Question

Long answer Type questions

Define business, Explain its features.

Answer 1

The term ‘business’ has been derived from the word ‘busy’, which means ‘engaged in an activity’. A person engaged in business trades goods or services for a profit, which is the most important motive of conducting business. In the pursuit of earning a profit, a businessperson aims to produce goods and services that are in demand. This is because it is economically prudent to produce such goods and services, as they ensure higher profits. The following are the major features of a business:

i. Economic activity: Business is primarily undertaken with an objective to earn money to finance one’s livelihood. It can be said that the sole motive with which a business is run is profit. This means that the decision to carry out a business is not out of love or to perform charitable activities. Hence, business is characterised as an economic activity.

ii. Procurement of raw materials: Business involves procurement of raw materials and semi-finished goods that are then processed further into final goods. These final goods are then sold to the end consumers at higher prices.

iii. Profit motive: Earning profit forms the most important objective of all the business activities. It is the capacity to earn profits that decides the sustainability and future growth prospects of a business. The profits of business can be increased by increasing sales or reducing the costs of production.

iv. Exchange of goods and services: Business basically involves an exchange of goods and services between the seller and the buyer for money.

v. Regular basis: The exchange of goods and services is done on a regular basis. Business is a continuous process in which semi-finished goods are procured, some value is added to them and the final goods are traded in the market. It should be noted that one single deal or transaction cannot be called a business.

vi. Business risk: Every business, irrespective of its size and the types of goods produced, faces business risk. Although the degree of risk may differ from business to business, there is no way in which a business can escape risk. It is because of risks that no business can accurately anticipate the returns on investments.