Question 2

Define business. Describe its important characteristics.


Business refers to those economic activities which are connected with the production or purchase and sale of goods or supply of services with the main object of earning profit.

Important characteristics of business are as under:

  1. 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 reasons.

  2. Production or procurement of goods and services: Before goods are offered to the people for consumption or use, they must be either produced or procured by the business enterprise. Thus every business enterprise either manufactures the goods it deals in or it acquires them from producers, to be further sold to consumers or users.

  3. Sale or exchange of goods and services for the satisfaction of human needs: Directly or indirectly, business involves 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.

  4. Dealing 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, therefore, does not constitute business.

  5. Profit earning: One of the main purpose 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.

  6. Uncertainty of return: Uncertainty of return 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 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.

  7. Element of risk: Risk is the uncertainty associated with an exposure to loss. It is caused by some unfavourable or undesirable event. The risk are related with certain factors like changes in consumer tastes and fashions, changes in methods of production, strike or lockout in the work place, increased competition in the market, fire, theft accidents, natural calamities etc.

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