Nature and purpose of business

Today we are going to discuss the nature and purpose of business. We will provide you with notes, videos, and PDFs of nature and purpose of business.

Nature And Purpose of Business

Post author:Business Vidya
Post published:June 14, 2020
Post category:Class 11
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Today we are going to discuss the new chapter of business studies CBSE class 11 that is the nature and purpose of business.

Also, we are going to give you study notes, video lectures and also PDF of handy lecture notes. Firstly, I want to share with you what are all the topics which we are going to cover in this article. Also, you can watch all the chapters videos on my YouTube channel by clicking here.

Topics Which we will cover today will be in the following ways:-

What is business
Human activity – economic and non-economic activity
Difference between business, profession, and employment
Difference between economic and non-economic activity
Concept and Characteristics of business
Business as an Economic activity
Objectives of business
Role of profit in business
Multiple objectives of the business
Classification of business activity
Industry
Commerce
Business risk
case study of nature and purpose of business

What Is the business?

In an easy way, business refers to an activity that involves production, purchase and, sale & distributes of goods and services with the main objective of earning the profit. Every business object of earning profit

What is human activity?

I will suggest watching the below video for more better understanding.

Human activity means all the activities which humans do. Human activity also means occupations in which people work to earn money. When researchers were searching about human activity they found there are two human activities. So activities involve are as follows:-

Economic activity
Non-economic activity

Economic activity

Economic activity means activities which humans do and in the end, they get money in return. This activity refers to the production, exchange, and distribution of goods and services.

The main objective of economic activity should be earning money income which humans can use for future creation of wealth and assets.

For example – A teacher teaching in school, a doctor treating his patients, production of goods by a wholesaler or retailer, working in a factory, distribution of goods by a wholesaler.

Economic activities are of three types or types of economic activities So they are as follows:-

Business
profession
Employment

So, we will learn about business, profession, and employment in detail in the future.

In simple, all the activities relating to money are economic activity otherwise it is noneconomic activity.

Non-economic activity

Non-economic activity means activities which humans do and in the end, they get personal satisfaction. The main motive in non-economic activity is not to earn money but personal satisfaction.

For example – A teacher teaching his own son, a doctor treating his own son, going to the temple, going to charity, and all social services are coming under non-economic activity.

Note

So, an activity can be of any types whether an economic or non-economic activity. It depends upon the activity which humans do.

Any activity performed by humans can be economic if he gets money after completing any activity and can be non-economic activity if he gets personal satisfaction after completing of any activity.

For example – A teacher teaching in school is an economic activity because the teacher will get money in return for teaching and when that same teacher teaching his own son is an economic activity because he will not get any money in return for it but the teacher will get personal satisfaction.

Let’s take another example of a farmer to suppose a farmer is growing food for selling in the market he will get money in return that’s why it is economic activity.

That same farmer now growing the crop for his family then he will not get any money in return then it will be non-economic activity.

Difference between business, profession, and employment

I will suggest watching the below video for more better understanding.

So now we will cover the next topic of nature and purpose of a business that is the difference between business, profession and, employment

Below down is the table for the difference between the business profession and employment:-

[table id=1 /]

So, let’s discuss more business, profession, and employment.

Business

Business is an activity which involves production, purchase and, sale & distribution of goods and services with the main objective of earning the profit.

For example – Fishing, mining, farming, etc.

Profession

The profession is a type of job which requires advanced education or training. People who are in the profession known as professionals.

For example – Lawyers, doctors, etc

Employment

Employment is an activity in which an individual works regularly for another person and gets payment in return. Those who employed by others known as employees.

The person who engages others to regularly work for them known as employers.

For example – Working in the office, banks, insurance, etc.

Concepts and Characteristics of business

I will suggest watching the below video for more better understanding.

So concept of business involves some features. There we have seven characteristics of business (nature of business) down below. So they are in the following ways:-

7) Risk In business

It is every very important feature of the business. Risk is an element that is present in business in all transactions. There is no business in the world that is not facing risk.

There is always a possibility of loss in business. It is not sure that businessmen will always earn a profit he may face loss too.

For example – there can be a risk of change in market conditions, change in customer’s tastes, there may be a strike in the businessman’s own factory, etc.

Always remember one thing risk can reduce but can not eliminate.

6) Profit-making

The main purpose of every business is to earn more and more profit because it helps the business for:-

Growth and expansion
Survival

If profit motive is absent in business transactions then that transaction will not call as business transactions. No business can survive in the market without earning the profit.

For example – Goods given in donations are not a business activity, etc

5) Dealing on a regular basis

Another important feature of the business is that every business must sell its goods and services on a regular basis.

Buying and selling of goods and services only one or two times is not a business activity.

For example – If a person sells his car to buy a new car then it is not a business. But if a person buys and sells the car on a regular basis to earn money then it is business.

4) Sales or Exchange of goods and services for the satisfaction of human needs

Every business sale and exchange goods and services for money. If any business is not doing the sale and purchase of goods and services for money than that business is not business.

Also, the sale and purchase of goods and services for self-consumption is not business too.

For example – Farmers growing the crop for himself and his family then that farmer is not doing business. But if that farmer is growing crop for sale to earn money then the farmer is doing business.

3) Production or procurement of goods and services

Every business either produces or procures goods and services from producers. There are two types of goods:-

Consumer goods and services
Industrial goods and services

We will surely discuss the above two types of goods and services later on.

2) Consumer-oriented

Every business in the world produces goods and services as per customers’ needs. According to the needs and wants of customers, producers produce goods.

1) An economic activity

Business is an economic activity as it works to earn money, not for personal satisfaction.

Why Business is considered as an economic activity?

I will suggest watching the below video for more better understanding.

As you all know economic activity means earning money by providing customers or people goods and services. So I can say that economic activity is where:-

Earning money takes place
Providing customers with goods and services.

Now the question arises why business is an economic activity? I will teach you why business is an economic activity in the following ways:-

Profit motive
Creation of utility
Exchange of goods and services

Let’s discuss it in detail.

1) Profit motive

Every economic activity means earning money so the business also exists to earn money that is why business is an economic activity.

2) Creation of utilities

Creation of utility means how businessman provides goods and services

The business activity results in the creation of utility. So the businessman creates three types of utilities. They are as follows:-

Form
Time
Place

Form utility

A businessman converts raw material into finished goods and makes them useful for the consumer. In this way Businessmen create utility.

Time utility

Every good are not immediately when they produced. For example – If the air conditioner is produced in the month of winters so the consumer will not use the air conditioner in winters so there will be no demand for it.

So the manufacturer of the air conditioner will store the air conditioner in the warehouse. Generally, people will demand the air conditioner in the month of summers the producer will sale the air conditioner from the warehouse he had stored.

Place utility

Goods are not used or consumed where they are produced. Goods after production distributed in the different corners of the country.

So the businessman provides the facility to transport goods and services from the place of production to place of consumption.

3) Exchange of goods and services

Economic activities aim at earning money through the exchange of goods and services. Similarly, business activity results in the exchange of goods and services.

Objectives Of The Business

Before you start reading the article I want you to watch below video for more better understanding

Every business in the world has some duty to do. No business can survive longer by not doing these duties. Some duties of business or types of objectives of the business are:-

Economic objectives or Organisational objectives
Social objectives
Human or Individual or personal objectives

So we will discuss it in detail in this article.

Economic Objectives of Business

One of the very important objectives of the business. This objective is are of three types:-

Survival
Growth
Profit

Survival is the basic purpose of every business and it is possible only when profit is bigger than the cost.

Every business growth and expand their business to earn more profit. So growth can be measured in terms of a number of branches, a number of products, and a number of employees, etc.

Profit is very important for every business. If there will be no profit then the business can not grow and survive in the market.

Social objectives of Business

Every business use resources of society so it is the duty of every business to provide something good for society. Objectives are in the following:-

1) Supply of desired quality of goods

Every business must provide a good quality of products for customers because customers are quality conscious. Even any business tries to give poor products to customers then customers will not take that product and that business will face loss.

2) Avoidance of unfair trade practices

No businessmen should do cheat with customers. They should not do:-

Adulteration
Hoarding
Overcharging
Exaggerating

So, any business that tries to do bad things with people then people will not buy his products in the future and that business will face loss because he has lost his goodwill in the market.

3) Employment generation

Every business must provide jobs to people because the more companies provide jobs to people then that business image will go good in the market.

So people will start using that business products and services and business will then earn a good profit.

4) Social services

The business should give money to a charitable trust, school hospitals, and NGO, etc. This will also make their image good in the market and they can earn plenty of profits.

5) Avoidance of pollution

The business must use environment-friendly techniques so that business activity could not harm the environment.

Human Objectives of Business

1_ The business must provide good working conditions for its employees.

2_ Payment to employees must be good so every employee could live happily with that payment.

3_ Business must provide training to employees so that they can improve and can earn more money.

4_ Employees must be given the chance to participate in business decision making.

5_ Business must provide facilities like medical care, bonus, etc to their employees.

So, finally, we are over this topic. In the next topic, we will tell you about the “Role of profit In the business”.

Role of Profit In The Business

Before you start reading about the article I want you to watch YouTube videos for better understanding.

There are FIVE roles of profit in the business in nature and purpose of the business

5) Helps to gain reputation and goodwill

A good profit earning companies have a very good image in the market as compared to the companies which are running in the loss.

4) The reward for bearing the risk

Profit is the price a businessman gets to bear the risk. More risk more, profit and less risk, less profit. So a businessman must always take the risk to earn more profit.

3) Symbol of efficiency or Index of performance

Profits show the efficiency of the business it means that a business having high profits shows the high efficiency of the business. Likewise, If the business is earning fewer profits it shows less efficiency of the business.

2) Expansion and growth role of profit in the business

A business which is earning a good amount of profit can only expand and grow their business. In the case of fewer profits, a business could not expand and grow their business.

When profits are large businesses always invest those surplus profits in business growth and expansion.

1) Survival

A businessman could not survive in the market for a long time without earning profits. Profit is a source of income for any business a businessman which becomes his means of livelihood. Every business enterprises need a profit for survival.

Multiple Objectives of Business

Three are eight objectives that business must do they are as follows:-

1_ Market sharing means the business must try to come in top position in the market.

2_ Innovation means the business must try to innovate and upgrade there technology on a regular basis so that it can provide good technology products at less price.

3_ Productivity means the business must provide good quality products with less involvement of resources or cost.

4_ Workers’ performance must improve by timely giving them training.

5_ Social responsibility means the business must do things for social welfare.

Classification of Business Activity

So as always I suggest you watch the below video for more better understanding of this topic.

Business activities are of two types:-

Industry
Commerce

Industry (classification of business activities)

The industry is the process involved in collecting raw materials, making them into useful products. For example – Cotton into cotton shirts.

So cotton is raw material and cotton shirts are useful products.

*Note* – Industries can produce two types of goods:-

Consumer goods
Industrial goods or capital goods

Consumer goods are goods that consumers directly consume. For example – bread, cloth, butter, etc.

Industrial goods are goods produced for manufacturing consumer goods. For example – machine, cement, etc.

So, now we will discuss types of industries. There are three types of industry they are:-

Primary industry
Secondary industry
Tertiary industry

Primary Industry

This industry includes all those industries which extract natural resources and reproduction of living species. Primary Industries are of two types:-

Extractive Industry
Genetic Industry

Extractive Industries includes all those industries which extract something from the natural resources.

For example – Wood from the forest, Minerals from the earth, etc.

Genetic Industries includes all those industries which involve in caring for the animal and the mating and production of offspring by animals.

For example – Caring for cattle for milk, etc.

Secondary Industry

This Industry includes Industries that convert raw materials into finished goods. These industries use the produce of primary industry and convert into finish goods.

For example – Primary industry extract wood from the forest and then secondary industries use that woods to produce furniture, chair, etc.

Secondary Industries are of four types:-

A) Analytical Industry – In this industry, the basic raw materials broken into different parts to produce finished goods.

For example – Crude oil processed and then many finished products such as petroleum, diesel, kerosene oil, gasoline, etc. manufactured.

B) Synthetic Industry – In this industry, two or more material mixed to manufacture to produce finish goods.

For example – Various chemicals mixed to produce soap, paints, cosmetics, etc.

C) Processing Industry – In this Industry, the raw materials processed through various stages of production and then finished goods manufactured.

For example – the textile industry, etc

D) Assembly Industry – In this Industry various finished goods combined to produce a new product.

For example – the manufacturing of cars, watches, etc.

So, now we will discuss the construction industry.

Construction Industry

So this industry concerned with the construction of buildings, dams, roads, etc. These industries use the products of manufacturing industries such as cement, dams, etc. Such as cement, iron, steel, etc.

Tertiary Industry

These industries are commerce industries which provide services for the smooth flow of goods and services from producers to the consumer.

Tertiary Industry includes:-

Transport
Banking
Insurance
Warehousing
Advertising

Transport gives help for the movement of goods and services from one place to another.

Banking provides credit support to industries and trading firms.

Insurance provides safety from various risks

Warehousing provides a storage facility

Advertising provides information to the consumer.

So, Finally, we are over with Industry topics. Always remember commerce is very important for the industry because with the help of Commerce only goods and services can reach customers.

Commerce (classification of business activities)

Commerce is an activity that helps in the distribution of goods and services to customers. For example – Cotton shirts to customers with the help of transportation.

Commerce elements are:-

Transport
Banking
Insurance
Warehouse
Advertising

Functions of commerce

So, commerce helps in removing the hindrance (problems) with the help of commerce elements In the following ways:-

1) It helps in removing the problem of a person because it creates a link between producers and customers.

2) It helps in removing the problem of place because of the transportation element of commerce, goods produced in one place and customers are in different places so with the help of transport goods and services reach from the place where it produced to a place of customers.

3) It helps in removing the problem of time because of the warehouse element of commerce, some goods produced when it is not in demand but then stored in a warehouse and when customer demands them we give goods from the warehouse.

4) It helps in removing the problem of exchange because the banking element of commerce helps buyers and sellers in making and collecting payments.

5) It helps in removing the problem of exchange because the insurance element of commerce prevent the businessman from risks.

6) It helps in removing the problem of exchange because the advertising element of commerce helps the businessman to promote their products and services in the market.

Classification of Commerce

Commerce is of two types:-

Trade
Aids to trade

Trade

It refers to the buying and selling of goods and services. Trade segment of commerce brings together both producer and consumer.

If there will be no trade then the producer has to search for consumers and consumers have to search for a producer.

Trade is of two types:-

Internal trade
External trade

Internal trade refers to the buying and selling of goods and services within the geographical boundaries of the country.

Internal trade is of two types:-

Wholesale trade
Retail trade

Wholesale trade refers to the buying and selling of goods and services in large quantities. A wholesaler buys goods directly from the manufacturer and sells it to the consumer.

Retail trade refers to the buying and selling of goods and services in small quantities. A retailer buys goods from the wholesaler and sells it to the customers.

External trade refers to the buying and selling of goods and services beyond the geographical boundaries of the country.

External Trade is of three broad categories types:-

Export
Import
Entrepot

Export refers to the sale of goods to a foreign country.

Import refers to the purchase of goods from a foreign country.

Entrepot refers to the purchase of goods for the purpose of sale.

Aids to trade/ auxiliaries to trade

In this topic, we will discuss how commerce helps in buying and selling of goods and services with the help of:-

Transportation
Banking
Insurance
Warehousing
Advertising

Guys I have already told you about this topic In above me have learned under function of commerce topic, how commerce solve problem with the help of transportation, banking, insurance, warehousing, and advertising you have to write that same topic here.

Business Risk In nature and purpose of business

In this topic, we will cover:-

Meaning of business risk
Causes of business risk
Types of business risk

I will also suggest watching my YouTube video down below.

It means the chance of incurring losses or less profit than expected. For example, the demand for any product may fall due to a change in taste and preference of the customers, fire theft, etc.

This businessman cannot control risk it can even decrease the profit of any Firms. So, the risks involved in every line of business.

Nature

There are various types of nature they are as follows:-

1) Business risk is uncertain it means that we do not know what is going to happen in the future. Common examples of uncertainties are a change in demand, government policy, technology, etc. There is always the uncertainty of return.

2) An essential part of every business because it is a very important feature of any business. No firm can avoid risk but the degree of risk may vary. Risk can reduce but not eliminate.

3) The degree of risk depends upon the nature and size of business for example firms which involved in fashion have more risk than the firm involved in producing steel.

4) Profit is the reward for bearing the risk because every firm is earning profit only because they are bearing risk. No risk, no gain. Profit is a reward for risks

Causes

In this topic, We will learn why risks arise due to four causes, So four causes they are as follows:-

1) Natural causes related to natural calamities. For example – earthquakes, floods, etc.

2) Human causes related to human ignorance. These causes are related to human beings or employees of the organization. For example – employees can leak your secret to your competitors.

3) Economic causes related to change in the market condition. For example – Change in demand of the customers.

4) Physical causes related to the losses due to damage of assets. For example – Technology outdated of the machine.

Types or elements of risk of Business risk

There are two types of risks:-

Insurable risk
Non-insurable risk

An insurable risk is those risk which can be covered. The losses which can become good, or losses for which company gets compensation from Insurance company.

A non-insurable risk is those risks of which no protection is available. Generally, economic and human risks are Non-insurable risk.