Nature and Purpose of Business 

Concept and Characteristics of Business, Profession and Employment.
Quick Review—
-> Types Of Human Activities
(i) Economic Activities
(ii) Non-Economic Activities
-> Types Of Economic Activities
(i) Business. (ii) Profession.
(iii) Employment.

Concept Of Business

Business in an economic activity which is concerned with the production and sale of goods and services on a regular basis needed by the society with the aim of earning profit.
“Business may be defined as an activity in which different persons exchange something of value, whether goods or services for mutual gain or profit” —Peterson and Plowman
“Business is an institution organised and operated to provide goods and services to society under the incentive or private gain.” —Wheeler
“Business may be defined as human activity directed towards producing or acquiring wealth through buying and selling goods. —L. H. Haney.

Characteristics Of Business

(i) An economic activity : Business is considered as an economic activity as it is undertaken with the objective or aim of earning money and livelihood and not for psychological satisfaction.
(ii) Production of goods and services: Every business enterprise either produces goods or services for producers. Goods may consist of consumer or industrial goods and services may include transportation banking insurance, etc.
(iii) Profit earning: The main purpose of business is earning profit. If the profit motive is missing in a transaction then it cannot be considered as a business transaction.
(iv) Uncertainty of risk : Another important business is the presence of risk factor in a transaction. There is always a possibility of losses.

Functions Of A Business Firm

(i) Financing.
(ii) Production.
(iii) Marketing.
(iv) Human Resource Management.

Characteristics Of Business

(i) Economic activity.
(ii) Deals in goods and services.
(iii) Satisfaction of human wants.
(iv) Regular dealings.
(v) Profit motive.
(vi) Risk factor.

Business As An Economic Activity

(i) Profit motive : The main motive of every business activity is to earn money in the form of profit and any activity which result in earning of money and creation of wealth is considered as an economic activity.
(ii) Creation of utility: Business activity results in creation of utilities. Businessmen create three types of utilities like; form utility, time utility and place utility.
(iii) Exchange of goods and services : Economics activity aim at earning by exchange of goods and services similarly, business activities results in sale, distribution or exchange of goods and services for earning profit.

Definitions Of Business

Know the Terms
-> Economic activities : Are those activities which are undertaken by people with the object of earning income or livelihood or to statisfy material needs e.g., a worker working in a factory, a taxi driver driving a taxi, etc.
-> Non-Economic activities: Are those activities which are undertaken to satisfy social, psychological and emotional needs. The purpose of these activities is not to earn money or to satisfy material needs, e.g., person engaged in religious work, a mother looking after her children, etc.
-> Business: It is an human economic activity, concerned with the purchase or production and sale of goods supply of services with a view to earn profits by satisfying the needs of consumers.
-> Profession: It refers to an economic activities which requires some specialised skill or knowledge, is governed by certain code of conduct and is done with service motive, e.g., Doctors, Lawyers, etc.
-> Employment: Employment is an occupation were an individual agrees to work for a person or an organisation in return of wages or salaries, e.g., Managers, clerks, factory workers etc. Read out best Managerial Accounting MCQs

Nature and Purpose of Business MCQ

Question 1.
Which one of the following is NOT the objective of the business?
(a) Investment
(b) Innovation
(c) Creation of customers
(d) Profit-making

Answer: (a) Investment

Question 2.
Which one of the following is an economic activity in which specialized knowledge is required?
(a) Profession
(b) Business
(c) Employment
(d) None of the above

Answer: (a) Profession

Question 3.
Commerce includes activities relating to trade and _________________ to trade.
(a) Auxiliaries
(b) Subsidiaries
(c) Supporting
(d) None of the above

Answer: (a) Auxiliaries

Question 4.
Bad debts due to non-payment of debt by the debtor are an example of which type of business risk?
(a) Human
(b) Natural
(c) Physical
(d) Economic

Answer: (a) Human

Question 5.
Which of the following is an economic cause of business risks?
(a) Demand for goods
(b) Competition
(c) Price
(d) All of the above

Answer: (d) All of the above

Question 6.
Business risk is not likely to arise due to
(a) Power failure
(b) Employee dishonesty
(c) Changes in government policy
(d) Good management

Answer: (d) Good management

Question 7.
The word marketing standing is concerned with __________
(a) Position of an enterprise
(b) Supply of the product
(c) Customers
(d) Competitors

Answer: (a) Position of an enterprise

Question 8.
Why a business should earn a profit?
(a) To provide a return to investors
(b) To increase the reputation of the business
(c) To provide funds for future growth
(d) All of the above

Answer: (d) All of the above

Question 9.
Which one of the following is NOT an Auxiliary to trade?
(a) Mining
(b) Warehousing
(c) Insurance
(d) Transport

Answer: (a) Mining

Question 10.
Which of the following is not a natural cause of business risks?
(a) Earthquake
(b) Strikes
(c) Famine
(d) Heavy Rains

Answer: (b) Strikes

Question 11.
Which of the following is not concerned with the profession?
(a) Manufacturing goods and services
(b) Specialised body of knowledge and skill
(c) Code of conduct
(d) Formal Training

Answer: (a) Manufacturing goods and services

Question 12.
Which of the broad categories of industries covers oil refinery and sugar mills?
(a) Primary
(b) Secondary
(c) Tertiary
(d) None of the above

Answer: (b) Secondary

Question 13.
Which of the following is an instrument of exchange, which was prominent in the subcontinent?
(a) Copper
(b) Hundi
(c) Gold
(d) Silver

Answer: (b) Hundi

Question 14.
The occupation in which people work for others and get remunerated in return is known as:
(a) Profession
(b) Employment
(c) Business
(d) None of the above

Answer: (b) Employment

Question 15.
The industries which provide support services to other industries are known as
(a) Primary industries
(b) Commercial industries
(c) Tertiary industries
(d) Secondary industries

Answer: (c) Tertiary industries

Question 16.
Which one of the following is an economic activity in which specialized knowledge is required?
(a) Profession
(b) Business
(c) Employment
(d) None of the above

Answer: (a) Profession

Question 17.
The term business is derived from the word ______________
(a) Buy and selling
(b) Financial markets
(c) Proprietorship
(d) Busy

Answer: (d) Busy

Question 18.
Which of the following is an economic activity?
(a) Social Activities
(b) Patriotic Activities
(c) Profession
(d) Religious Activities

Answer: (c) Profession

Question 19.
Which of the following is not a characteristic of business activity?
(a) Wages
(b) Sale of product
(c) The factor of risk
(d) Manufacturing goods and services

Answer: (a) Wages

Question 20.
__________ is an economic activity
(a) Non-employment
(b) Employment
(c) Non profit organisation
(d) None of the above

Answer: (b) Employment

Question 21.
Bad debts due to non-payment of debts by debtors is an example of which type of business risk?
(a) Human
(b) Natural
(c) Physical
(d) Economic

Answer: (a) Human

Question 22.
Tea is mainly produced in Assam; Cotton in Gujarat and Maharashtra; Jute in West Bengal and Orissa; Sugar in U.P, Bihar, and Maharashtra. But these goods are required for consumption in different parts of the country. For this purpose ________ is very important.
(a) Banking and Finance
(b) Advertising
(c) Insurance
(d) Transport and Communication

Answer: (d) Transport and Communication

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