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Nature and Purpose of Business – Class 11 Business Studies notes, important questions and MCQs

NCERT Class 11 Business Studies, chapter 1. Notes, key terms, important questions with answers and MCQs.

Chapter overview

Human activities are economic, done to earn a living, or non-economic, done for love, sympathy or religion. Economic activities are business, profession and employment. Business includes industry and commerce and aims at earning profit while serving society. Every business faces risk, which is the reward for which profit is earned.

Business, profession and employment

Business is the regular production or purchase and sale of goods and services with the aim of earning profit.
Profession requires specialised knowledge and training and is governed by a professional body, such as doctors, lawyers and chartered accountants.
Employment means working for others under a service contract in return for wages or salary.

Classification of business activities

Industry: primary industries (extractive, such as mining, and genetic, such as poultry), secondary industries (manufacturing and construction) and tertiary industries (services).
Manufacturing may be analytical (separating, as in oil refining), synthetical (combining, as in cement), processing (as in sugar) or assembling (as in cars).
Commerce = trade + auxiliaries (aids) to trade; trade may be internal (wholesale and retail) or external (import, export, entrepot).
Auxiliaries to trade remove hindrances: transport (place), banking (finance), insurance (risk), warehousing (time), advertising (information).

Objectives and risk

Business has multiple objectives: market standing, innovation, productivity, physical and financial resources, earning profit, manager performance, worker performance and social responsibility.
Business risk is the possibility of inadequate profit or loss due to uncertainties.
Causes include natural (floods), human (strikes, theft), economic (change in demand, competition), and other causes (political change, technology).

Key terms

Business: regular economic activity of producing or buying and selling goods and services for profit
Profession: an occupation requiring specialised knowledge, training and membership of a professional body
Commerce: trade together with the auxiliaries to trade that help it
Auxiliaries to trade: activities such as transport, banking, insurance and warehousing that remove hindrances in trade
Business risk: the possibility of inadequate profit or loss due to uncertain events

Important questions with answers

Distinguish between business and profession.2 marks

Business is a regular economic activity of producing or buying and selling goods and services to earn profit; no special qualification is needed and capital depends on its size. Profession is an occupation that requires specialised knowledge and training and membership of a professional body; the reward is professional fees and it follows a code of conduct.

What are auxiliaries to trade? Explain briefly.3 marks

Auxiliaries to trade are activities that help trade by removing hindrances. Transport removes the hindrance of place by moving goods; banking removes the hindrance of finance; insurance removes the hindrance of risk; warehousing removes the hindrance of time by storing goods; and advertising removes the hindrance of information by informing customers about products.

Explain the classification of business activities with examples.5 marks

Business activities are classified into industry and commerce. Industry is concerned with producing or processing goods. Primary industries are connected with extraction and production of natural resources; they include extractive industries such as mining, fishing and lumbering, and genetic industries such as poultry, dairy and nurseries, which reproduce plants and animals. Secondary industries use materials from primary industries to make goods; they include manufacturing, which may be analytical (oil refining), synthetical (cement), processing (sugar) or assembling (cars and computers), and construction industries such as building roads, bridges and dams. Tertiary industries provide services that help primary and secondary industries. Commerce includes all activities that help in the exchange of goods and services. It consists of trade, which may be internal, that is wholesale or retail within the country, or external, that is import, export and entrepot trade; and auxiliaries to trade, which remove hindrances: transport (place), banking (finance), insurance (risk), warehousing (time) and advertising (information). Together industry and commerce make goods available to consumers.

Quick revision

Business, profession, employment.
Primary, secondary, tertiary industries.
Commerce = trade + auxiliaries.
Multiple objectives; business risk and its causes.

Exam tips

Learn the chart: business → industry (primary, secondary, tertiary) and commerce (trade, aids to trade).
Match each aid to trade with the hindrance it removes.

Practice MCQs

An occupation requiring specialised knowledge and membership of a professional body is
1. profession
2. business
3. employment
4. trade
Show answer
Answer: (a) profession. Doctors and lawyers are examples.
Mining and fishing are examples of
1. extractive industries
2. genetic industries
3. assembling industries
4. commerce
Show answer
Answer: (a) extractive industries. They extract natural products.
Warehousing removes the hindrance of
1. place
2. risk
3. finance
4. time
Show answer
Answer: (d) time. Goods are stored until needed.
Poultry farming and nurseries are examples of
1. genetic industries
2. extractive industries
3. construction industries
4. tertiary industries
Show answer
Answer: (a) genetic industries. They reproduce and multiply plants and animals.
Making cement by combining various materials is
1. analytical manufacturing
2. assembling
3. processing
4. synthetical manufacturing
Show answer
Answer: (d) synthetical manufacturing. Materials are combined.
Importing goods to re-export them is called
1. export trade
2. retail trade
3. wholesale trade
4. entrepot trade
Show answer
Answer: (d) entrepot trade. It is also called re-export.
Why is profit called the reward for risk-bearing
1. the businessman bears uncertainty and earns profit for it
2. profit is fixed by law
3. profit is a gift
4. profit is a cost
Show answer
Answer: (a) the businessman bears uncertainty and earns profit for it. Higher risk often brings higher expected profit.
A strike by workers causing loss is a business risk due to
1. human causes
2. natural causes
3. economic causes only
4. physical causes
Show answer
Answer: (a) human causes. It arises from human behaviour.

All chapters of Class 11 Business Studies

Written by Kundali IQ from standard, well-established facts to help with revision. This is not an official NCERT publication; always read your textbook too.