NATURE AND OBJECTIVES OF BUSINESS NING OBJECT After studying this chapter, you should understand: 2.1 Definition and Concept of Business 2.2 Characteristics of Business 2.3. Necessity of Business 2.4 Business as an Economic Activity 2.5 Objectives of Business 2,6 Role of Profit in Business 2.7 Objections against Profit Maximisation In the literal sense, the term “Business” means the state of being busy. But it is a very wide connotation of business because it covers every human activity. Bus really concemed with the production and exchange of goods and services with the aim of eaming money, Business creates utilities by producing and selling goods and services to satisfy human wants. 2.1 DEFINITION AND CONCEPT OF BUSINESS. Business is an activity, in which different persons exchange something of value, whether goods or services, for mutual gain or profit. It is an organised or systematic activity involving the satisfaction of human wants, Business involves regular or recurring, purchase and sale of goods and services with the purpose of earning profits through the satisfaction of human needs, Repeated dealings rather than a single isolated transaction constitute business. Business may be distinguished from other activities by the fact that goods and services created or purchased are meant for sale and not for personal consumption. Definitions of Business Various experts have defined business in different ways. Some of the popular definitions of business are given below: “Business may be defined as a human activity directed towards producing of acquiring wealth through buying and selling of goods.” —L,.H. Haney 18Nature and Objectives of Business JEDI z “Business is an institution organised and operated to provide goods and services to society under the incentive of private gain.” —B.O. Wheeler “Business is a form of activity pursued primarily with the objective of earning profits for the benefit of those on whose behalf the activity is conducted.” —L.R. Dicksee “Economic activities performed for earning profits are termed as Business”. —James Stephenson “Business is a sum of all activities involved in the production and distribution of goods and services for private profits”. —Keith and Carlo “Business is any enterprise which makes, distributes or provides any article or service which the other members of the community need and are able and willing to pay for”. —Urwick and Hunt “Business is any enterprise engaged in the production and distribution of goods for sale in market or rendering services for a price.” —R.N. Owens “The whole complex field of commerce and industry, the basic industries processing and manufacturing industries and the network of ancillary services, distribution, banking, insurance transport and so on which serve and interpenetrate the world of business as a whole”. —EC. Hooper These definitions highlight the different aspects of business. Hancy’s definition includes goods only but rendering of service is also a part of business. Wheeler ‘considers private gain as the sole motive of business whereas some business a like public utility services are undertaken primarily for the benefit of society. Definitions of Urwick, Hunt, and Owens focus on providing goods and services to people for a price. Hooper has tried to enumerate various types of business activities. His definition appears to be comprehensive but does not point out the purpose of business. Business may be defined as an economic activity which involves regular transfer or exchange of goods and services for a price with the object of earning profits and acquiring wealth through the satisfaction of human wants, with an element of risk. 2.2 CHARACTERISTICS OF BUSINESS ‘The salient features of business are given below: 1. Creation of utilities. Business makes goods more useful to satisfy human wants. It adds time, place, form, and possession utilities to various types of goods. In the words of Roger, “a business exists to create and deliver value satisfaction to customers at a profit”. Business enables people to satisfy their wants more effectively and economically. It carries goods from place of surplus to the place of scarcity (place utility). It makes goods available for use in future through Storage (time utility). 2. Dealings in goods and services. Every business enterprise produces and/or buys goods and services for selling them to others. Goods may be consumer goods or Producer goods. Consumer goods are meant for direct use by the ultimate consumers, €.g., bread, tea, shoes, etc. Producer goods are used for the production of consumer or capital goods like raw materials, machinery, ete. Services like transport, warehousing, banking, insurance, etc. may be considered as intangible and invisible goods. Services facilitate buying and selling of goods by overcoming various hindrances in trade,| 3. Continuity in dealings. Dealings in goods and services become business only if undertaken on a regular basis, According to Peterson and Plowman, “a single isolated transaction of purchase and sale will not constitute business. Recurring or repeated transaction of purchase and sale alone mean business.” For instance, if a person sells his old scooter or car it is not business though the seller gets money in exchange. But if he opens a shop and sells scooters or cars regularly, it will become business. Therefore, regularity of dealings is an essential feature of busines 4. Sale, transfer, or exchange. All business activities involve transfer or exchange of goods and services for some consideration, The consideration called price is usually expressed in terms of money. Business delivers goods and services to those who need them and are able and willing to pay for them. For example, if a person cooks and serves food to his family, it is not business. But when he cooks food and sells it to others for a price, it becomes business. According to Peter Drucker “any organisation that fulfils itself through marketing a product or service is a business”. & Profit motive. The primary aim of business is to eam profits. Profits are essential for the survival as well as growth of business. Profits must, however, be earned through legal and fair means. Business should never exploit society to make money. 6, Element of risk. Profit is the reward for assuming risk. Risk implies the uncertainty of profit or the possibility of loss. Risk is a part and parcel of business. Business enterprises function in uncertain and uncontrollable environment. Changes in customers’ tastes and fashions, demand, competition, Government policies, ete. create risk. Food, fire, earthquake, strike by employees, theft, etc. also cause loss. A businessman can reduce risks through correct forecasting and insurance. But all risks cannot be eliminated. 7. Economic activity, Business is primarily an economic activity as it involves production and distribution of goods and services for earning money. However, business is also 2 social institution because it helps to improve the living standards of. people through effective utilisation of scarce resources of the society. Only economic activities are included in business. Non-economic activities do not form a part of business. 8. Art as well as science. Business is an art because it requires personal skills and experience. It is also a science because itis based on certain principles and laws. ‘The above mentioned characteristics are common to all business enterprises irrespective of their nature, size, and form of ownership. ‘CHARACTERISTICS OF BUSINESS AT A GLANCE, 1. Creation of Usilties 2. Dealings in Goods and Services ~ 3, Continuity in Dealings 4, Sale, Transfer, or Exchange for Price | "$, Profit Motive | 6. Element of Risk 7. Economic Activity 8. Art as well as ScienceNature and Objectives of Business 2.3 NECESSITY OF BUSINESS Business is needed duc to the following reasons: 1. To remove poverty. The economic development of a country depends upon ‘the growth of business, Industry, trade and other business activities generate wealth and add to national income. A country may have abundant natural resources. But it will ‘remain poor until these resources are utilised productively. Business enterprises make productive use of national resources so that per capita income of people can increase. Business also makes effective use of technological improvements to create wealth. 2. To generate employment. The number of persons who seek jobs is rapidly increasing, In a country like India, agricultural sector is already over-burdened and unemployment has become a serious problem. Business offers employment to millions of people. There is unlimited scope for employment in industry and trade due to the vast range of business activities. 3. To improve standard of living. Business helps to increase the purchasing power of people. It provides them a wide range of products and services to satisfy human wants. Business firms provide information and education to consumers through advertisements and other means. People can enjoy new and better products to improve their living standards. Increase in consumption increases demand and production thereby contributing to further progress of the country. 4. To earn foreign exchange. A country can not produce everything needed by its people. It has to import certain items for which foreign currency is required. Business helps to earn foreign exchange through exports. It helps to reduce pressure on the country’s balance of payments and enables a nation to achieve economic independence. A country can obtain supplies of food and other essential products which it does not produce. Similarly, a country can sell its surplus output to other countries. 5. To promote social welfare. Business can enrich human life and establish a better society. In the course of business activities people belonging to different reli castes, and regions come to one another. Business dealings between nations provide socially useful, culturally desirable, and politically significant movement amongst people. Business enterprises assist the community in public health, education, and other socially useful programmes. In this way business contributes to art, culture, and peace in society. Human beings have several wants which go on increasing day by day. In order to satisfy their ever-increasing wants, people require various types of goods and services. Business activities are essential for production of these goods and series and for their distribution among ultimate consumers. Business creates utility for satisfaction of humans wants. It makes proper allocation and utilisation of natural, financial, and human resources for the economic growth of the country and for the welfare of society, It helps nations overcome geographical barriers. It facilitates mutual understanding between people and international cooperation. In fact, modem and civilised life cannot be possible without business. In the words of wheeler, “business—like weather is with us everyday. Buying and selling, hiring and firing, producing and financing, these are but a few of the many business activities which daily influence the lives of all of us directly or indirectly.”[EEE iscCommerceforclass x1 ; mek The study of business is important to know the position of economic development in a country. The study of business activities helps a person to take better decisions, One can be better customer, employee, and investor if one is familiar with business enterprises and their operations. A formal study of business can enable a person to Jaunch his own business, 2.4 BUSINESS AS AN ECONOMIC ACTIVITY Business is regarded as an economic activity due to the following reason: 1. The object af business is to sell goods or services for profit. Economic activities are those activities which are undertaken to generate an income. Business is an economic activity because its caried on as a means of earning money. Businessmen make money by producing and selling commodities which help to satisfy human wants, For example, a farmer who grows vegetables for the consumption of his family is not engaged in business. But a farmer who grows vegetables for the purpose of selling them in the market is undertaking a business. His object is to eam income in excess of the cost of growing vegetables. This excess of income over expenditure is called profit. The chief. end of any business enterprise is generation of profit and wealth. 2. Business activities involve use of scarce resources. Business activities require use of scarce resources such as raw materials, labour, capital, and other factors of production. A businessman provides the necessary funds from his personal and other sources to meet the capital requirements of his business. He arranges for the raw materials from the suppliers required to produce the goods. He employs labour to assist the production. Thus, a businessman has to produce goods utilising various scare resources. 3. Business activities satisfy needs of the public and of businessmen. Business activities satisfy the needs of the public by making available goods and services. Public can buy these goods and services and satisfy their needs, Business is a source of income for the businessman. With the help of this income he can satisfy his needs as well as the needs of his family members. ‘Thus, business may be regarded as an economic activity both as a means of generating an income and also as a means of satisfying the wants of society. 2.5 OBJECTIVES OF BUSINESS Every business enterprise has certain objectives which regulate and generate its activities. Objectives are needed in every area where performance and results directly affect survival and prosperity of a business. Various objectives of business may be classified into four broad categories as follows:Nature and Objectives of Business JPEN) 1. Economic Objectives Business is basically an economic activity. Therefore, its primary obje economic in nature. The main economic obje fi) ve we “a ne : Gronks ay Gi) es of business are as follows: Earning profits. A business enterprise is established for earning some income. It is the hope of earning profits that inspires people to start business. Profit is essential for the survival of every business unit. Just as a person cannot live without food, a business firm cannot survive without profit. Profits enable a businessman to stay in business by maintaining intact the wealth producing and. extension of business operations in future. Profit also barometer of stability, efficiency, and progress of a business er Creating customers. Profits are not created by God or by the force of. nature. They arise from the businessman's efforts to satisfy the needs and wants of customers. A businessman can earn profits only ' = enough customers to buy and pay for his goods and services. In the words of Drucker, “There is only one valid definition of business purpose; to create a customer. The customer is the foundation of business and keeps it in existence. It is to supply the customer that society entrusts wealth-producing resources to a business enterprise”, No business can succeed without providing customers value for their money, Business ex : and preferences of customers.tIn order to ‘earn profit, business must supply better-quality goods and services at reasonable prices. Therefore, creation and satisfaction of customers is an important economic objective of business. ‘Business creates customers through advertising and soma . It satisfies the needs of customers by producing the required goods and sérvices and by creating utilities. (iii) Innovations. Business is an organ of dynamism and change. In these days of competition a business can be successful only when it creates new designs, better machines, improved techniques, new varieties, etc. Modem science and technology have created a great scope for innovation in the business world. Innovation is not confined to the invention of a new machine. It comprises all efforts made in perfecting the product, minimising the costs and maximising benefits to customers. It involves improvements in management, production, selling. servicing, methods of personnel and accounting, etc. Business firms invest money, time, and efforts in Research and Development (R&D) to introduce innovations. They develop new technology, introduce new designs and new tools and processes to minimise costs and to satisfy ever-increasing wants of customers. In order to create customers business has to explore new markets and attract more customers. It has also to retain old customers by providing better services to them. capacity of its resources. eatery for the expansion and growth * of business. Profits ensure continuous How of capital-for-the- modernisation ——2. Social Objectives Business does not exist in a vacuum. It is a part of society. It cannot survive and grow without the support of societ Business must therefore discharge social responsibilities in addition to eaming profits. According to Henry Ford, “the primary aim of business should be service and subsidiary aim should be earning of profit”. The social objectives of business are as follows: @ cy Supplying desired goods at reasonable prices. Business is expected to supply the goods and services required by the society. Goods and services should be of good quality and these should be supplied at reasonable prices, cis also the social obligation of business to avoid malpractices like boarding, blackmarketing and misleading advertising. Fair remuneration to employees, Employees must be given fair compensation for their work, In addition to wages and salary a reasonable part of profits should be distributed among employees in recognition of their contributions, Such sharing of profits will help to inerease the motivation and efficiency of employees. It is the obligation of business to provide healthy and safe work environment for employees. Good working conditions are beneficial to the organisation because these help to improve the productivity of employees and thereby the profits of business. Employees work day and night to ensure smooth functioning of business. It is, therefore, the duty of employers to provide hygienic working and living conditions for workers. (iif) Employment generation, Business should provide opportunities for gainful employment to members of the society. In a country like India unemployment has become a serious problem and the Government is unable to offer jobs to all. Therefore, provision of adequate and full employment opportunities is a significant service to society. If unemployment problem increases, the socio- economic environment cannot be congenial for the growth of business activities. (iv) Fair return to investor. Business is expected to pay fair return to shareholders. ©) and creditors in the form of dividend and interest, Investors also expect safety and appreciations of their investment. They should be kept informed about the financial health and future prospects of business. Social welfare. Business should provide support to social, cultural, and religious organisations. Business enterprises can build schools, colleges» libraries, dharmashalas, hospitals, sports bodies, and research institutions. They can help non-government organisations (NGOs) like CRY, Help Ages and others which render services to weaker sections of society. (vi) Payment of government dues. Every business enterprise should pay tax dues _ (income tax, sales tax, excise duty, customs duty, ete.) to the government honestly and at the right time. These direct and indirect taxes provide revenue to the Government for spending on public welfare, Business should also abide faithfully by the laws of the country. Thus, businessmen should pursue thos¢ policies and take actions which are desirable in terms of the objectives values of our society,Nature and Objectives of Business 3. Human Objectives Business is run by people and for people. Labour is a valuable human element in business. Human objectives of business are concerned with the well-being of labour. These objectives help in achieving economic and social objectives of business. Human objectives of business are given below: () Labour welfare. Business must recognise the dignity of labour and human factor should be given due recognition. Proper opportunities should be provided for utilising individual talents and satisfying aspirations of workers. Adequate provisions should be made for their health, safety, and social security. Business should ensure job satisfaction and sense of belonging to workers. (ii) Developing human resources. Employees must be provided the opportunities for developing new skills and attitudes. Human resources are the most valuable asset of business and their development will help in the growth of business, Business can facilitate self-development of workers by encouraging creativity and innovation among them, Development of skilled manpower is necessary for the economic development of the country. (iii) Participative management, Employees should be allowed to take part in decision-making process of business. This will help in the development of employees. Such participation will also provide valuable information to management for improving the quality of decisions. Workers” participation in management will usher in industrial democracy. (iv) Labour management cooperation. Business should strive for creating and maintaining cordial employer employee relations so as to ensure peace and progress in industry. Employees should be treated as honourable individuals and should be kept informed. 4, National Objectives National objectives of business are as follows: ( Optimum utilisation of resources. Business should use the nation’s resources in the best possible manner. Judicious allocation and optimum utilisation of Scarce resources is essential for rapid and balanced economic growth of the country. Business should produce goods in accordance with national priorities and interests. It should minimise the wastage of scarce natural resources. (i), National self-reliance. It is the duty of business to help the government in increasing experts and in reducing dependence on imports. This will help a country to achieve economic independence. This requires development of new technology and its application in industry. (ii) Development of small-scale industries. Big business firms are expected to encourage growth of small-scale industries which are necessary for generating employment. Small-scale firms can be developed as ancillaries which provide inputs to large-scale industries.ISCCommerce for Class (iv) Development of backward areas, Business is expected to give preference to the industrialisation of backward regions of the country. Balanced regional development is necessary for peace and progress in the country. It will also help to raise standard of living in backward areas. Government offers special incentives to the businessmen who set up factories in notified backward areas. Control over pollution, Rapid industrialisation has resulted in air, water, and noise pollution, Business is responsible for reducing the adverse effect of business on the quality of life, It must make proper arrangements for the disposal of smoke, effluents, wastes, etc, to protect the health and life of people, animals, and birds, BUSINESS OBJECTIVES AT A GLANCE. ee 1, Eaming Profit | 1. Quality goods at | 1. 1, Optimum utilisation fair prices of resources Fair remuneration | 2. Developing . National self-reliance @ to employers Human Resources 3, Generating 3, Participative: }. Development of small employment management business. |. Fair return to 4, Labour 4, Development of investors management backward areas ‘cooperation . Social welfare 1. Payments of taxes . Pollution control 2.6 ROLE OF PROFIT IN BUSINESS en Oe Profit earning is essential in business due to the following reasons: 1, Incentive, Profit is the driving force behind every business. It inspires people to start an enterprise and to work hard for making it successful. Profit is the reward. for undertaking the risk of business, 2, Survival. Profit is essential for the survival of business and it ensures the continuity of an enterprise. In the absence of profits, an enterprise will eat up its own ‘capital and ultimately close down, With the help of profits business can replace obsolete machinery and equipment and thereby maintain its capacity to create ‘wealth. According. to Drucker, “profit is the risk premium that covers the costs of staying in business”. Profits help business to face trade cycles and other shocks. Profits are also required to reward various factors of production, 3. Growth. Profits is the biggest source of capital for expansion and growth of business. It serves as a means of self-financing, In addition, profits enable business to attract capital from outside. Nobody likes to invest money in a loss-making enterprise. |Nature and Objectives of Business 4. Measure of efficiency. Profit is considered to be the index of success in business. People judge the performance of an enterprise on the basis of profits earned by it, 5. Prestige and recognition. A loss-making business enjoys no goodwill. Profits provide economic power and status to businessmen. Higher profits increase the bargaining strength and credit worthiness of business. Moreover, only a profit-making business can provide service to society. Incentive iirc Survival — a) Profts Zs Thus, profit earning is an essential and desirable objective of every business. But mere money chasing is not business. According to Drucker, “the problem of any business is not the maximisation of profit but the achievement of sufficient profits to cover the risks of economic activity, and thus, to avoid loss. The businessmen who keep their customers, employees, investors and the society satisfied, will definitely earn goods profits”. Urwick has very aptly summed up the relevance of profit motive in business as. “earning of profits cannot be the objective of'a business any more than eating is the ‘objective of living”. A business cannot survive without profit just as a person cannot live without food, But profits cannot be the sole purpose of business just as eating is not ‘the aim of life. However, profits must be earned by satisfying the wants of customers and after paying workers their dues. In the words of Arvind Mafatlal, ‘no business or industry is run philanthropically. It has to make a profit for further growth. But this profit cannot be at the expense of labour and the community at large”. Economic and social objectives of business are not contradictory. They go hand in hand in the long run. No business can eam profits without satisfying customers and other sections of society. Similarly, business cannot render service without earning profits. Thus, the real objective of business is to earn profit by serving the interests of consumers, employees, investors, Government, and the society as a whole. 2.7 OBJECTIONS AGAINST PROFIT MAXIMISATION Despite their indispensable role in business, profits cannot be the be-all and end-all of business. The profit maximisation objective is undesirable on account of the following reasons; 1. Profit maximisation overstresses the end result and overlooks the means employedFEI sccommerce for Cass ¥1 pac sR a to achieve the profits. It considers profit as the ultimate goals of business rather than a means to the real end. The ultimate aim of business should be social welfare. If profit maximisation is considered as the ultimate aim of business, businessmen might try to maximise profits by socially undesirable means such as profiteering, blackmarketing, hoarding. exploitation of workers and consumers, etc. 2. Profit maximisation overstresses the reward for owners and ignores the interests of other stakeholders. Profit is the reward for capital and profit maximisation gives the impression that a business concem is the domain only of owners. In reality, no business can succeed without the fullest co-operation of labour, consumers, Government, and the community at large. Profit maximisation objective overlooks the stake of these ‘groups in business. 3, Profit maximisation misguides managers to the point where they may endanger the survival of the business. In order to maximise current profits, managers may undermine the firm's future. They may ignore research and development, executive development, pushing of the most easily saleable products, and other long-term investments. Such activities threaten the long-term success of the enterprise. 4. Profit maximisation has capitalistic overtones. The advocates of socialism decry the goal of profit maximisation on the ground that profit maximisation results in the exploitation of poor by the rich. It also accentuates inequalities in the distribution of income and wealth. 5. Profit maximisation is inconsistent with the modern trends in business. Diffusion of share ownership, professionalisation of management, growth of institutional shareholding. and the emergency of a distinctive technostructure are some of these trends. The main goal of the technostructure (control by managers and technologists), is survival and growth of business. Profit maximisation may endanger long-term growth and, therefore, the technostructure prefers long-term growth. These professionals regard profit maximisation as unrealistic, inappropriate, and even immoral, A truly successful business can be built only if the objective of “service to the Society” is constantly followed. If this. is done profits will come automatically, but if the whole emphasis is on making money business may not survive and succeed for 2 long period. The guiding principle of business should be profit shrough service, Every business should provide a proper balance between profit motive and social service. SUMMARY — Meaning: Business is an economic activity involving exchange of goods and services with the primary aim of earning profits. Characteristics: (() Creation of utilities (ii) Dealings in goods and services (iif) Cor ity in dealings (/v) Sale at a price (») Profit motive (vi) Element of risk (vii) Economic activity (villyArt and science. Necessity: (/) To remove poverty (/i) to generate employment (iif) to improve living standards (iv) to cam foreign exchange (v) to promote social welfare, Objectives: (1) Economic objectives: (a) Earning profits (b) Creating customers (c) Innovation. (2) Social objectives: (a) Services to employees—fair wages, good working conditions, welfareNature and Objectives of Business facilities, development and promotion, partnership in business; () Services to society— employment generation, standard of living, pollution-free environment, nation building and investor satisfaction. Relevance of profit: (a) Incentive (b) Survival (c) Growth (d) Measure of efficiency (e) Prestige. Economic and social objectives are complementary and interdependent. Objections against profit maximisation: (i) unfair means (ii) ignores some stakeholders (iii) misguides managers (iv) concentration of economic power (v) outdated. EXERCISES Short Answer Type Questions Define business. Describe three essential characteristics of business. Name the economic objectives of business. Mention the reasons due to which business is necessary. How nation building is an objective of business? An isolated transaction does not constitute business. Why? Give three main reasons for eamning profits. Essay Type Questions its Ze 3. 4, Qu. Ans. Q2. Ans, ‘What do you understand by business? Explain the essential characteristics of business. Discuss the objectives of business. Explain the need and functions of business. “Profit is not the object of business but it is the result of business”. Explain the relevance of profit objective in the light of this statement. . “The problem of any business is not the maximisation of profit but the achievement of sufficient profit to cover the risk of economic activity and thus to aveid loss”. Discuss. . “Profit can no more be the objective of a business than eating is the objective of living”. | In the light of this statement, discuss the objectives of business. . Why profit cannot be the sole objective of business? Give reasons. . Why is business regarded as an economic activity? Explain. QUESTION BANK Define the term ‘Business’. Business may be defined as production and purchase of goods and services and selling them with a view to satisfy human wants and thereby earn profits. Business is an economic activity which is undertaken to provide goods and services to society with the aim of earning profits. It is concemed with the production and distribution of goods and services. Give any three characteristics of business. (0 Business involves sale or exchange of goods and services for value. (i) Business is carried on with the aim of earning profits. (dif) Business involves uncertainty and risk of loss.Q.3. An isolated transaction does not constitute business. Why? ‘Ans. Dealings in goods and services become business only if undertaken on a regular basis. ‘According to Peterson and Plowman, “a single isolated transaction of purchase and sale will not constitute business, Recurring or repeated transactions of purchase and sale alone mean business”. For instance, if a person sells his old scooter or car it is not business though the seller gets money in exchange, But if he opens a shop and sells scooters or cears regularly, it will become business. Q.4. Mention the reasons due to which business is necessary, ‘Ans. Business is necessary due to the following reasons: (0 To remove poverty from the world (ii) To generate employment opportunities (iii) To raise living standards of people (iv) To cam foreign exchange (v) To ensure welfare of the society Q.5. Explain the need and functions of business. ‘Ans. Business is needed due to the following reasons: 1, To remove poverty: Business enterprises make productive use of nation: ‘so that per capita income of people caf increase. Business also makes ‘of technological improvements to create wealth, 2, To generate employment; Business offers employment to millions of people. There ‘is unlimited scope for employment in industry and trade due to the vast range of ‘business activities, 3. To improve standard of living: Business helps to increase the purchasing power ‘of people. It provides them a wide range of products and services to satisfy human. ‘wants. People can enjay new and better products to improve their living standards. 4, To earn foreign exchange: Business helps to eam foreign exchange through exports. It helps to reduce pressure on the country’s balance of payments by reducing, the need for imports. 5. To promote social welfare: Business dealings between nations provide socially useful, culturally desirable, and politically significant movement amongst people. Business ‘enterprises assist the community in public health, education, and other socially useful Programmes. Q.6. Name the economic objectives of business. _ Ans. Economic objectives of business are: (i) Earning profits (ii) Creating customers. (ii) Carrying out innovations Q.7. State the social objectives of business. Ans. Social objectives of business are: (i) Services to employees (li) Services fo society Q.8. How nation building is an objective of business? Ans. Business must make the best possible use of the scarce resources of the country. It should Keep in mind the national priorities and produce goods according to the needs of the country. Business can contribute to the prosperity and well-being of the nation by developing backward areas, small-scale industries, killed manpower, exports, etC- Business should pay all taxes and duties in time as the Goverment cannot function tive useNature and of Business without financial resources. It should cooperate with the Government in the formulation and execution of various schemes for the development of the country. Q.9. Discuss economic and social objectives of business. Ans. Every business has certain objectives which govern its activities. Objectives of business may be classified into two broad categories as follows: (Objectives of Business) Economic Objectives: Business is an economic activity and its main purpose is to achieve economic results. The economic objectives of business are given below: 1. Earning profits, A business is established for earning profits, It is the hope of eaming, profits that inspires people to start business. Profits are absolutely necessary for the survival and growth of every business enterprise. 2. Creating customers. A businessman can eam profits only when there are enough customers to buy and pay for his goods and services. No business can succeed without providing customers value for their money. ess is an organ of dynamism and change. In these days of ful only when it creates new designs, better mproved techniques, new varieties, etc. Social Objectives; Business is a part of society and it can achieve its economic objectives: ‘only by having deep roots in the society. According to Henry Ford, “The primary aim of business should be service and subsidiary aim should be camming of profit. The purpose of business is not only caring profits but also discharging responsibility towards society.” 1. Services to Employees. Employees work day and night to ensure smooth functioning of business. Therefore, it is the duty of employers to provide social justice to their employees in the following ways: (a) Fair wages. Employees must be given fair compensation for their work. In addition to the minimum wages prescribed by law, a reasonable part of profits should be distributed among employees in recognition of their contribution. Such sharing of profits will help to increase the motivation and efficiency of employees, (4) Good working conditjons. It is the obligation of business to provide healthy and safe work environment for employees. Good working conditions are beneficial to the organisation because these help to improve the productivity of employees and thereby the profits of business. (©) Employee welfare, Business is expected to make adequate and satisfactory provision for medical, educational, housing and other welfare facilities for workers. This is because the Government is not in a position to take care of all these activities. Employee welfare facilities will help business to secure the dedication and loyalty of workers. (d) Development and promotion, Business should provide reasonable opportunities for training, growth, and promotion of employees. Business can facilitate self development competition machine:of employees by encouraging creativity and innovation among them, This will create a sense of satisfaction and self-confidence among workers. They can bear higher responsibilities and assist in the growth of business itself, (€) Partnership in business, Employees should be allowed to work with honour and job satisfaction. For this purpose, their panicipation in the ownership and management of business is necessary, They should be considered as partners in business rather than as servants, 2. Services to Society, Business is expected to serve the society in the following ways: (c) Employment generation, Business can provide opportunities for gainful employment to members of the society. (b) Standard of living. Business should raise the living standards and material welk being of people by providing high-quality products and services at cheaper prices. This can be done through mass production and distribution. (c) Pollution free environment. Rapid industrialisation has resettled in air, water, and noise pollution. Business is responsible for reducing the adverse effect of business ‘on the quality of life. It must make proper arrangements for the disposal of smoke, effluents, wastes, etc. to protect the health and life of people, animals, and birds. (@) Investor satisfaction. Business should ensure safety and appreciation of the money invested by shareholders and creditors. A reasonable return in the form of dividends, imerest, etc. should be paid to them regularly and in time. They should be kept informed of the financial health and future prospects of business. Q.10. Give three main reasons due to which business must earn profits. Ans. Business must earn profits due to the following reasons: (i) To keep imtact the income caming capacity of business. (i) To expand and diversify its operations, t) To cam separation and prestige in society. Q.1L. “Profit is not the object of business but it is the result of business”. Explain the relevance of profit objective in the light of this statement. OR “The problem of any business is not the maximisation of profit but the achievement of sufficient profit to cover the risk of economic activity and thus to avoid loss”. OR “Profit can no more be the objective of a business than eating is the objective of living”. In the light of this statement, discuss the objectives of business, Ans, Profit eaming is essential in business due to the following reasons: 1. Incentive. Profit is the driving force behind every business. It inspires people 1 start an enterprise and to work hard for making it successful. Profit is the reward for undertaking the risk of business. 2. Survival. Profit is essential for the survival of business and it ensures the continuity, of an enterprise. In the absence of profits, an enterprise will eat up its own capit and ultimately close down, 3. Growth. Profits is the biggest source of capital for expansion and growth of busines It serves as a means of self-financing. In addition, profits enable business to attract capital from outside. Nobody likes to invest money in a loss making enterprise. 4, Measure of efficiency, Profit is considered to be the index of success in busines*, People judge the performance of an enterprise on the basis of profits earned by it_Nature and Objectives of Business 5. Prestige. A loss making business enjoys no goodwill. Profits provide economic power and status to businessmen. Higher profits increase the bargaining strength and credit worthiness of business. Moreover, only a profit making business can provide service to society. Q.12. Why profit cannot be the sole objective of business? Ans. Profit cannot be the sole objective of business due to the following reasons: 1, Disregard of Stake Holders: Profit helps to serve the interest of shareholders alone. But business also has obligations towards other stakeholders such as employees, customers, Government, society, etc, 2. Misguide Management: In their craze for maximum profits managers may undermine: the firm’s future. They may fail to invest in executive development, research and development, etc. 3, Overstress the Ends: Profit maximisation overlooks the means that may be used. Any means which are against social interest are injurious to business even if they generate huge profit. 4. Outdated: Profit maximisation is inconsistent with modern trends in business. Diffusion of share ownership, professionalisation of management, growing social consciousness, etc. are some of these trends. Thus, profit is one of the objectives of business, It should not be the sole objective of any business enterprise. Application Type Questions Q.13. Name the characteristics of business reflected in the following statements: (i) Business seeks to earn money and acquire wealth. (ii) Business involves a series of dealings rather than a single transaction. (iii) Business activities are undertaken under uncertain conditions, (i») Business increases value for consumers. (») Business involves giving goods and services for money. Ans. (i) Profit - Motive (ii) Regular dealings (lly Risk (@) Creation of utility (») Sale, transfer, or exchange Q.14, Classify the following into economic, social, human, and national objectives of business: (® Creating customers (ii) Innovations (iii) Generating employment (i) Paying taxes (») Canteen for workers (i) Training employees (vif) Developing small-scale industries (viii) Controlling pollution Ans. 1. Economic objectives - (i), (i/) 2. Social objectives — (itl), (iv) 3. Human objectives - (»), (v7) 4. National objectives — (wii), (viii)Q.18. “Business cannot achieve its economic objectives without fulfilling its soctal ang human objectives.” Comment, Ans. Business can achieve its economic objective only when its employees and the society ar satisfied. In order to satisfy them business must fulfil its social and human objectives, Thus, various objectives of business are interrelated and interdependent, Q.16. Reliance Industries is rumning a school in a backward region of Gujarat for poor children. What objective is it achieving? Ams. Social objective. Q.17. Deepak sells his old scooter for % 7000. Is it a business activity? Give reason for your answer, Ams. It ts not a business activity because the dealing is not done on a regular basis, Q.18. Name the characteristics of business reflected in the following statements. (@) Reliance Industries has been doing business for several decades. (b) Goods are sold for money. (©) Uncensinties may cause loss in business, (2) Goods are made more valuable over time and place. (©) Business involves use of scarce resourees. Ams. (€) Continuity in dealings } (b) Sale transfer or exchange (©) Element of risk (@) Creation of utilities {e) Economic activity 0.18. “Business is carried on to earn profit but it may suffer loss”. Why? ‘Ams. Because goods are produced or bought for sale in future which is uncertain. Q.20. Name the type of objectives of business in the following: (c) creating customers (©) creating jobs (©) running 2 dispensary for employees and their families (2) making optimum use of the country’s resources Ams. (6) Economic objective (b) Social objective (e) Human objective (2) Nasional objective Q.11. "Earning profits is essential for success in business”. Why? ‘Ans. (3) To moet the costs (di) To modemise and replace assets (iil) To pay dividend to shareholders iv) To expand and grow () To eam goodwill in society Q.22. Why profit cannot be the sole objective of business? ‘Ans. Business is a part of society and must serve the society. It cannot survive and gro without the support of society. In order to eam profits, business must serve the intere® of various sections of society. ,Nature and Objectives of Business MULTIPLE CHOICE QUESTIONS Which of the following is social objective? (a) Earning Profit (b) Innovation (c) Productivity (d) Community Service 2. Which of the following cannot be classified as an objective of business? (a) Productivity () Profit Earning (c) Investment (d) Innovation 3. Which of the following does not characterise business activity? (a) Production of goods and services (b) Presence of risk (©) Sale and exchange of goods and services (d) Service motive 4. Canara Bank opened a new branch in Bangalore. Which of the following organisational objectives does it fulfil? (a) Survival () Profit (©) Growth (@ Innovation 5. Name the reward which Business gets to bear the risk. (a) Market standing (6) Goodwill (©) Profit (@) More business 6. Mr. Roy wanted to start business of supplying readymade garments. But he was wondering about how much profit or retum on investment he would be able to earn. Which characteristic of business does this situation reflects? (a) Economic Activity "© Profit Eaming (©) Uncertainty of Retum (@) Element of Risk 7. Which of the following is the example of business uncertainties? (a) Earthquake ®) Drought (c) Change in Prices (@) Snowfall 8. Which among the following is not a feature of business? (a) Production or procurement of goods and services () Dealing in goods and services on regular basis (©) Certainty of return : (d) Profit earning ASSERTION-REASON QUESTIONS In the questions given below, there are two statements marked Assertion (A) and Reason (R). Read the statements and choose the correct option: (a) Both Assertion (A) and Reason (R) are True and Reason (R) is the correct explanation of Assertion (A). (b) Both Assertion (A) and Reason (R) are True and Reason (R) is not the correct explanation of Assertion (A).PEDBL ssceommercefordussm) 0 (c) Assertion (A) is True but Reason (R) is False, (@) Assertion (A) is False but Reason (R) is True. 9, Assertion (A); Departmental stores purchasing goods from small manufacturers and selling under one roof. Reason (R): Production ot procurement of goods and services is a feature of every business, 10, Assertion (A): Workers at Maruti Udyog Ltd. went on strike for more than a month demanding raise in wages. The company suffered huge losses due to loss of production and sale, Reason (R); Dealing in goods and services on a regular basis is a feature of every business, 11, Assertion (A): A furniture dealer buys office chairs at % 650 each, % 150 per chair is the extra money eamed to meet business expenses and for future growth, Reason (R): Profit earning is a feature of every business, 12. Assertion (A): A car dealer buys and sells cars on a regular basis. Reason (R); Element of risk is a feature of every business, CASE/PARAGRAPH BASED QUESTIONS 13. Anshul, Abir and Saksham are close friends who have recently completed their studies. ‘When they meet their teacher Mr. Gauray, he enquires from each one of them about their career plans. But none of them has a definite reply. Mr. Gaurav suggests to them that they can opt for business as a promising and challenging career, Saksham got excited by the idea and says, yes, business is really good for making lots of money even more than ‘what is possible by becoming a manager, (a) Do you agree that business is meant only for minting money? Give reason. (2) (6) What is the role of profit in business? @) (c) What are the objectives of undertaking business? QB) 14, Sunaina and Seema Reddy are bes friends, After completing a course in Fashion Designing, five years back, both of them started their own separate outlets in Delhi and Chennai, respectively to eam their livelihood, ‘Sunaina buys readymade garments from various manufacturers and sells them in her store. However, Seema Reddy designs her own range of clothing. She gets them made through her team of designers and sells them directly under the brand name ‘Forever Young’. Although, both of them are making good returns on their investments, but in past, they have also incurred huge losses due to changes in the taste and preference of consumers and fashion, Also, despite being in business for such a long time, they cannot say with certainty as to what amount of profit will be eamed by them in future. (a) Identify four features of business highlighted in the above case. @Q) (5) Quote the lines from the above case which supports the identified features of business, (c) What are the objections against profit maximisation of businesses? @ 15. Guruansh’s job involved travelling. As he was very fond of reading, he requested his father to buy him some books, His father Sold his old laptop on OLX.com and bought him a new ‘kindle’ from Amazon.com. While buying the ‘kindle’, he noticed a message onthe seen ofthe website tat 1 of every purse would be Sent by the company to ‘Chand Foundation’, an NGO for underprivileged children.Nature and Objectives of Business [EVN (a) Can transactions by Guruansh’s father be termed as business activity? Give reason _ with the help of relevant characteristic of business. Q) (b) Which objective of business is Amazon fulfilling? a (0) State three objectives which these online business organisations are fulfilling. (3) (d) Write any two objections which Amazon is overcoming by contributing a part of sales towards ‘Chand Foundation’. Q) ONE WORD/SENTENCE ANSWERS 16, In order to achieve an economic objective of “profit making”, an enterprise indulges in unfair trade practices, such as charging higher prices and low quality products. Which objective is being ignored by the above enterprise? 17, “Business is undertaken with the objective of earning money”, Name the characteristic of business highlighted in the given statement, 18, “One single transaction of sale or purchase does not constitute business”. Name the characteristic of business highlighted in the given statement, 19. “Goods produced for personal consumption cannot be called as business.” Name the characteristic of business highlighted in the given statement, 20, Name that element of business which cannot be avoided by the business units, but can be reduced, 21, What is the primary objective of business? 22. ‘Business is undertaken with the objective of earning money.’ Which characteristic of business is highlighted in this statement? 23, “Business activities are undertaken under conditions of uncertainty.” Which characteristic of business is highlighted in this statement? 24. XYZ Ltd. is planting trees every month on the roadside, Name the objective it is trying to accomplish, 25. While on a study tour, Raghav purchased a helmet for % 400, When he returned home, his friend Varun offered % 650 for it and Raghav sold it to him. Why is it not a business activity? ANSWERS L@ 2 © 3@ 4. (0) 5. (c) 6, (c) 7. () 8. () 9, (a) 10, (6) I. (@) 12. (b) 13. (a) No, there are multiple objectives of business. Profit maximisation is not the sole objective of business. (b) Any three points highlighting the role of profit in business. (c) Any three points highlighting the objectives of undertaking business. 14, (a) An Economic Activity, Production or Procurement of Goods and Services, Element of Risk, Uncertainty (4) () An Economic Activity “After completing a course ... respectively to eam their livelihood," (if) Production or Procurement of Goods and Services “Sunaina buys readymade garments... sells them directly under the brand name “Forever Young’.”