Nature and Purpose of Business
Economic and Non-Economic Activities
Economic activities are undertaken to earn a livelihood or income. Business, profession and employment are major forms. Non-economic activities are undertaken for purposes such as love, affection, charity or social service rather than monetary gain.
Business
Business involves economic activities concerned with production, purchase and sale of goods or provision of services with the objective of earning income. Profit is an important objective, but businesses also pursue growth, survival, customer satisfaction and social objectives.
Characteristics
Business involves an economic activity, production or procurement, sale or exchange, continuity of dealings, profit motive, uncertainty of return and an element of risk.
Industry and Commerce
Industry is concerned with production or processing of goods and extraction or construction activities. Commerce facilitates the exchange and distribution of goods and services and includes trade and auxiliaries to trade such as transport, banking, insurance, warehousing and communication.
Business Risk
Business risk is the possibility of inadequate returns or losses because of uncertainty. Causes include natural events, changes in demand, competition, technology, government policy and human factors.
Explained MCQs
- Why is continuity important in distinguishing business from a single transaction?
Answer: Business normally involves regular or continuing dealings.
Explanation: A one-time sale of a personal asset does not automatically make the seller a businessperson. - Which is a characteristic of business risk?
Answer: Uncertainty of return.
Explanation: Profit cannot be guaranteed because demand, costs and other conditions can change.
Case Study
A student sells handmade bookmarks once to raise money for a school event. Does this automatically constitute a business? Analyse continuity, economic purpose and regularity before answering.