities in several countries.
3. Centralized control: MNCs have headquarters in their home countries from where they exercise their control over all branches and subsidiaries. It provides only broad policy, framework to them and there is no interference in their day to day operations.
4. Foreign collaboration: Usually they enter into agreements relating to sale of technology, production of goods, use of brand name etc. with local firms in the host country
5. Advanced technology: These organisations possess advanced and superior technology which enable them to provide world class products and services.
6. Product innovations: MNCs have highly sophisticated research and development departments. These are engaged in developing new products and superior design of existing products.
7.  Marketing strategies: MNCs use aggressive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion.

Question 5. What are the benefits of entering into joint ventures?
Answer: Benefits of joint ventures are as follows:

1. Greater resources and capacity: In a joint venture the resources and capacity of two or more firms are combined which enables it to grow quickly and efficiently.
2. Access to advanced technology: It provides access to advanced techniques of production which increases efficiency and then helps in reduction in cost and improvement in quality of product.
3.  Access to new markets and distribution network: A foreign company gains access to the vast Indian market by entering into a joint venture with Indian company. It can also take advantage of the well established distribution system of local firms.
4. Innovation: Foreign partners in joint ventures have the ideas and technology to develop innovative products and services. They have an advantage in highly competitive and demanding markets.
5. Low cost of Production: Raw materials and labour are comparatively cheap in developing countries so if one partner is from developing country they can be benefited by the low cost of production.
6. Well known brand names: When one party has well-established brands and goodwill, the other party gets its benefits. Products of such brand names can be easily launched in the market.

MORE QUESTIONS SOLVED

I. Multiple Choice Questions
Question 1. Which of the following is a departmental undertaking?
(a) Life Insurance Corporation Limited (b) Railways
(c) Bharat Heavy Electrical Limited (d) All of the above
Question 2. In which form of public sector enterprise, private individuals can also become shareholders?
(a) Departmental Undertaking (b) Government Company
(c) Statutory Corporation (d) None of the above
Question 3. Which of the following is most suitable when purpose is to generate revenue for the government?
(a) Departmental Undertaking (b) Government Company
(c) Statutory Corporation (d) None of the above
Question 4. Which of the following is most suitable when national security is of utmost importance?
(a) Departmental Undertaking (b) Government Company
(c) Statutory Corporation (d) None of the above
Question 5. Steel Authority of India Limited (SAIL) is an example of:
(a) Departmental Undertaking (b) Government Company
(c) Statutory Corporation id) None of the above
Question 6. Which of the following is an example of Statutory Corporation?
(a) Life Insurance Corporation Limited (b) Railways
(c) Bharat Heavy electrical Limited (d) All of the above
Question 7. BIFR stands for:
(a) Bureau of Industrial and Financial Reconstruction
(b) Board of Industrial and Financial Reconstruction
(c) Board of Indian Financial Reconstruction
(d) Board of Industrial and Financial Reformation
Question 8. Which of the following has 51% of the capital from government?
(a) Departmental Undertaking (b) Government Company
(c) Statutory Corporation (d) None of the above
Question 9. Which of the following is under the control of a ministry?
(a) Departmental Undertaking (b) Government Company
(c) Statutory Corporation (d) None of the above
Question 10. Which of the following is controlled and managed as per the provisions of the statute under which it has been formed?
(a) Departmental Undertaking (b) Government Company
(c) Statutory Corporation (d) None of the above
Question 11. When two or more businesses join hands for mutual benefit and common purpose, it is called:
(a) Public Private Partnership (b) Joint Venture
(c) Global Enterprises (d) Statutory Corporation
Question 12. Which year brought a drastic change in the role of public sector in India?
(a) 1951 (b) 1956
(c) 1991 (d) 2001
Question 13. Memorandum of Understanding (MOU) is a term used in context of:
(a) Public Private Partnership (6) Joint Venture
(c) Changing role of public Sector (d) All of the above
Question 14. Employees of which of the following are considered as government employees?
(a) Departmental Undertaking (b) Government Company
(c) Statutory Corporation (d) None of the above
Question 15. Since 1991, number of has increased in India.
(a) Departmental Undertaking (6) Government Company
(c) Statutory Corporation (d) Global Enterprises
Answer:
1. (6) 2. (b) 3. (b) 4. (a) 5. (c)
6. (a) 7. (b) 8. (b) 9. (a) 10. (c)
11. (b) 12. (c) 13. (d) 14. (a) 15. (d)

II. Short Answer Type Questions
Question 1. What is the difference between Public and Private sector?
Answer: Differences between public and private sectors are summarised in the table given below:

Question 2. Discuss the merits and demerits of Departmental Undertaking.
Answer: These are established as departments of the ministry and are financed, managed and
controlled by either central government or state government. Examples: Indian railways,
post and telegraph.
Features

• No separate entity: It does not have separate legal entity.
• Finance: It is financed by annual budget allocation of the government and all its earnings go to government treasury.
• Accounting and Audit: The government rules relating to audit and accounting are applicable to it.
• Staffing: Its employees are government employees and are recruited and appointed as per government rules.
• Accountability: These are accountable to the concerned ministry.

Merits

• It is more effective in achieving the objective laid down by government as it is under the direct control of govt.
• It is a source of government income as its revenue goes to government treasury.
• It is accountable to parliament for all its actions which ensures proper utilisation of funds.
• It is suitable for activities where secrecy and strict control is required like defence production.

Demerits

• It suffers from interference from minister and top officials in their working. .
• It lacks flexibility which is essential for smooth operation of business.
• It suffers from red tapism in day to day work.
• These organizations are usually insensitive to consumer needs and do not provide goods and adequate service to them.
• Such organisations are managed by civil servants and government officials who may not have the necessary expertise and experience in management.

Question 3. Explain three trends indicating changing role of public sector.
Answer: The changing role of public sector is clear from the following trends:

1. Restricting the role of public sector only to critical areas: The reservation of industries exclusively for the public sector has been reduced from 17 to 8 and further to 3 only.
2. Performance improvement through Memorandum of Understanding (MOU):
   Under this government lays down performance targets for the management and gives greater autonomy to hold the management accountable for the results.
3. Disinvestment: Equity shares of public sector enterprises were sold to private sector and the public. It was expected that this would lead to improved managerial performance and better financial discipline.
4. Restructure and Revival: All public sector sick units were referred to Board of Industrial and Financial Reconstruction (BIFR). Units which were potentially viable were restructured and which could not be revived were closed down by the board.

III. Long Answer Type Questions
Question 1. Define Joint Venture and explain its major benefits.
Answer: Meaning: When two or more independent firms together establish a new enterprise by pooling their capital, technology and expertise, it is known as a Joint Venture. Example: Hero Cycle of India and Honda Motors Co. of Japan jointly established Hero Honda. Similarly Suzuki Motors of Japan and Govt, of India come together to form Maruti Udyog.
Benefits

1. Greater resources and capacity: In a joint venture the resources and capacity of two or more firms are combined which enables them to grow quickly and efficiently.
2. Access to advanced technology: It provides access to advanced techniques of production which increases efficiency and then helps in reduction in cost and improvement in quality of product.
3.  Access to new markets and distribution network: A foreign company gain access to the vast Indian market by entering into a joint venture with Indian company. It can also take advantage of the well established distribution system of local firms.
4. Innovation: Foreign partners in joint ventures have the ideas and technology to develop innovative products and services. They have an advantage in highly competitive and demanding markets.
5. Low cost of production: Raw materials and labour are comparatively cheap in developing countries so if one partner is from developing country they can be benefited by the low cost of production.
6. Well known brand names: When one party has well established brands and goodwill, the other party gets its benefits. Products of such brand names can be easily launched in the market.

Question 2. Explain the main features of Multinational Company.
Answer: Multinational Company may be defined as a company that has business operations in several countries by having its factories, branches or offices in those countries. But it has its head quarter in one country in which it is incorporated. Example: GEC, IBM, PHILIPS, COCA-COLA etc.
Features

1. Huge capital resources: MNCs possess huge capital resources and they are able to raise lot of funds from various sources.
2.  International operations: A MNC has production, marketing and other facilities in several countries.
3. Centralised control: MNCs have headquarters in their home countries from where they exercise control over all branches and subsidiaries. It provides only broad policy framework to them and there is no interference in their day to day operations.
4. Foreign collaboration: Usually they enter into agreements relating to sale of technology, production of goods, use of brand name etc. with local firms in the host country.
5.  Advanced technology: These organisations possess advanced and superior technology which enable them to provide world class products and services.
6. Product innovations: MNCs have highly sophisticated research and development departments. These are engaged in developing new products and superior design of existing products.
7. Marketing strategies: MNCs use aggressive marketing strategies. Their brands are well known and spend huge amounts on advertising and sale promotion.

Question 3. Differentiate between Statutory Corporation, Departmental Undertaking and Government Company.
Answer: Differences between Statutory Corporation, Departmental Undertaking and Government Company are summarized in the table given below:

Question 4. Explain the merits and demerits of public-private partnership.
Answer: Public private partnership also called PPP or p3 is a contract between government and private business firms for the provision of public assets and/or public services.
Merits

• Inflow of private investment: PPP attracts private investment which is of utmost importance to undertake such essential projects.
• Increased efficiency: Involvement of private sector will bring efficiency in implementation of projects and cut down cost and time.
•  Innovation: It helps in bringing innovative design and constructive practices.
• Better economic viability: Involvement of experienced and creditworthy sponsors and commercial lenders can increase economic viability of the projects.
• Risk sharing: The structuring of a PPP project allocates the risks to the agency which can handle it most suitably.

Demerits

• Increased cost: Cost of production increases for the government as private sector also demands its profit share for the money it invests.
• Control gets divided: Control gets divided between private and public sector. Government remains involved in all stages and private sector, is responsible for more commercial functions like project design, construction, finance and operations.

Question 5. What is Statutory Corporation? Explain its features, merits and demerits.
Answer: It is established under a special act passed in parliament or state legislative assembly.
Its objectives, powers and functions are clearly defined in the Statute /Act.
Examples include Unit Trust of India, Life Insurance Corporation of India, Steel
Authority of India Limited etc.
Features

• It is established under a special act which defines its objects, powers and functions.
• It has a separate legal entity.
• Its management is vested in a Board of Directors appointed or nominated by the government.
• It has its own staff, recruited and appointed as per the provisions of act.
• This type of enterprise is usually independently financed. It obtains funds by borrowing from government or from public or through earnings.
• It is not subject to same accounting and audit rules which are applicable to Government Department.

Merits

• Internal autonomy: It enjoys a good deal of autonomy in its day to day operations and is free from political interference.
•  Quick decisions: It can take prompt decisions and quick actions as it is free from the prohibitory rules of government.
• Parliamentary control: Their performance is subject to discussion in Parliament which ensures proper use of public money.
• Efficient management: Their Directors and top Executives are professionals and experts of different fields.

Demerits

• Flexibility is for name sake only: In reality, there is not much operational flexibility. It suffers from lot of political interference.
• Lack of profit motive: Usually they enjoy monopoly in their field and do not have profit motive due to which their working turns out to be inefficient.
• Corruption: Where there is dealing with public, rampant corruption exists. Thus public corporation is suitable for undertaking requiring monopoly powers e.g., public utilities.

Question 6. Give the meaning of Government Company. Explain three merits and three limitations of Government Company.
Answer. A Government Company is a company in which not less than 51% of the paid up share capital is held by the central government; or state government or jointly by both. Hindustan Insecticides Ltd., State Trading Corporation of India, Hindustan Cables Ltd.etc are some of the examples.
Features

• It is registered or incorporated under Companies Act.
• It has a separate legal entity.
• Management is regulated by the provision of Companies Act.
•  Employees are recruited and appointed as per the rules and regulations contained in Memorandum and Articles of Association.
• The Government Company obtains its funds from government shareholdings and other private shareholdings. It can also raise funds from capital market.

Merits

• It can be easily formed as per the provision of Companies Act. Only an executive decision of government is required.
•  It enjoys autonomy in management decisions and flexibility in day to day working.
• It can appoint professional managers on high salaries.

Limitations

• It suffers from interference from government officials, ministers and politicians.
• It evades constitutional responsibility, which a company financed by the government should have, as it is not directly answerable to Parliament.
• The board usually consists of the politicians and civil servants who are interested more in pleasing their political bosses than in efficient operation of the company.

IV. Higher Order Thinking Skills (HOTS)
Question 1. “The basic rationale of public sector has changed significantly.” In the light of this statement explain any four initiatives taken by the government.
Answer: In the industrial policy 1991, the Government of India introduced four major reforms in public sector.

1. Reduction in number of industries reserved for public sector: This number is reduced from 17 to 8 and to 3 industries only in 2001. These three industries are atomic energy, arms and rail transport.
2. Memorandum of Understanding (MOU): Under this govt, lays down performance targets for the management and gives greater autonomy to hold the management accountable for the results.
3. Disinvestment: Equity shares of public sector enterprises were sold to private sector and the public. It was expected that this would lead to improved managerial performance and better financial discipline.
4.  Restructure and revival: All public sectors, sick units were referred to Board of Industrial and Financial Reconstruction (BIFR). Units which were potentially viable were restructured and which could not be revived were closed down by the board.

Question 2. “Global enterprises are giant both in size and operations.” Substantiate this statement.
Answer: The statement is absolutely correct that global enterprises are giant both in size and
operations.

1. It has huge capital resources.
2.  It involves foreign collaboration.
3.  It uses advanced technology.
4. It leads to product innovation.
5.  It makes use of marketing strategies.
6. It leads to expansion of market territory.
7. It makes use of centralized control.

Question 3. “MNC’s are in a position to exercise massive control on an economy.” Substantiate.
Answer: MNC’s are in a position to exercise massive control on an economy because of the following reasons:

• MNC’s are characterised by possessing huge financial resources. These huge financial resources give them economic power in the economy. They can afford to survive even during losses as well.
•  MNCs possess technological superiorities and are capable of conform to international standards and quality specifications.
•  They make use of aggressive marketing strategies for their products.
• They have an established brand image in the market.

V. Value Based Questions
Question 1. Multinational Companies have done more harm than good. Explain.
Answer: Yes, I agree that Multinational Companies have done more harm than good. It is clear from the following disadvantages which it is creating for the economy.

1. It disregards national priorities.
2. It leads to creation of monopoly.
3. It leads to depletion of natural resources.
4. It leads to technology obsolete .
5.  It creates threat to national sovereignty.

Question 2. “Public sector has changed its role since 1991 a great deal”. Do you agree? Justify your answer.
Answer: The role and importance of public sector changed with passage of time.

1. Development of infrastructure: At the time of independence, India suffered from an acute shortage of heavy industries such as engineering, iron and steel, oil refineries, heavy machineries, etc. Because of huge investment requirement and long gestation period, private sector was not willing to enter these areas. The duty of development of basic infrastructure was assigned to public sector which it discharged quite efficiently.
2. Regional balance: Earlier, most of the development was limited to a few areas like port towns. For providing employment to the people and for accelerating the economic development of backward areas many industries were set up by public sector in those areas.
3. Economics of scale: In certain industries (like electric power plants, natural gas, petroleum, etc) huge capital and large base are required to function economically. Such areas were taken up by public sector.
4. Control of monopoly and restrictive trade practices: These enterprises were also established to provide completion to private sector and to check their monopolies and restrictive trade practices.
5.  Import substitution: Public enterprises were also engaged in production of capital equipments which were earlier imported from other countries. At the same time public sector companies like STC and MMTC have played an important role in expanding exports of the country. Very important role was assigned to public sector but its performance was far from satisfactory which forced government to do rethinking on public enterprises.

NCERT SolutionsAccountancyBusiness StudiesIndian Economic DevelopmentCommerce

Free PDF download of NCERT Solutions for Class 11 Business Studies Chapter 1 Nature and Purpose of Business solved by Expert Teachers as per NCERT (CBSE) Book guidelines. All Chapter wise Questions with Solutions to help you to revise complete Syllabus and Score More marks in your examinations

NCERT Solutions For Class 11 Business Studies Nature and Purpose of Business

NCERT Solutions Class 11 Business StudiesBusiness Studies Sample Papers

TEXTBOOK QUESTIONS SOLVED

I. Multiple Choice Questions
Question 1.  Which of the following does not characterise business activity?
(i) Production of goods and services
(ii) Presence of risk
(iii) Sale or exchange of goods and services
(iv) Salary or wages
Question 2. Which of the broad categories of industries covers oil refinery and sugar mills?
(i) Primary (ii) Secondary
(iii) Tertiary (iv) None of them
Question 3. Which of the following cannot be classified as an auxiliary to trade?
(i) Mining (ii) Insurance
(iii) Warehousing (i v) Transport
Question 4. The occupation in which people work for others and get remunerated in return is known as
(i) Business (ii) Employment
(iii) Profession (iv) None of them
Question 5. The industries which provide support services to other industries are known as
(i) Primary industries (ii) Secondary industries
(iii) Commercial industries (iv) Tertiary industries
Question 6. Which of the following cannot be classified as an objective of business?
(i) Investment (ii) Productivity
(iii) Innovation (iv) Profit earning
Question 7. Business risk is not likely to arise due to
(i) Changes in government policy (ii) Good management
(iii) Employee dishonesty (iv) Power failure
Answer: 1. (iv) 2. (i) 3. (i) 4. (ii) 5. (iv) 6. (i) 7. (ii)

II. Short Answer Type Questions
Question 1. State the different types of economic activities.
Answer: Different types of economic activities are of three types:

1. Business refers to those economic activities which are concerned with the production or purchase and sale of goods or supply of services with the main object of earning profits.
2. Profession refers to those activities which require special knowledge and skill to be applied by individuals in their occupations.
3. Employment refers to the occupation in which people work for others and get remunerated in return.

Question 2. Why is business considered an economic activity?
Answer:  Any activity is called an economic activity when it is done with a view to earning money. The motive of a business is to earn profit primarily. However, there are some other objectives as well like increasing market share, improvement in productivity, employee satisfaction, consumer satisfaction, social objectives but the main and basic objective of a business is to make profits. Therefore, it is called economic activity.

Question 3. Explain the concept of business.
Answer: Business: An economic activity involving the production and sale of goods and services undertaken with a motive of earning profit by satisfying human needs in society is called business.
Characteristics of Business:

1. Economic activity: All business activities are economic activities and are done for the sole purpose of earning money.
2. Production and procurement of goods and services: A business activity involves production or procurement of goods and services. A manufacturer is involved in production, while a shopkeeper is involved in procurement.
3. Sale and exchange of goods and services for the satisfaction of human needs: Sale and exchange of goods and services is done to satisfy human needs.
4. Dealing in goods and services on a regular basis: One time dealing in goods or services cannot be termed as a business. The business should happen on a regular basis.
5. Profit earning: Profit earning is the fundamental motive of doing a business. Other motives are there but they depend on profit motive.
6.  Uncertainty of returns: Returns can never be certain in business activity. This happens because of external factors which are outside the control of the business organization.
7. Element of risk: An element of risk is always present in business activity.

Question 4. How would you classify business activities?
Answer: Business activities can be classified in the following ways:

I. Industry: Different types of industries are as follows:

1. Primary Industry: The primary industry includes those activities through which the natural resources are used to provide raw materials to other industries. Primary industries are of two types.
2. Secondary Industry: Under this industry new products are manufactured by using the previously produced things e.g., producing cotton is a primary industry and manufacturing cloth out of cotton is a secondary industry. It is of two types.
3. Tertiary or Service Industry: It includes those services which help business to move smoothly e.g. transport, bank, insurance, storage and advertising.

II. Commerce: Commerce refers to all those activities which are concerned with the transfer of goods and services from the producers to the consumers. It embraces all those activities which are necessary for maintaining a free flow of goods and services. It includes trade and auxiliary to. trade. Trade refers to buying and selling of goods and services with the objective of earning profit. It is classified into two categories.

1. Internal Trade: It takes place within a country. Internal trade is classified into two categories—retail trade and wholesale trade.
2. Retail Trade: It refers to buying of goods and services in relatively small quantities and selling them to the ultimate consumers.
   (а) External Trade: It happens between two or more countries. External trade can be classified into three categories.
   (b) Import Trade: If goods are purchased from another country, it is called import trade.
   (c) Export Trade: If goods are sold to other countries it is called export trade.
   (d) Entrepot Trade: Goods are imported for export to other countries e.g. Indian firm may import some goods from America and export the same goods to Nepal.

III. Auxiliaries to Trade: All those activities which help in removing various hindrances which arise in connection with the production and distribution of goods are called auxiliaries to trade. An overview of these activities is given below:

1. Transportation and Communication: The production of goods takes place at one place whereas these are demanded in different parts of the country. The obstacle of place is removed by the transport. Along with transport, communication is also an important service. It helps in exchange of information between producers, consumers and traders. The common communication services are postal service, telephone, fax, internet etc.
2. Banking and Finance: Business needs funds for acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained from a bank.
3. Insurance: It provides a cover against the loss of goods, in the process of transit, storage, theft, fire and other natural calamities.
4.  Warehousing: There is generally a time lag between the production and consumption of goods. This problem can be solved by storing the goods in warehouses.
5. Advertising: Advertising brings goods and services to the knowledge of prospective buyers. It is through advertising that the customers come to know about the new products and their utility.

Question 5. What are the various types of industries?
Answer: Different types of industries are as follows:
1. Primary Industry: The primary industry includes those activities through which the natural resources are used to provide raw materials to other industries. Primary industries are of two types.

• Extractive: It refers to those industries under which something is extracted out of the earth, water or air e.g., coal, iron, gas etc.
• Genetic: It refers to those industries under which the breed of animals and vegetables are improved and made more useful e.g., poultry farms, tree planting etc.

2. Secondary Industry: Under this industry, new products are manufactured by using the previously produced things e.g., producing cotton is a primary industry and manufacturing cloth out of cotton is a secondary industry. It is of two types.

• Manufacturing: These industries convert raw materials or semi finished products into finished products e.g., paper from bamboo, sugar from sugar cane. It is further being divided into four parts.
• Analytical: Different things are manufactured out of one thing e.g., petrol, diesel, gasoline out of crude oil.
• Processing: Those industries wherein useful things are manufactured by making the raw material to pass through different production process e.g., steel from iron ores.
• Synthetic: Many raw materials are mixed to produce more useful product e.g., paints, cosmetics etc.
• Assembling: The parts manufactured by different industries are assembled to produce new and useful product e.g., computers, watches etc.
• Construction Industry: Such types of industries constructions of roads, bridges, buildings etc. are covered.

3. Tertiary or Service Industry: It includes those services which help business to move smoothly e.g. transport, bank, insurance, storage and advertising.

Question 6. Explain any two business activities which are auxiliaries to trade.
Answer: Two business activities which are auxiliary to trade are explained below:

1. Transportation and Communication: The production of goods takes place at one place whereas these are demanded in different parts of the country. The obstacle of place is removed by the transport. Along with transport, communication is also an important service. It helps in exchange of information between producers, consumers and traders. The common communication services are postal service, telephone, fax, internet etc.
2. Banking and Finance: Business needs funds for acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained from a bank. Finance is the life blood of any business. We cannot think of any business which does not need finance and providing finance to other businesses become another business. Finance is also required for consumption purposes.

Question 7. What is the role of profit in business?
Answer: Profits play a vital role in any business. Earning of profits is essential for any business because of the following reasons given below:

• Means of Livelihood: Profits act as a means of livelihood for the entrepreneurs. Without profits, entrepreneurs cannot continue with the business.
• Rewards for taking risks: It provides returns for taking risks.
• Funds for Growth: It would provide funds for growth of the business.
• Symbolic of efficiency and efficacy: Profits symbolise that management is efficient and business is operating in a healthy manner.
• Enhancement in goodwill: A business making higher profits has a better goodwill and reputation in the market.

Question 8. What is business risk? What is its nature?
Answer: The term business risk refers to possibility of inadequate profits or even losses due to uncertainties e.g., changes in tastes and preferences of consumers, strike, increased competition, change in Government policy etc. These are of two types—speculative and pure.
Nature of Business Risks

1. Business risks arise due to uncertainties: Natural calamities, change in demand
   and prices, change in technology etc. are some of the examples of uncertainty which create risks.
2. Risk is an essential part of every business: No business can avoid risk. Risk can be minimised but cannot be eliminated.
3.  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.
4. Profit is the reward for risk taking: An entrepreneur assumes risks and in consideration he gets reward which is called profit. Greater the risk higher is the chance of profit.

III. Long Answer Type Questions
Question 1. Explain the characteristics of the business.
Answer: Characteristics of business are as follows:

1.  An economic activity: All business activities are economic activities and are done for the sole purpose of earning money.
2. Production and procurement of goods and services: A business activity involves production or procurement of goods and services. A manufacturer is involved in production, while a shopkeeper is involved in procurement.
3. Sale and exchange of goods and services for the satisfaction of human needs: Sale and exchange of goods and services is done to satisfy human needs.
4. Dealing in goods and services on a regular basis: One time dealing in goods or services cannot be termed as a business. The business should happen on a regular basis.
5. Profit earning: Profit earning is the fundamental motive of doing a business. Other objectives cannot be attained without it.
6.  Uncertainty of returns: Returns can never be certain in business activity. This happens because of external factors which are outside the control of the business organization.
7. Element of risk: An element of risk is always present in business activity.

Question 2. Compare business with profession and employment.
Answer: Business has been compared with profession and employment in tabular form given below:

Question 3. Explain with examples the various types of industries.
Answer: Different types of industries are as follows:

1. Primary industry: Primary industry includes all those activities, which are connected with extraction and production of natural resources and reproduction and development
   of living organisms, plants, etc. Primary industries are of two types.
   • Extractive: It refers to those industries under which something is extracted out of the earth, water or air. e.g., coal, iron, gas etc.
   • Genetic: It refers to those industries under which the breed of animals and vegetables are improved and made more useful e.g., poultry farms, tree planting etc.
2. Secondary Industry: Secondary industry includes all those activities, which me connected with using the materials, which have already been extracted at the primary stage. It is of two types.
   • Manufacturing: These industries convert raw materials or semi finished products into finished products, e.g., paper from bamboo, sugar from sugar cane. It has further-been divided into four parts.
   • Analytical: Different things are manufactured out of one thing e.g., petrol, diesel, gasoline out of crude oil.
   • Processing: Those industries wherein useful things are manufactured by making the raw material to pass through different production processes e.g., steel from iron ores.
   • Synthetic: Many raw materials are mixed to produce more useful product e.g., paints, cosmetics etc.
   • Assembling: The parts manufactured by different industries are assembled to produce new and useful product e.g., computers, watches etc.
   •  Construction Industry: Such type of industries include construction of roads, bridges, buildings etc.
3.  Tertiary or Service Industry: Tertiary industry includes all those activities, which are concerned with providing support services to primary and secondary industries as well as activities relating to trade. It includes banking, finance, insurance, communication, transportation etc.

Question 4. Describe the activities relating to commerce.
Answer: Commerce refers to all , those activities which are concerned with the transfer of goods and services from the producers to the consumers. It embraces all those activities which are necessary for maintaining a free flow of goods and services. It includes trade and auxiliary to trade.
Commerce = Trade + Auxiliary to Trade

1. Trade: Trade refers to buying and selling of goods and services with the objective of earning profit. It is classified into two categories.
   • Internal Trade: It takes place within a country. Internal trade is classified into two categories retail trade and wholesale trade.
   •  Retail Trade: It refers to buying of goods and services in relatively small quantities and selling them.to the ultimate consumers.
     (а) External Trade: It is done between two or more countries. External trade can be classified into three categories.
     (b) Import Trade: If goods are purchased from another country, it is called import trade.
     (c) Export Trade: If goods are sold to other countries, it is called export trade.
     (d) Entrecote Trade: Where goods are imported for export to other countries e.g., Indian firm may import some goods from America and export the same goods to Nepal.
2. Auxiliaries to Trade: All those activities which help in removing various hindrances which arise in connection with the production and distribution of goods are called auxiliaries to trade. An overview of these activities is given below.
   • Transportation and Communication: The production of goods takes place at one place whereas these are demanded in different parts of the country. The obstacle of place is removed by the transport. Along with transport, communication is also an important service. It helps in exchange of information between producers, consumers and traders. The common communication services are postal service, telephone, fax, internet etc.
   • Banking and Finance: Business needs funds for acquiring assets, purchasing raw materials and meeting other expenses. Necessary funds can be obtained from a bank.
   • Insurance: It provides a cover against the loss of goods, in the process of transit, storage, theft, fire and other natural calamities.
   • Warehousing: There is generally a time lag between the production and consumption of goods. This problem can be solved by storing the goods in warehouses.
   • Advertising: Advertising brings goods and services to the knowledge of prospective buyers. It is through advertising that the customers come to know about the new products and their utility.
     

Question 5. Why does business need multiple objectives? Explain any five such objectives.
Answer: Since a business has to balance a number of needs and goals, it requires multiple, objectives.
Business is dependent on many people’s satisfaction whose objectives for being involved in it are different and many times conflicting. Owners want profits, employees want good working conditions and remuneration, investors want good return and consumers want good quality product. Therefore, a business needs to have multiple objectives. Some of these objectives are given below:

• Market standing: Business can survive for a longer period only if it is able to capture a big share in the market and has market standing.
• Innovation: It means developing new products and their multiple uses. Old customers can be maintained and new can be attracted by innovation only.
• Improving productivity: Every business enterprise must aim at greater productivity by making optimum use of available resources.
• Earning profit: One of the objectives of business is to earn profits on the capital invested. Every business must earn a reasonable profit to survive and grow.
• Optimum use of physical and financial resources: Every business requires physical (plant, machine, office etc) and financial resources (money or funds) to produce goods and services; the business enterprise must aim to use them efficiently.
• Workers performance and attitude: Every business enterprise must aim at improving its workers performance and creating positive attitudes towards workers. It will boost the morale of the employees.
•  Social Responsibility: A business is a part of society and so it must meet the expectations of the society. It can set goals in the areas of environmental protection, supply of desired quality of products, employment generation etc.

Question 6. Explain the concept of business risk and its causes.
Answer: The term ‘business risk’ refers to possibility of inadequate profits or even losses due to uncertainties e.g., changes in tastes and preferences of consumers, strike, increased competition, change in Government policy etc. These are of two types: speculative and pure.
Causes of Business Risks: 

1. Natural causes: The causes which are beyond human control e.g., flood, earthquake, heavy rains, famine etc.
2.  Human causes: It includes carelessness or negligence of employees e.g., theft, strikes, riots, misappropriation of cash and products etc.
3.  Economic causes: It is related to a chance of loss due to change in market condition e.g., fluctuations in demand and prices, competition, change in technology etc.
4. Physical causes: Mechanical defects or failures which may also lead to losses e.g., bursting of boiler or machine, may cause death or destruction.
5. Other causes: These include unforeseen events like political disturbances, fluctuation in exchange rates etc.

Question 7. What factors are important to be considered while starting a business? Explain.
Answer: Following factors are considered while starting a new business:

1. Selecting the line of business: The first thing to be decided by the entrepreneur is the line and type of business to be undertaken.
2. Scale or size of business: After deciding the line of business the businessman must decide whether he/she wants to set up large scale or small scale business.
3. Choice of form of business organization: The next decision must be taken is to finalise the form of business i.e., to set up sale, proprietorship, partnership or joint stock company.
4. Location of business enterprise: The entrepreneur has to decide the place where the business will be located. Before taking this decision he/she must find out availability of raw materials, power, labour, banking, transportation etc.
5. Financial requirement: The businessman must analyse the amount of capital he/ she might require to buy for fixed assets and for working assets). Proper financial planning must be done to determine the amount of funds needed.
6. Physical facilities: It includes machinery, equipment building etc. This decision depends upon the size, scale and type of business activities he/she wants to carry on.
7. Plant layout: Showing the physical arrangement of machines and equipment needed to manufacture a product.
8. Competent and committed workforce: The entrepreneur must find out the requirement of skilled and unskilled workers and managerial staff to perform various activities.
9. Tax planning: The entrepreneur must try to analyse the types of taxes, because there are a number of tax laws in the country which affect the functioning of business.
10. Setting up the enterprise: After analysing the above mentioned points carefully the entrepreneur can start the business which would mean mobilising various resources and completing legal formalities.

MORE QUESTIONS SOLVED

I. Multiple Choice Questions
Question 1. Which of the following is an economic activity?
(a) Cooking food for self consumption (b) Cooking food for sale
(c) Cooking food for donation (d) All of the above
Question 2. Which of the following is not a business activity?
(a) Production of goods (b) Trading of goods
(c) Storage of goods (d) Working in a hospital for wages
Question 3. Which of the following is not a feature of employment?
(a) Fixed wages (b) Agreement between employer and employee
(c) Terms and conditions (d) Element of risk
Question 4. Choose the odd one out:
(a) Insurance (b) Warehousing
(c) Mining (d) Banking
Question 5. Which of the following is not an insurable risk?
(a) Risk of theft
(b) Risk of fire
(c) Risk of change in pattern of demand
(d) All of these
Question 6. Which of the following is a cause of business risk?
(a) Natural causes (6) Political causes
(c) Economic causes (d) All of the above
Question 7. Profits are necessary for:
(a) Expansion (b) Survival
(c) Innovation (d) All of the above
Question 8. Objectives of business do not include:
(a) Higher returns to investors (b) Employee satisfaction
(c) Maximum price-from consumers (d) Market standing.
Question 9. Which of the following is an example of genetic industry?
(a) Mining (b) Lumbering
(c) Animal husbandry (d) Hunting
Question 10. Which of the following is an example of secondary industry?
(a) Genetic industry (b) Extractive industry
(c) Synthetic industry (d) All of the above
Answers: 1. (b) 2. (d) 3. (d) 4. (c) 5. (c)
6. (d) 7. (d) 8. (c) 9. (c) 10. (c)

II. Short Answer Type Questions
Question 1. Differentiate between economic and non-economic activities.
Answer: All human beings have different types of needs. So, in order to full fill those needs, they have to perform some activities. Human activities are classified into economic and non-economic activities.

Question.2. What are the functions of commerce?
Answer: The functions of commerce are as follows:

1. Removing the hindrance of person and that means lack of information to producer about consumer and to consumer about the producer. It is removed by advertising.
2.  Transportation removes hindrance of place.
3. Storage and warehousing activities remove the hindrance of time.
4. Banking removes the hindrance of finance.
5.  Insurance removes the hindrance of risk.
6. Advertising removes the hindrance of information.

Question 3. Distinguish between industry, trade and commerce.
Answer:

Question 4. Can profits be the sole objective of a business? Justify your answer by giving suitable reasons.
Answer: A layman may say that profits are the only objective with which a business is carried on but a good business man cannot keep profits as his only motive. A business organization is an economic unit which makes use of various factors of production. Capital is one of the factors of production. It pays interest in the form of profits. Ur wick has put it beautifully, “Earning of profits cannot be objective of business any more than eating is the objective of living.” There must be other objectives of a business which Eire non monetary but as important as monetary, like employee satisfaction, innovation, productivity, consumer satisfaction, etc.
Following reasons can be given to justify our opinion that profits cannot be the sole objective of a business.

1. If we make profits to be only objective then interests of consumers, employees and society will be ignored.
2. Maximum profits in the short run, may result worse for long term interest of the company.
3. In present day scenario, when consumer awareness is increasing, labour laws are becoming stringent, social responsibilities of business is being highlighted, environment is being talked about, a business needs to set its objectives for satisfaction of consumers, employees, environmentalists, government etc.

Question 5. Explain political and legal causes of business risks.
Answer: The causes of business risk include:

1. Changes in government policies regarding foreign trade
2. Entry of multinational companies
3. Changes in laws affecting the business like licensing, taxation etc.
4.  Changes in consumer laws and labour laws.

For example, an increase in tax rates may reduce profit margin of the business or an
increase in minimum wages may increase labour cost for the business.

Question 6. Differentiate between insurable risks and non-insurable risks.
Answer: Differences between insurable risks and non-insurable risks is summarised below:

Question 7. What are the hindrances in commerce? Which agencies are used to remove these hindrances?
Answer: Following are the hindrances in commerce:

• Lack of Personal Contact: This hindrance is removed by traders and middlemen.
• Distance or Place: This hindrance is removed by transportation.
•  Finance: This hindrance is removed by banking.
•  Time or Storage: This hindrance is removed by warehousing.
•  Risk: This hindrance is removed by insurance companies.
•  Information: This hindrance is removed by advertisement or communication.

III. Long Answer Type Questions
Question 1. Define the Profession. Discuss its salient features.
Answer: When a person is engaged in an occupation which provides services on the basis of specialized knowledge and experience in their respective occupations, it is called profession. For example, Legal (Lawyer), Medical (Doctor), Accountancy (C.A).
An occupation can be called a profession if it has the following features:

1.  Membership of a professional body and certificate of practice is required.
2. Personalised services of expert nature.
3. Professional qualification and training are required.
4.  Professional fee is charged in lieu of services.
5. The limited capital for establishment is required.
6. The degree of risk is low.
7. Professional code of conduct is to be followed that has been given by the concerned authority.

Question 2. Explain the economic and social objectives of the business.
Answer:

1. Economic Objectives:
   • Creating consumers: It means producing and distributing such useful goods and services which satisfy the consumers.
   •  Innovation: Innovation includes production of new products, replacing older products with latest and with new ones, improvement and modernisation in production methods so as to improve quality and/or reduce cost.
   • Effective utilisation of Resources: A business tries to minimise and optimise its resource usage so as to minimise the cost and maximise the profits. By reducing cost and increasing profits, it ensures survival, growth, expansion and diversification.
   •  Earning profits: According to Dicksee, “Business is a form of activity pursued primarily with the objective of earning profit for the benefit of those on whose behalf activity is conducted.
   • Creating Goodwill: When a business is able to make good profits and other economic activities, its goodwill amongst investors and competitors goes up.
2. Social Objectives
   • Quality product: A business aims at providing qualify product so that it has good demand in the market and consumers feel satisfied to consume it. Inferior goods do not satisfy consumers.
   • Environment protection: Another social objective of a business is protecting the environment from pollution of any kind and to ensure that nonrenewable resources are not depleted.
   • Fair and reasonable price: Prices must be fair and reasonable. Business aims at maximizing social satisfaction in right sense instead of maximizing profit.
   •  Generating employment: Business activities aim at providing employment opportunities for entrepreneurs and self-employed persons. Who provide some goods and services to businessmen?
   • Social security: Businessmen follow certain social welfare programmes like group insurance, provident fund, pension fund, medical facilities of employees, etc. it enhances social security.
   • Good industrial relations: Employees are an important part of an organization. Their problems and grievances must also be considered, while running a business. Business must aim at building sound industrial relations.

Question 3. Define commerce. Discuss its importance in the business world.
Answer: Commerce is related to the exchange and distribution of goods and services. It involves trade and activities which facilitate trade like transportation, banking, warehousing, and finance, etc. Commerce can be defined as the sum total of all such activities which are related to transfer of goods and services from manufacturer to consumer, i.e., from the place of production to the place of consumption.
Commerce is of great importance in the business world:
Removal of Obstacles or Hindrance of Trade:

• Removing the hindrance of person: It means lack of information to producer about consumer and to consumer about the producer. It is removed by advertising.
• Transportation removes the hindrance of place.
• Storage and warehousing activities remove the hindrance of time.
•  Banking removes the hindrance of finance.
• Insurance removes the hindrance of risk.
• Advertising removes the hindrance of information.

These functions are divided into:

1. Service Functions
   Those activities which help in removing hindrance of place, i.e. distance, knowledge, information and risk are included in service functions. These activities make use of the following means:
   (i) Transportation (ii) Communication (iii) Insurance (iv) Advertisement (v) Entertainment services.
2. Financial Functions
   It includes those activities which help in removing hindrance to finance. It includes:
   (i) Commercial banks
   (ii) Financial institutions like LIC, UTI, etc.
   (iii) Stock exchanges .
   (iv) Private financiers
   (v) Lease, hire purchase and installment supply agencies.
3. Marketing Functions
   Those activities which help in the removal of the hindrances of exchange and person are included in this category.
   It includes:
   (i) Channels of distribution (ii) Storing and warehousing facilities (iii) Packaging, grading and trade marks.

Question 4. “No business is risk free.” Do you agree? Justify your answer, mentioning the nature and causes of business risk.
Answer: Yes, we agree. We cannot think of any business which is risk free. You start a general store—the simplest business. There is a risk of things you buy getting wasted due to changes in demand pattern. You start a garments shop, fashion may change making your stock a waste and so on. There is not even a single business where there is no risk. It will be clearer when we look at the nature and causes of risk.

1. Nature of Business Risks
   • Business risks arise due to uncertainties: Natural calamities, change in demand and prices, change in technology, etc. are some of the examples of uncertainty which create risks.
   • Risk is an essential part of every business: No business can avoid the risk. Risk can be minimized, 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.
   • Profit is the reward for risk taking: An entrepreneur bears risks and in consideration, he gets rewarded in the form of profit. Greater the risk higher is the chance of profit.
2. Causes of Business Risk

• Natural causes: These are beyond human control, e.g., flood, earthquake, heavy rains, famine, etc.
•  Human causes: It includes carelessness or negligence of employees, e.g. theft, strikes, riots, misappropriation of cash and goods, etc.
• Economic causes: These are related to a chance of loss due to changes in market condition, e.g., fluctuations in demand and prices, competition, change in technology etc.
• Physical causes: Mechanical defects or failures may also lead to losses, e.g. bursting of the boiler or machine may cause death or destruction.
• Legal and Political Causes: These causes of business risk include:
  (а) Changes in government policies regarding foreign trade
  (b) Entry of multinational companies
  (c) Changes in laws affecting the business like to license, taxation, etc
  (d) Changes in consumer laws and labour laws.
  Think of any business. Risk in one way or the other must be applied to it. Hence, we may conclude that no business is risk free.

IV. Higher Order Thinking Skills (HOTS)
Question 1. “Earning of profits is the main objective of a business and other objectives are there to aid it only.” Do you agree? Justify your answer.
Answer: It is incorrect to assume there can be only one objective of a business. Peter F. Drucker remarked, “To Manage a business is to balance a variety of needs and goals. And this requires multiple objectives.” Thus, the management of a business must set objectives, in every ‘key area’ that influences its survival and growth. Peter F. Drucker has suggested eight key areas where objectives must be set. These are discussed below:

1. Market standing: It refers to the market position of a business in relation to its competitors, e.g. position of ‘Liberty’ against that of ‘Bata’. A dynamic enterprise must aim at increasing its market standing by offering better products at competitive prices and winning permanent customers.
2. Innovation: It means the introduction of new products, new uses of existing products, or new methods of production. Innovations are essential for a business enterprise to grow in the competitive world. For example, LG introduced door cooling technology in refrigerators.
3. Productivity: It is the ratio between output and inputs in the production process. Productivity is often used as an indicator of the efficiency of an organization. More productivity will lead to reduced cost of production.
4. Employee satisfaction: An organization must also aim at moulding the attitudes of employees so that they may contribute better towards organizational goals. It is also important to provide such working conditions to employees that they feel satisfied in working with and for the organization.
5. Resources—Physical and financial: A business enterprise requires many physical and financial resources. A business must aim at procuring these resources.
6. Managerial performance: A team is entrusted with the tasks of planning, organizing, staffing, directing and controlling which is called management. Management needs to set targets in the areas of planning, organizing, staffing, directing and controlling and also overall targets for the development of the organization.
7. Social responsibility: A business is a part of society. There are some responsibilities of business towards society like generating employment, using eco-friendly methods of production, etc. I must fulfill these responsibilities.
8. Profitability: Consider all the above objectives. They are either not possible to be attained without profits like consumer wants good quality. So for market standing we need to provide good quality product which can be provided only when we have enough profits. Similarly, employees want good monetary and non-monetary benefits which are dependent on profits. Some other objectives contribute towards higher profits like innovation and managerial performance. Therefore, we can conclude that the main aim of a business is to earn profits and other aims are either an outcome of the profits or profits are not possible without these.

Question 2. “Risk is the element which makes the business different from other economic activities.” Do you agree? Justify your answer.
Answer:  All economic activities are divided into three categories.

1.  Employment
2. Profession
3.  Business.

1. Employment is a contract between employer and employee whereby the employee agrees to work on pre-fixed terms and conditions for an employer for a fixed wage or salary. There is no risk associated with employment as wages or salary is pre-fixed.
2. Profession includes those activities, which are requiring special knowledge and skill to be applied by individuals in their occupation to earn fees. A professional also takes a minimal risk of whether he will get clients or not.
3.  Business refers to those economic activities, which are connected with production, purchase and sale of goods or supply of services with the main object of earning profit. Since there is no pre-determined contract, return which is profit, is not fixed. There may be profits in millions or there may be a heavy loss.
   Therefore, business as an economic activity is different from other economic activities mainly due to profit. However, there are other differences as well. For example, a business man does not need specific qualifications as required in a profession. A businessman has relative more freedom than a person who is employed or is a professional.

V. Value Based Questions
Question 1. “Economic and non-economic activities don’t substitute, but complementary to each other.” Do you agree? Explain.
Answer: Yes, we agree. Economic activities are undertaken with an economic motive, i.e., to earn money, but non-economic activities are undertaken without any economic purpose. For example, when our parents go to office or workplace, it is an economic activity, but when a mother cooks food for their children, we do some donations, we get pocket money, we take a bath, and these are non economic activities. But these activities cannot take place unless and until we have money to support them.
No one can work without getting a sound sleep, while sleeping is a non-economic activity. Similarly, bathing is a non-economic activity, but it is compulsory to be healthy. Without being healthy getting involved in economic activity is not possible. Therefore, economic and non-economic activities don’t substitute, but complementary to each other.

Question 2. If you need , to start doing an economic activity to earn livelihood for your family, which one would you like and why?
Answer: Economic activities can be grouped under business, profession and employment. All the three have their own merits and demerits. Therefore, one will decide according to the conditions, he/she is facing.

1. If one has enough funds to invest and he/she is a person who has an ability to take initiative and decision making then he/she will prefer business.
2.  If one has a professional degree and minimum funds to start their own practice, he/she will prefer to be a professional.
3. If one has no such degree and no funds to start any venture of their own but some qualification to suit the requirement of a job, he/she will prefer employment.

Question 3. If one starts a business, which objective will be of utmost importance to you and why?
Answer: If one starts their own business, our social objectives will be of utmost importance to me because:

1. It will create employment opportunities in the economy. He/she will make use of such methods which are desirable from society point of view.
2. It will help us to provide good quality product at reasonable prices to customers.
3. It will keep environment pollution free.
4. When we will concentrate on these objectives, it will satisfy one consumers and employees.

Consumer satisfaction will lead to improvement in these goodwill and market standing. Employee satisfaction will lead to increase in productivity. These two factors will increase profits in the long run automatically.

NCERT SolutionsAccountancyBusiness StudiesIndian Economic DevelopmentCommerce