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unit-1-nature-and-scope-of-business

Unit-1 Nature And Scope Of Business

In this introductory unit, you will learn the exact connotation of terms like business, commerce, trade, industry etc.

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What is business? Explain its features and objectives.

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Learning Pundits Content Team

Written on Apr 15, 2019 4:10:22 PM

  • You have learnt that business refers to the human activities engaged in production and/or exchange of want satisfying goods and services carried with the intention of earning profits.
  1. Dealings in goods and services: Business deals with goods and services. The goods may be consumer goods such as sweets, bread, cloth, shoes, etc. They may be producer's goods such as machinery, equipment, etc., which are used to produce further goods for consumption. Business also deals with services such as transport, warehousing, banking, insurance, etc., which are intangible and invisible goods.
  2. Production and/or exchange: You can call an economic activity a 'business' only when there is production or transfer or exchange or sale of goods or services for value. If goods are produced for self-consumption or presentation as gift, such activities shall not be treated as business. In a business activity, there must be two parties i.e., a buyer and a seller. Such activity should concern with the transfer of goods or exchange of goods between a buyer and a seller. The goods may be bartered or exchanged for money.
  3. Continuity and regularity in dealings: A single transaction shall not be treated as business. An activity is treated as business only when it is undertaken continually or at least recurrently.
  4. Profit motive: Earning profit is the primary motive of business. This is not to undermine the importance of the element of service in business activity. In fact a business will flourish only when it is able to serve its customers to their satisfaction. Profits are essential to enable the business to survive, to grow, expand, and to get recognition.
  5. Element of risk: In every business, there is a possibility of incurring loss. This possibility of incurring loss is termed as risk. The element of risk exists due to a variety of factors which are outside the control of the business enterprise. There are two kinds of risks. (I) Risks whose probability can be calculated and can be insured. Losses due to fire, floods, theft, etc., are some examples. (II) Risks whose probability cannot be calculated and which cannot be insured against, e.g., changing technology, fall in demand, changing fashions, short supply of raw materials, etc. These risks are to be completely born by the enterprise.
  • You have learnt that the primary objective of business is to earn profit. Although profit plays an important role as a criterion of success, business may not exist for long with the sole objective of earning profit. 
  • Serving the community is regarded as another important objective of business. In fact, some authors regard 'service to community' as the major objective of business and state that this provides the main justification for the existence of business as an important human activity. Therefore, while profit is necessary for the businessman to stay in business, he ought to aim at something more for its survival and growth.
  • The objectives of business could be listed under three broad headings:
  1. Economic Objectives: Basically being an economic activity, primary objectives of business are economic.
  2. Social Objectives: Business, being a part of the society, has obligations towards the society also.
  3. Human Objectives: Business activity is, generally, carried out through employees who are human beings. In fact, the efficiency and the success of the business enterprise depends on the motivation and ability of its employees. Therefore, business must also have some human objectives to safeguard the interests of its employees.