1st PUC Business Studies Question Bank Chapter 1 Nature and Purpose of Business

Karnataka 1st PUC Business Studies Question Bank Chapter 1 Nature and Purpose of Business

One Mark Questions

Question 1.
State any one characteristic of the business.
Answer:
One feature characteristic of business is the sale or exchange of goods and services.

Question 2.
Mention any one te of economic activity. (March-S-2018)
Answer:
Business is one type of economic activity.

Question 3.
State any one characteristic of busing.
Answer:
One feature/characteristic of business is the sale or exchange of goods and services.

Question 4.
Name the occupation in which people are rewarded with salary1 or wage for their work.
Answer:
Employment.

Question 5.
What type of economic activity ¡s the work of a chartered accountant’
Answer:
Professional.

Question 6.
What are primary industries?
Answer:
Primary industries refer to industries that are concerned with the production of goods mainly with the help of nature.

Question 7.
Give an example for the extractive industry.
Answer:
Agriculture, mining, fishing, forestry, hunting, fruit gathering, etc. are examples of extractive industries.

Question 8.
Give an example for the genetic industry.
Answer:
Nurseries raising seedlings and plants, cattle breeding, poultry farming, etc, are examples of genetic industries:

Question 9.
Give an example for the manufacturing industry.
Answer:
Conversion of raw jute into jute products, production of sugar from sugarcane, etc. are the example for manufacturing industries.

Question 10.
Give an example for the processing industry.
Answer:
The paper industry, textile industry, etc. are examples of processing industries.

Question 11.
What is the analytical industry?
Answer:
Analytical industries refer to those manufacturing industries which produce many types of products by analyzing, i.e. separating the same basic raw materials into different products.

Question 12.
What is the synthetic industry?
Answer:
Synthetic industries refer to all those manufacturing industries where various materials are combined together in the manufacturing process to manufacture a new product.

Question 13.
What is the assembling industry?
Answer:
Assembling industries refer to those manufacturing industries where different component parts already manufactured are assembled into final products.

Question 14.
What is the construction industry?
Answer:
Construction industries refer to those activities which are concerned with the creation of infrastructure necessary for economic development.

Question 15.
Name the industry which provides support services to other industries.
Answer:
Tertiary industries provide services to other industries.

Question 16.
State a branch of commerce.
Answer:
The branch of commerce are:
(a) Industry
(b) Commerce

Question 17.
What is trade?
Answer:
Trade refers to buying and selling of goods. It is the means by which goods are exchanged between the producers and the consumers.

Question 18.
State any one auxiliary to trade.
Answer:
Transport and Communication are auxiliary to trade.

Question 19.
State any one objectives of the business.
Answer:
harming profits.

Question 20.
State any one nature of business risk.
Answer:
Business risks arise due to uncertainties.

Question 21.
State any one cause of business risk.
Answer:
Natural causes like floods, earthquakes, etc.

Question 22.
What is the industry?
Answer:
The industry refers to which are connected with the conversion of raw material into useful goods.

Question 23.
Explain the scope of commerce.
Answer:
Commerce includes all those activities which are necessary for facilitating the exchange of goods and services. Commerce includes two types of activities, viz., trade and auxiliaries to trade.

Multiple Choices One Mark Questions

Question 1.
Which of the following docs not characterize business activity?
(a) Productions of goods and services
(b) Presence of risk
(c) Sale or exchange of goods and services
(d) Salary or wages
Answer:
(d) Salary or wages

Question 2.
Which of the broad categories of industries covers oil refinery and sugar mills?
(a) Primary
(b) Secondary
(c) Tertiary
(d) None of the above
Answer:
(a) Primary

Question 3.
Which of the following cannot be classified as an auxiliary to trade?
(a) Mining
(b) Insurance
(c) Warehousing
(d) Transport
Answer:
(a) Mining

Question 4.
The occupation in which people work for others and get remunerated in return is known as
(a) Business
(b) Employment
(c) Profession
(d) None of the above
Answer:
(b) Employment

Question 5.
The industry which provides support services to other industries are known as
(a) Primary industries
(b) Secondary industries
(c) Commercial industries
(d) Tertiary industries
Answer:
(d) Tertiary industries

Question 6.
Which of the following cannot be classified as an objective of a business? (March-V2019)
(a) Investment
(b) Productivity
(c) Innovation
(d) Profit earning
Answer:
(a) Investment

Question 7.
Business risk is not likely to arise due to
(a) Changes in government policy
(b) Good management
(c) Employee dishonesty
(d) Power failure
Answer:
(d) Power failure

Two Mark Questions

Question 1.
State any two types of economic activities.
Answer:
The different types of economic activities are:
(a) Business
(b) Profession
(c) Employment.

Question 2.
State any two characteristics of business
Answer:
The characteristics or features of the business are:
(a) An economic activity.
(b) Sale or exchange of goods and services.

Question 3.
How business is different from the profession?
Answer:

Business	Profession
Business is an economic activity involving the production and sale of goods and services undertaken with the motive of earning profit by satisfying human needs in society.	The profession is an economic activity concerned with rendering specialized and expert personal services to clients in returns for a reward or payment called fees.
Earning profits from the sale of goods and providing services to the customers.	Fixed professional fees for services rendered.

Question 4.
What is employment?
Answer:
Employment is an economic activity under which a person, known as an employee, renders a service to another person, known as an employer, under a contract of employment, in return for salaries or wages.

Question 5.
What is the industry?
Answer:
The industry is a branch of business that is concerned with the conversion of raw material or semi-finished goods into finished goods.

Question 6.
What is the extractive industry?
Answer:
Extractive industries refer to those activities which are concerned with the extraction or pro¬duction of wealth from the soil, air, water, or from beneath the surface of the earth.

Question 7.
Give the meaning of the genetic industry.
Answer:
Genetic industries refer to those activities which are undertaken for reproducing or multiplying plants and animals with the object of making a profit from their sales.

Question 8.
What is the manufacturing industry?
Answer:
Manufacturing industries refer to activities concerned with the creation of form utility. That is, they are activities concerned with the conversion of raw materials or semi-finished goods into finished goods.

Question 9.
What is commerce?
Answer:
Commerce is a branch of business concerned with the distribution of goods and services.

Question 10.
State any two types of activities of commerce.
Answer:
(a) Trade
(b) Auxiliaries to Trade or Aids to Trade

Question 11.
What is auxiliary to trade?
Answer:
Activities that are meant for assisting trade are known as auxiliaries to trade.

Question 12.
State any, two auxiliary to trade. (March-S-2018)
Answer:
(a) Banking and Finance
(b) Transport and Communication

Question 13.
State any two objectives of a business.
Answer:
Objectives of business are:
(a) Economic objectives, i.e. earning profits.
(b) Social objectives, i.e. providing employment.

Question 14.
Mention any two causes of business risk.
Answer:
Causes of business risks are:
(a) Natural causes like floods, earthquakes, etc.
(b) Human causes like theft, forgery, lavish expenditure Of top management, embezzlement of cash, etc.

Question 15.
State any two factors to be considered while starting a business.
Answer:
The two factors which influence starting up of a business are:
(a) Selection of the line of business.
(b) Choice of the form of ownership.

Question 16.
What is business? (March-N-2019) (March-S-2019)
Answer:
Business is an economic activity involving the production and sale of goods and services undertaken with the motive of earning a profit, by satisfying human needs in society.

Four Mark Questions

Question 1.
Explain briefly any four characteristics of the business.
Answer:
(a) An economic activity: Business is considered to be an economic activity because it is undertaken with the object of earning money or livelihood and not because of love, affection, sympathy, or any other sentimental reason.

(b) Dealings in goods and services on a regular basis: Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase does not constitute a business.

(c) Profit earning: One of the main purposes of business is to earn income by way of profit. No business can survive for long without earning profit. That is why businessmen make all possible efforts to maximize profits, by increasing the volume of sales or reducing costs.

(d) Sale or exchange of goods and services: Directly or indirectly, business involves the transfer or exchange of goods and services for value. If goods are produced not for the purpose of sale but say for internal consumption, it cannot be called a business activity.

Question 2.
Briefly explain the different types of the manufacturing industry.
Answer:
Manufacturing industries may be sub-divided into four types.
They are:
(a) Analytical industries: Analytical industries refer to those manufacturing industries which produce many types of the product by analyzing, i.e. separating, the same basic raw materials into different products. For example; oil-refining.

(b) Synthetic industries: Synthetic industries refer to all those manufacturing industries where various materials are combined together in the manufacturing process to manufacture a new product. For example, the cement industry.

(c) Processing industries: Processingjndustries refer to those manufacturing industries where different components processed through different processes into a finished product. The paper industry, textile industry, etc. are examples of processing industries.

(d) Assembling industries: Assembling industries refer to those manufacturing industries where different component parts already manufactured are assembled into final products. The automobile industry is an example of assembling industries.

Question 3.
Explain any four auxiliaries to trade.
Answer:
(a) Transport and communication: Transport removes the hindrances of place. Transport facilitates through road, rail or, coastal shipping facilitate movement of raw material to the place of production and the finished products from factories to the place of consumption.

(b) Banking and finance: Business activities cannot be undertaken unless funds are available for acquiring assets and meeting the day-to-day expenses. Necessary funds can be obtained by businessmen from a bank Thus, banking helps business activities to overcome the problem of finance.

(c) Insurance: The risk of loss or damage to the factory building, machinery, furniture, goods held in stock, or goods in course of transport due to theft, fire, accidents, etc. is removed by insurance of goods.

Question 4.
Explain the nature of business risk
Answer:
(a) Business risks arise, due to uncertainties: Uncertainty means an unpredictable event that may occur in the future. These uncertainties will create risk for business.
(b) Risk is unavoidable: Every business has some risk. It cannot be avoided by anyone, but it can be minimized by taking certain precautionary measures.
(c) Degree of risk depends mainly upon the nature and size of business: The amount of risk differs from business to business. It mainly depends on the size and nature of the business.
(d) Profit is the reward for risk-bearing: Greater the risk involved in a business, the higher is the chance of profit. An entrepreneur undertakes risks with an expectation to earn higher profits. Hence, profit is considered as a reward for risk-bearing.

Question 5.
Explain the causes of business risk,
Answer:
(a) Natural causes: There are certain natural factors like floods, earthquakes, etc. which can damage the business. Nature is uncontrollable, so any loss due to natural calamities is unavoidable,
(b) Human causes: Business may also suffer due to man-made causes such as theft, forgery, lavish expenditure of top management, embezzlement of cash, etc. which leads to business loss.

Eight Mark Questions

Question 1.
Explain briefly any four objectives of the business.
Answer:
Economic objectives: Business is an economic activity so their primary objectives are economic.
(a) Earning profits: One of the objectives of the business is to earn profits on the capital employed. Profitability refers to profit in relation to capital investment. Every business must earn a reasonable profit which is so important for its survival and growth.

(b) Market standing: Market standing refers to the position of an enterprise in relation to its competitors. A business enterprise must aim at standing on a stronger footing in terms of offering competitive products to its customers and serving them to their satisfaction.

(c) Optimum utilization of resources: It is also one of the economic objectives of the business. It means using the resources in an optimum manner (i.e. without wastage) that helps in reduction of cost and increases the profit.

Social objectives: Business is an economic activity that cannot be carried on in isolation; there arises the social objective of the business. The important social objectives of modem businesses are:
(a) Providing employment: One of the important social objectives of a business is to provide employment to society. This can be achieved by establishing new business units, expanding the market, etc.

(b) Paying fair wages and providing other benefits to the employees: One of the important social objectives of a business is to pay fair wages and other benefits such as medical facilities, transport, housing, etc. to employees.

(c) Prevention of pollution: With the growth of industries, pollution has become a serious matter. Pollution affects the hygiene and the health of human beings and even animals. So, one of the social objectives and obligations of every business is to make efforts to prevent the pollution of air and water.

Question 2.
Explain briefly any four factors to be considered while starting a business.
Answer:
Selection of line of business: The first thing to be decided by any entrepreneur of a new business is the line of business to be started. That is the entrepreneur should decide whether he wants to establish an industry and commercial activity or service activity.

Size of the firm: The size of the firm or scale of its operation is another important decision involved in the setting up of a new enterprise. This decision is important because the efficiency and profitability of the business depend on the size of the business.

Choice of a form of ownership: It means deciding whether a new business unit should be a sole proprietorship, partnership, or joint-stock company. Each form has its own merits and demerits. The choice of the suitable form of ownership will depend on such factors as the line of business, capital requirements, liability of owners, division of profit, legal formalities, continuity of business, transferability of interest, and so on.

Financial planning: Financing is concerned with providing the necessary capital for starting as well as for continuing the proposed business.

Capital is required for investment in fixed assets like land, building, machinery, and equipment and in current assets like raw materials, book debts, stock of finished goods, etc.

Capital is also required for meeting day-to-day expenses.

Tax planning: Tax planning has become necessary these days because there are a number of tax laws in the country and they influence almost every aspect of the functioning of modem business. The founder of the business has to consider in advance the tax liability under various; tax laws and their impact on business decisions.

Launching the enterprise: After the decisions relating to the above-mentioned factors have been taken, the entrepreneur can go ahead with the actual launching of the enterprise which would mean mobilizing various resources, fulfilling necessary legal formalities/starting the production process, and initiating the sales promotion campaign.

Competent and committed worked force: Every enterprise needs a competent and committed workforce to perform various activities so that physical and financial resources are converted into desired outputs. Since no individual entrepreneur can do everything himself, he must identify the requirement of skilled and unskilled workers and managerial staff.

Physical facilities: Availability of physical facilities including machines and equipment, building, and supportive services is a very important factor to be considered at the start of the business. The decision relating to this factor will depend on the nature and size of the business, availability of funds, and the process of production.

Plant layout: Once the requirement of physical facilities has been determined, the entrepreneur should draw, a layout plan showing the arrangement of these facilities. The layout means the physical arrangement of machines and equipment needed to manufacture a product.

1st PUC Business Studies Nature and Purpose of Business Textbook Questions and Answers

Question 1.
List any Kve major commercial cities of ancient India.
Answer:
(a) Pataliputra
(b) Peshawar
(d) Indraprastha
(e) Mathura

Question 2.
What is Hundi?
Answer:
Hundi is an instrument of exchange, which was prominent in the Indian subcontinent. It involved a contract which and warrant the payment of money, the promise or order which is unconditionally capable of change through transfer by valid negotiation.

Question 3.
List the major
Answer:
Major exports include spices, wheat, sugar, indigo, opium, sesame oil, cotton, parrot, live animals, and animal products-hides, skin, furs, horns, tortoise shells, pearls, sapphires, quartz, crystal, Lapis, Lazuli, granites, turquoise, and copper, etc.

Question 4.
What were the different types of Hundi in use by traders in ancient times?
Answer:
The different types of Hundi in use by traders in ancient times were:
(a) Dhani-jog: Payable to any person-no liability over who received payment.
(b) Sah-jog: Payable to a specific person, someone ‘respectable’ liability over who received payment.
(c) Firman-jog: Hundi made payable to order.
(d) Dekhan-har: Payable to any person-no liability over who received payment, by payment over a fixed term.
(e) Jokhmi: Drawn against dispatched goods. If goods lost in transit, the drawer or holder bears the coasts, and the Drawee carries no liability.

Question 5.
What do you understand by maritime trade?
Answer:
The trade of goods and people by sea and other waterways is known as maritime trade. This was another important branch of the global trade network.

Question 6.
State the different types of economic activities
Answer:
(a) Business
(b) Profession
(c) Employment

Question 7.
Answer:
Business is considered to be an economic activity because it is undertaken with the aim of earning money or livelihood and not because of any sentimental reason like love, affection, or sympathy.

Question 8.
What is business? OR State the meaning of Business.
Answer:
Business is an economic activity involving the production and sale of goods and services un¬dertaken with a motive of earning profit by satisfying human needs in society.

Question 9.
How would you classify business activities?
Answer:
Business activities may be classified into two broad categories i.e. industry and commerce.

Question 10.
What are various types of industries?
Answer:
Industry refers to economic activities, which are connected with the conversion of resources into useful goods. Industries may be divided into three broad categories namely primary, secondary and tertiary.
(a) Primary industries include all those activities, which are connected with the extraction and production of natural resources and reproduction and development of living organisms, plants, etc.
(b) Secondary industries refer to industries where human labor plays a more important role than nature.
(c) Tertiary industries are concerned with providing support services to primary and secondary industries. They also include activities relating to trade

Question 11.
What is the role of profit in business?
Answer:
Profit plays an important role in business, they are:
(a) It is a source of income for business persons.
(b) It can be a source of finance for meeting the expansion requirements of the business.
(c) It indicates the efficient working of the business.
(d) It can be taken as society’s approval of the utility of business.
(e) It builds up the reputation of a business enterprise.

Question 12.
What is business risk? What is its nature?
Answer:
Business risk refers to the probability of loss existing in an organization’s operations and environment that may weaken its ability to provide returns on investment.

Two nature of business risks are:
(a) Profit is the reward for risk-bearing,
(b) Business risks arise due to uncertainties.

Long Answer Questions

Question 1.
Discuss the development of the indigenous banking system in the Indian subcontinent.
Answer:
The indigenous banking system played a prominent role in lending money and financing domestic and foreign trade with currency and letters of credit. With the development of banking, people began to deposit precious metals with lending individuals functioning as bankers or Seths, and money became an instrument for supplying the manufacturers with a means of producing more goods.

Intermediaries provided considerable financial security to the manufacturers by assuming responsibility for the risks involved, especially in foreign trade. It comprised commission agents, brokers, and distributors both for wholesale and retail goods.

The institution of Jagat Seths also developed and exercised great influence during the Mughal period and the days of the East India Company. Bankers began to act as trustees and executors of endowments. Foreign trade was financed by loans. However, the rate of interest for longer voyages was kept high in view of the huge risk involved.

The emergence of credit transactions and the availability of loans and advances enhanced commercial operations. The Indian subcontinent enjoyed the fruits of a favorable balance of trade, where exports exceeded imports with large margins and the indigenous banking system benefited the manufacturers, traders, and merchants with additional capital funds for expansion and development. Commercial and industrial banks later evolved to finance trade and commerce and agricultural banks to provide both short and long-term loans to finance agriculturists.

Question 2.
Define business. Describe its important characteristics.
Answer:
Business is an economic activity involving the production and sale of goods and services un¬dertaken with a motive of earning profit by satisfying human needs in society.
(a) An economic activity: Business is considered to be an economic activity because it is undertaken with the object of earning money or livelihood and not because of love, affec¬tion, sympathy, or any other sentimental reason.

(b) Dealings in goods and services on a regular basis: Business involves dealings in goods or services on a regular basis. One single transaction of sale or purchase does not constitute a business.

(e) Uncertainty of return: It refers to the lack of knowledge relating to the amount of money that the business is going to earn in a given period. Every business invests money to run its activities with the objective of earning profit. But it is not certain as to what amount of profit will be earned. Also, there is always a possibility of losses being incurred, in spite of the best efforts put into the business.

(f) Element of risk: Risk is the uncertainty associated with exposure to loss. It is caused by some unfavorable or undesirable event. The risks are related to certain factors like changes in consumer tastes and fashions, changes in methods of production, strike or lockout in the workplace, increased competition in the market, fire, theft, accidents, natural calamities, etc. No business can altogether do away with risks.

(g) Capital investment: There is no business without capital investment. The business may be small or large; investment of capital is a must for every business.

Question 3.
Compare business with profession and employment.
Answer:
1st PUC Business Studies Question Bank Chapter 1 Nature and Purpose of Business 1

Question 4.
Define industry. Explain various types of industries giving examples. (March-N- 2019)
Answer:
The various types of industries are:
Primary industries: Primary industries refer to industries that are concerned with the production of goods mainly with the help of nature. Mining, agriculture, forestry, fishing, etc. are examples of primary industries. Primary industries can be classified as:
(a) Genetic industries: Genetic industries refer to those activities which are undertaken for reproducing or multiplying plants and animals with the object of making a profit from their sales. Example: Nurseries raising seedlings and plants, cattle breeding, poultry farming, etc.

(b) Extractive industries: Extractive industries refer to those activities which are concerned with the extraction or production of wealth from the soil, air, water, or from beneath the surface of the earth. Example: Agriculture, mining, fishing, forestry, hunting, fruit gathering, etc.

Secondary industries: Secondary industries refer to industries where human labor plays a more important role than nature. Secondary industries can be classified into:
(a) Manufacturing industries: Manufacturing industries refer to activities concerned with the conversion of raw materials or semi-finished goods into finished goods.

Example: Conversion of raw cotton into cotton textiles; conversion of raw jute into jute products; production of sugar from sugarcane, etc. Manufacturing industries may be sub-divided into four types. They are:
1. Analytical industries: Analytical industries refer to those manufacturing industries which produce many types of the product by analyzing, i.e. separating, the same basic raw materials into different products. Example: In oil refining, the same crude oil is analyzed or separated into different products like petrol, diesel oil, kerosene, lubricating oil, etc.

2. Synthetic industries: Synthetic industries refer to all those manufacturing industries where various materials are combined together in the manufacturing process to manufacture a new product. Example: The cement industry is a synthetic industry, in the sense that cement is produced by combining many materials, such as gypsum, coal, etc.

3. Processing industries: Processing industries refer to those manufacturing industries where different components processed through different processes into the finished, products. The paper industry, textile industry, etc. are examples of processing industries.

4. Assembling industries: Assembling industries refer to those manufacturing industries where different component parts already manufactured are assembled into final products. The automobile industry is an example of assembling industries.

(b) Construction industries: Construction industries refer to those activities which are concerned with the creation of infrastructure necessary for economic development. In other words, they refer to those who are concerned with the construction of buildings, roads, bridges, railway lines, dams canals, etc.

Tertiary industries: Tertiary industries refer to industries that provide support services to primary and secondary industries and also to activities relating to trade. These days, services also are regarded as industries and are called tertiary industries. These industries are regarded as part of commerce, i.e. as auxiliaries to trade.

Question 5.
Describe the activities relating to commerce.
Answer:
Commerce includes two types of activities, viz.,
Trade: Buying and selling goods is termed trade. It helps in making the goods produced available to ultimate consumers or users.
(a) Internal trade: Internal trade, home trade, domestic trade, or national trade refers to trade within the boundaries of a country.
(b) External trade: External trade or international trade refers to trade between one country and another.

Auxiliaries to trade: Activities that are meant for assisting trade are known as auxiliaries to trade.
(a) Transport and communication: Transport removes the hindrances of place. Transport facilitates through road, rail, or coastal shipping facilitate the movement of raw material to the place of production and the finished products from factories to the place of consumption.

(b) Banking and finance: Business activities cannot be undertaken unless funds are available for acquiring assets and meeting the day-to-day expenses. Necessary funds can be obtained by businessmen from a bank. Thus, banking helps business activities to overcome the problem of finance.

(d) Warehousing: Usually, goods are not sold or consumed immediately after production. They are held in stock to be available as and when required. Special arrangements must be made for the storage of goods to prevent loss or damage. Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed.

(e) Advertising: Advertising is one of the most important methods of promoting the sale of products, particularly, consumer goods like electronic goods, automobiles, soaps, detergents, etc.

Question 6.
State and explain the objectives of the business. (March-S-2018)(March-S-2019)
Answer:
Economic objectives: Business is an economic activity so their primary objectives are economic.
(a) Earning profits: One of the objectives of the business is to earn profits on the capital employed. Profitability refers to profit in relation to capital investment. Every business must earn a reasonable profit which is so important for its survival and growth.

Question 7.
Explain the concept of business risk and its causes.
Answer:
Business risk refers to the probability of loss existing in an organization’s operations and environment that may weaken its ability to provide returns on investment, e.g. decline in demand for a product due to change in tastes and preferences of consumers resulting in lesser sales and profits; shortage of raw materials in the market-leading to rise in its price and in turn raising the cost for the business which uses them thereby reducing profits.

Nature of business risk:
(a) Business risks arise due to uncertainties: Uncertainty means an unpredictable event that may occur in the future. These uncertainties will create risk for business.
(b) Risk is unavoidable: Every business has some risk. It cannot be avoided by anyone, but it can be minimized by taking certain precautionary measures.
(c) Degree of risk depends mainly upon the nature and size of business: The amount of risk differs from business to business. It mainly depends on the size and nature of the business.
(d) Profit is the reward for risk-bearing: Greater the risk involved in a business, the higher is the chance of profit. An entrepreneur undertakes risks with an expectation to earn higher profits. Hence, profit is considered as a reward for risk-bearing.

The main causes of business risk are as under:
(a) Natural causes: There are. certain natural factors like floods, earthquakes, etc. which can damage the business. Nature is uncontrollable, so any loss due to natural calamities is unavoidable.
(b) Human causes: Business may also suffer due to man-made causes such as theft, forgery, lavish expenditure of top management, embezzlement of cash, etc. which leads to business loss.
(c) Economic cause: These include uncertainties reacting to demand goods competition, price, changes of technology or method of production, etc.
(d) Other causes: These are unforeseen events like political disturbances, fluctuations in exchange rates, etc.

Question 8.
What factors are to be considered while starting a business? Explain.
Answer:
Selection of line of business: The first thing to be decided by any entrepreneur of a new business is the line of business to be started. That is the entrepreneur should decide whether he wants to establish an industry and commercial activity or service activity.

Choice of the form of ownership: It means deciding whether a new business unit should be a sole proprietorship, partnership, or joint-stock company. Each form has its own merits and demerits. The choice of the suitable form of ownership will depend on such factors as the line of business, capital requirements, liability of owners, division of profit, legal formalities, continuity of business, transferability of interest, and so on.