Welcome to Study Material Solution
Leave Comment


                                                         BUSINESS, TRADE AND COMMERCE

Economic and Non-economic Activities:

An individual performs many activities in his day-to-day life. For Example, going to office, spending
time with children, watching TV, etc. All the activities performed by an individual can be classified as
economic activities and non-economic activities.

Economic Activities:

Activities which are undertaken by people with an objective of earning livelihood are known as economic
activities. For example, a worker working in a factory, a teacher teaching in school.  Economic activities
can be further classified as business, profession and employment.

      •    Business: It is an economic activity which is concerned with the purchase or production and sale
            of goods or provision of services with a view to earn income in the form of profit by satisfying the
            needs of the people.

      •    Profession: It includes those activities which require expert knowledge and special skills to be applied
            by individuals. in their occupation- Profession includes professional activities which are subject to
            guidelines or codes of conduct laid down by professional bodies.Those engaged in profession are called
            professionals and they earn income by chargingprofessional fee.

      •    Employment: It refers to the occupation in which people work for others and get remuneration in the form
            of wages/salaries. Those who are employed by others are called employees and the one who employs is
            called employer

Non-economic Activities:

Activities which are undertaken to satisfy social and psychological needs are called non-economic activities.
These are concerned with love, sympathy, patriotism, sentiments, etc. For example, cooking food for family,
fighting for independence of a country, etc.

♦  Characteristics of Business:

     •    Economic Activity: Business is an economic activity as it includes exchange of goods and services with
           the purpose of earning money or livelihood.

     •    Production or Procurement of Good & and Services: Every business enterprise produces the goods or
           acquires them from producers to sell them to consumers and earn profit in the process.A businessman
           can also provide services to the consumer for a value and earn profits.

     •    Sale or Exchange of Goods and Services for Value: Directly or indirectly business involves transfer or
           exchange of goods and services for value. If goods are produced not for purpose of sale, it cannot be
           called as business activity.

     •    Profit Earning: The primary objective of business is to earn profit. For this, businessmen make all possible
           efforts to increase the volume of sales and reduce cost.

     •    Uncertainty of Return: In business, the returns on amount invested are not certain. Also, there is always a
           possibility of loss.

     •    Dealing of Goods and Services on Regular Basis: Business deals in good & and services on regular basis.
           One single transaction of sale or purchase does not constitute business.

     •    Element of Risk: Business involves an element of risk. It implies the uncertainty of reward or possibility of loss.

Classification of Business Activities:

Into two broad categories, various business activities can be classified-

     •    Industry
     •    Commerce

♦   Industry:

The sector where raw material gets converted into useful products is called industry. Activities related to production
& processing as well as activities related to rearing & reproduction of animals or other living species are all included
in the industry. The purpose of industry is to create form utility by converting raw materials into useful forms of finished
An industry may produce consumer goods or capital goods. Goods such as bread, butter, cloth, radio, etc. are consumer
goods. These goods are directly used by the consumer. Goods such as machinery, cement etc. are called capital goods as
these are used further in the production process to make useful products.

Industry can be classified into three broad categories:
  Primary Industry:

This is also known as extractive industries. It includes activity connected with the production of wealth directly
from natural resources such as water, air, & land etc. Primary industry includes activities like extraction & processing
of natural resources etc. These industries are further subdivided as follows:

    •    Extractive industry: These industries extract or draw out products from natural sources. Raw materials
          that are mostly products of the soil are some basic supply of extractive industries. Manufacturing industries
          transform these products into many other useful goods. Some of the examples of extractive industries include
          farming, mining, lumbering, hunting & fishing operation.

    •    Genetic industry: The industries involved in the activities of rearing & breeding of living organism i.e. birds,
          plants, animals etc. are known as a genetic industry. For example, rearing of cattle for milk, dairy farms, poultry
          farms, rearing of plants in the nursery, growing fish in ponds etc. are included in the genetic industry.

♦  Secondary Industry:

This industry is concerned with converting raw material into finishing product. The materials which have already
been extracted at the primary stage is the concern of the secondary industry. Such materials are processed to
produce goods for final consumption or for further processing by other industrial units in these industries.

Secondary industries may be further divided as follows:

      •    Manufacturing industries: These industries are engaged in the process of conversion of raw materials
            or semi-finished goods into finished goods. These industries create from the utility by changing the form
            of raw materials into finished products.

      •    Construction industries: These industries are concerned with the construction of buildings, dams, roads etc.
            These industries use the products of manufacturing industries such as cement, iron & steel, lime etc.

♦  Tertiary Industry:

These industries are concerned with providing those services which facilitate a flow of goods & services.
This industry helps in the activities of the primary & secondary industry.


We can refer to commerce as all those activities which help directly or indirectly in the distribution of goods
to the ultimate consumer. There will be no use of producing goods unless & until these goods reach the ultimate
consumer. Goods are produced at one place & consumers are scattered at different places. Commerce can be
classified into two broad categories:

Trade: Trade is an integral part of commerce. It includes buying & selling of goods & services. The trade
segment of commerce brings together the manufacturer & the consumer, i.e. it is a link between the manufacturer
& the consumer.

Trade can be classified into two types:

♦  Internal trade: It refers to buying & selling of goods or services within the geographical boundaries of
    a country. It is also known as home trade or domestic trade. Under internal trade, goods & services are
    bought & sold in the home currency only.

The internal trade can be two types:

    •    Local Trade: Buying and selling within a local area.

    •    State Trade: Buying and selling within a single state. That is intra-state trade.

    •    National Trade: Buying and selling between the states. That is Inter-state trade.

  External trade: When the buying & selling of goods & services is beyond the geographical limits of the
    country it is called external trade. It is also known as trade between two or more countries. In external trade,
     the market is very wide.
External trade is of the following types:
    •    Imports: It refers to the purchase of goods and services from other countries.

    •    Exports: Selling goods and services to other countries.

    •    Entreport: Importing goods and services from one country and exporting to some third country.

♦  Aids to Trade:

The activities which help in the smooth flow of trade are known as aids totrade. These activities make buying &
selling of goods easier. These help in removing various hindrances of trade which arises in production &
distribution of goods.

The common aids to trade are:

    •    Transport and Communication: Transportation helps in the movement of raw material and finished products
          from the place of production to the place of consumption. Communication enables easy interaction by one party
          with the another who are far away from each other. It assists in removal of the hindrance cause due to place.

    •    Banking and finance: It helps business activities to overcome the problem of finance by lending loans and credit
          facilities since business can't survive if funds are not available for procuring material. It assists in removal of the
          hindrance cause due to finance.

    •    Insurance: It provides protection to businesses from various types of risks such as due to fire, theft etc.  It assists
          in curbing hindrances of risk.

    •    Warehousing: It helps business firms to overcome the problem of storage and facilitates the availability of goods.
          It assists in curbing hindrances of time.

    •    Advertising and Public Relations: It helps them to increase the sales and widen the customer base by promoting
          business products or services at a wide spectrum. It is a tool to influence customers.  It assists in curbing hindrances
          caused due to information

    •    Middlemen: These people act as mediators between the producer and consumers. These include wholesalers,
          retailers etc.  It assists in curbing hindrances of persons.

Objectives of Business

The business objective is a goal, i.e. where the business wants to reach in the future. For example,a business wants to
set up its franchise in another state in the next 3 years or it wants to increase its workforce in the coming months.

♦  Economic Objectives of Business:

     •    Profit Earning: Business is a set of activities undertaken with the prospect of sale for the purpose of earning a
           profit. Profit is the extra income over the expenses. The main objective of any business is to earn a profit. Just
           as a plant cannot survive without water, similarly a business cannot sustain without profit.

     •    Market Share/ Creation of Customers: In the words of Drucker, “There is only one valid definition of business
           purpose; to create a customer. “Profits are not generated out of thin air. They are the result of the hard work of
           the businessman to satisfy the needs of the customers.

     •    Increasing Productivity: Productivity is a scale to measure the efficiency of the business activity. It is usually the
           last objective but just as important because productivity is measured by the output given by the activities. It is the
           end result of any business activity.

  Social Objectives of Business:

According to Dayton Hudson “The business of business is serving society, not just making money.” Business is one
of the pillars on which the society stands.  Therefore, it is a part of the society. In fact, it cannot thrive without the
resources from the society.  The business earns its income from the sale of products and services to the society. It is
mandatory on the part of the business to take care of the social factors.

     •    Providing Goods & Services at Reasonable Prices: Business exists in the first place to satisfy the needs of the
           society. It’s the first and major social objective of the business. Products and services ought to be of better
           quality and these ought to be provided at sensible costs. It is additionally the social commitment of business
           to keep away from misbehaviors like boarding, Black promoting and manipulative advertising.

     •    Employment Generation: One of the major problem today’s generation facing is unemployment. Business
           generates employment. Therefore, it is the social objective of a business to give chances to beneficial employment
           to individuals of the society. In a nation like India, unemployment has turned into a critical issue.

     •    Fair Remuneration to Employees: The business does not run on its own but the people are responsible for the
           success and failure of the business. The people on the inside of the business are more valuable i.e. employees.
           They are an asset of the business and make a ground-breaking contribution to the business. They must be given
            reasonable pay for their work.

Business Risk

Business risk is defined as the possibility of occurrence of any unfavorable event that has thepotential to minimize
gains and maximize loss of a business. In simple words, business risks are those factors that increase the chances
of losses in a business and reduce opportunities of profit.

These factors are not under the control of the business and result in declining profits of the business.

  Nature of Business Risk:

     •    Business risk arises due to uncertainties. Uncertainty is when it is not known what is going to happen in
           future. Examples of uncertainties that affect a business are, change in government policy, change in demand,
           change in technology, etc.

     •    Risk is an essential part of the business. The risk involved in a business can be reduced to some extent but
           it is not possible to eliminate the risk involved.

     •    Every business has risk which varies in severity based on the type of business. For example a large corporation
           or business will carry more risk as compared to small scale businesses.

     •    Businesses take risk with the motive or expectation of earning profit.

♦  Types of Business Risk:

     •    Strategic Risk: Strategic risks are such that can happen to a business at any time. This could be due to the
           change in customer preferences. Hence, businesses need to have a real time feedback system for recognising
           customer feedback.

     •    Compliance Risk: Compliance risk relates to the risk that arises from the changing rules by a regulatory
           body or government that a company needs to adjust accordingly and implement the same in their operations.

     •    Financial Risk: Financial risk is related to the financial health of the business. It relates to the companies ability
           to carry on operations in case of non-payment by some clients.

     •    Operational Risk: Operational risk is where there is a risk arising from the execution of the processes or operations
           of the business. It can be due to sudden breakdown of machinery or the system which can result in delay in operations,
           that can be detrimental to the business.

     •    Before starting a new business venture, an entrepreneur must carefully consider various aspects.He or she must
           evaluate each aspect, considering the various positive and negative consequences.The following are some of the
           important factors that must be considered while starting a business.

♦  Factors to start a Business:

     •    Selecting the line of business: The line of business is the foremost decision that involves choosing the kind
           of product to produce, analysing its existing and future market demand, profit considerations and the level
           of technical knowhow possessed by the entrepreneur.

     •    Scale of the business: Once the line of business is selected, the entrepreneur needs to decide the scale of the
           business, i.e., the business size, whether to operate on large scale or small scale.

     •    Location: The choice of business location is dependent on numerous factors such as easy and cheap availability
           of raw material and labour, well-connected transportation facilities, and power and other infrastructural facilities.
           Generally, locations where good infrastructure is available are preferred.

     •    Financial requirement: Finance is required for every aspect of business—from the purchase of raw material and
           machinery to further investment for the growth of the business. Therefore, while starting a business, the availability
           of alternatives to raise funds must be carefully analyzed.

     •    Efficient workforce: A competent and trained workforce is the basic input to carry on various business activities.
           In this regard, the entrepreneur must appropriately identify the requirement of human resources for the business,
           both at the worker level and at the managerial level.

     •    Physical requirements: These requirements include machinery, other equipment, tools and technology that add to
           the efficiency of a business. The entrepreneur must carefully consider and decide the physical requirements on the
           basis of the nature and production scale of the business.


Leave a Reply