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NCERT Solutions for Class 12 Business Studies Chapter wise
Exercises
Very Short Answer Type:
Q1. What is meant by business environment?
Answer: The business environment means the sum total of all individuals, institutions and other forces that are outside the control of a business enterprise but that may affect its performance. The economic, social, political, technological and other forces which operate outside a business enterprise are part of its environment also the individual consumers or competing enterprises as well as the governments, consumer groups, competitors, courts, media and other institutions working outside an enterprise constitute its environment.
Q2. How does understanding of business environment help in improving performance of a business?
Answer: Understanding the business environment properly by the organisation results in developing plans and policies according to the environment which results in great improvement in performance. It also helps to counter any negativity that may exist in the market with a well-defined strategy. This will help an organisation perform at best every time.
Q3. Give an example to show that a business firm operates within numerous inter related factors constituting the business environment. (Hint: example highlighting the inter relatedness of dimensions of business environment).
Answer: The various elements of a Business organisation are interrelated to each other and the outcome depends on all these elements. Business environment consists of following elements economic, social, technological, legal.
For example: An automobile company will have the combined impact of all these factors in context of a business environment.
- If there is a global recession or economic slowdown, it will result in less sales of cars. Economic factor comes into play for purchasing car and it will impact the business.
- Due to introduction of new technology the car manufacturers need to follow that as industry standard which will be beneficial for the organisation. This is the impact of technological factor on business environment.
- With introduction of GST now car manufacturers can charge GST and GST is mandatory for business which is a legal factor impacting business environment.
Q4. Krishna Furnishers Mart started its operations in the year 1954 and emerged as the market leader in the industry because of their original designs and efficiency in operations. They had a steady demand for their products but over the years, they found their market share declining because of new entrants in the field. The firm decided to review their operations and decided that in order to meet the competition, they need to study and analyze the market trends and then design and develop their products accordingly. List any two impacts of changes in business environment on Krishna Furnishers Mart’s operations. (Hint: increase in competition and Market orientation).
Answer: The following impacts can be seen with changing of business environment for Krishna Furnishers Mart’s
- Rise in competitors leads to more competition.
- Innovation in design needed to differentiate product from competitors.
Q5. Name any two Specific forces of business environment affecting business.
Answer: Specific forces have a direct impact on the way a business is run. It can be due to the following changes:
- Changing tastes of customer.
- Competitor strategy
- Shift in investor loyalty
Short Answer Type:
Q1. Why it is important for business enterprises to understand their environment? Explain.
Answer: Importance or Benefits of study of Business Environment
Business environment is highly dynamic and uncontrollable. It keeps the entire business active and prudent. It is necessary that there should be congenial and harmonious social, economic and political environment around the business environment. Thus business environment has following benefits.
(1) Helpful in Formulating Future Strategies: A study of changing business environment is helpful in formulating future strategies. .
(2) Helpful in Adapting to Environment: A study of environment reveals various internal and external environment factors affecting the enterprise. Effect of each such factor can be separately identified and changes can.be made in the enterprise accordingly. . .
(3) Helpful in-Recognising Opportunities: A study of business environment helps us to ascertain whether the change in environment will provide some good opportunities for business or not.
(4) Helpful in Recognising Threats, Hostilities and Dangers: A study-of business environment helps to recognise the threats, challenges, risks and dangers likely to.be faced by at) enterprise. By getting a prior knowledge it can prepare itself to overcome the same.
(5) Helpful in Providing Infomation Relating to Strong Points and Weak Points: A study of business environment reveals the strong points weak – points of the business to face the business environment. Management ( can then identify the areas which need immediate attention.
(6) Helpful in Estimating the Expectations of Various Groups:- Many groups both within and outside the enterprise, Contribute to the well-being of the enterprise. As such, they have various expectations also from the enterprise. These groups may be employees, customers, suppliers, financiers, shareholders, government and the society in general. A study of business environment helps to know the expectations of these groups so that they may be reasonably fulfilled.
Q2. Explain the following terms:
(a) Liberalisation
Answer: Liberalisation Under the new economic policy of 1991, the economic reforms that were introduced aimed at liberalising the Indian business and industry from all unnecessary controls and restrictions. They signalled the end of the licence-permit quota raj.
(b) Privatization
Answer: Privatization entails giving the private sector a larger role while limiting the public sector’s engagement. In India, privatisation proceeded in the following manner.
i. Public-sector enterprises are being disinvested.
ii. Establishing an Industrial and Financial Reconstruction Board to help ill and loss-making businesses get back on their feet.
iii. Reducing the government’s stake in public-sector businesses.
(c) Globalisation
Answer: Globalisation can be understood as the integration of the national economy with the world economy. It represents a free flow of information, technology, goods and services, ideas, capital, and even people as a form of resources across different countries. Globalisation helps in improving t cross border connectivity between different markets in the form of investments, trade, and cultural exchanges.
Q3. Briefly discuss the impact of government policy changes on the business and industry.
Answer: The impact of Government policy changes on business and industry are:
- Increasing competition: The competition has increased due to entry of new players due to liberalisation and globalisation.
- More demanding customers: Customers today have become more demanding because they are well-informed also increased competition in the market gives the customers wider choice.
- Rapidly changing technological environment: The rapidly changing technological environment creates tough challenges before smaller firms.
- Necessity for change: After 1991, the market forces have become unstable as a result of which the enterprises have to continuously modify their operations.
- Need for developing human resource: The new market conditions require people with higher competence and greater commitment. Hence the need for developing human resources.
- Market orientation: There is a shift to market orientation in as much as the firms have to study and analyse the market first and produce goods accordingly.
- Loss of budgetary support to the public sector: The public sector undertakings have realised that in order to survive and grow, they will have to be more efficient and generate their own resources for the purpose.
Q4. National Digital Library of India (NDL India) is a pilot project initiated by the HRD ministry. It works towards developing a framework of virtual repository of learning resources with a single-window search facility. It provides support to all academic levels including researchers, life-long learners and differently-abled learners free of cost. State the dimensions of business environment highlighted above.
Answer: The following business dimensions are highlighted here:
- By developing a framework of virtual repository of learning resources it highlights the technological dimension.
- By supporting researchers, learners and differently abled learners free of cost it highlights the social dimension.
Q5. State the impact of demonetization on interest rates, private wealth and real estate.
Answer:
Demonetisation had the following effect on these sectors
- Interest rates: As demonetisation happened the number of cash transactions reduced; bank deposits increase in form of Jan Dhan Accounts. More financial savings by the people of the nation.
- Private Wealth: Private wealth saw decline as large volume transactions were not possible with old notes.
- Real Estate: Demonetisation led to the decline in price of property. Real estate industry saw huge drop in business.
Long Answer Type:
Q1. How would you characterise business environment? Explain, with examples, the difference between general and specific environment.
Answer:
The sum of all the forces (external, institutions and individuals) that are outside the control of a business organisation is referred to as the business environment. The forces mentioned here can be of varied nature such as social, economic, political, legal or technological. The organisation is unable to control such type of forces, but it can definitely have a positive or negative impact on their performance.
The following are the characteristics of business environment:
- Business environment is the sum total of all external forces which includes individuals, government, consumers. These have an impact on the business performance that is either positive or negative.
- The different forces that have an impact on the business environment are inter related. This inter relation has an effect on the business environment. for e.g. if there is an increase in the annual income of the consumers, they are more likely to purchase goods that fulfil all their demands and this leads to increase in demand for electric appliances, mobile phones, gadgets etc.
- Business environment is constantly evolving and therefore is dynamic in nature. This can be explained as we see changing trends in consumer behaviour, technology and policies of the government.
- The business environment is an uncertain territory. The changes in the market dynamics cannot be predicted easily. Due to which there exists an uncertainty.
Q2. How would you argue that success of a business is significantly influenced by its environment?
Answer: A business environment means the sum total of all individuals, institutions and other forces that are outside the control of an enterprise but may affect its performance.
It can be characterised as follows:
Totality of external forces- Business environment includes all forces, institutions and factors which directly or indirectly affect an organisation operating in it.
Specific and general forces- Specific forces in a business environment include customers, investors, competitors, suppliers etc. General forces which influence the environment are social, political, legal, technological conditions etc.
Dynamic Nature- Business environment is highly flexible and keeps changing continuously. Changes could be in customer preferences, technological advancements etc.
Complexity- The business environment consists of numerous and inter- related forces, hence it becomes difficult to comprehend the impact of the environmental forces on business. It becomes difficult to know the indirect impact of social, political, technological or legal factors on aspects of business.
Uncertainty- It is difficult to predict the changes in business environment, especially in case of rapidly changing aspects of environment, such as technological environment.
Q3. Explain with examples, the various dimensions of business environment.
Answer: (i) Economic Environment Interest rates, inflation rates, value of rupee and many more are the economic factors that can affect management practices in a business enterprise.
(ii) Social Environment The social environment of business includes the social forces like customs and traditions, values, social trends etc.
(iii) Technological Environment This includes forces relating to scientific improvements and innovations, which provide new ways of producing goods and services and new methods and techniques of operating a business.
(iv) Political Environment This includes political conditions such as general stability and peace in the country and specific attitudes that elected government representatives hold towards business.
(v) Legal Environment This includes various legislations passed by government authorities and court judgements. It is important for the management of every enterprise to obey the law of land and for this, enough of knowledge of rules, and regulations framed by the government is a pre-requisite for better performance.
Q4. The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016. As a result, the existing ₹ 500 and ₹ 1,000 currency notes ceased to be legal tender from that date. New currency notes of the denomination of ₹ 500 and ₹ 2,000 were issued by Reserve Bank of India after the announcement.
The step resulted in a substantial increase in the awareness about and use of Point of Sale machines, e-wallets, digital cash and other modes of cashless transactions. Also, increased transparency in monetary transactions and disclosure led to a rise in government revenue in the form of tax collection.
a) Enumerate the dimensions of business environment highlighted above.
Answer: The following dimensions of business environment are seen to be highlighted here:
- Political: Government has announced demonetisation of the ₹ 500 and ₹ 1,000 currency notes with effect from the midnight of November 8, 2016. It is a step by government in curbing the illegal use of money by some entities.
- Legal: 500 and ₹ 1,000 currency notes stopped being the legal tender and introduction of ₹ 500 and ₹ 2,000 became the new legal tender.
- Technological: As demonetisation happened there was shortage of cash, it encouraged the use of digital forms of payment in form of e-wallets like Paytm and other modes of cashless transactions.
b) State the features of Demonetization.
Answer:
- Demonetization was done with the intention of exposing black money holders and those who evade tax.
- Increase in savings of people. Earlier more people used to keep money at home rather than at bank, this step resulted in savings in bank.
- It helped in reducing the interest rates in banks.
- To popularize the use of digital payments and reduce frauds.
Q5. What economic changes were initiated by the government under the Industrial Policy, 1991? What impact have these changes made on the business and industry?
Answer: Economic Environment In India The economic environment in India consists of various macro level factors related to the means of production and distribution of wealth which have imform on the business and industry. These include:
(a) Stage of economic development of the country.
(b) The economic structure in the form of mixed economy which recognises the role of both public and private sectors.
(c) Economic policies of the Government including industrial monetary and fiscal policies.
(d) Economic planning including five year plans, annual budgets and so on.
(e) Economic indices like national income, distribution of income, rate and growth of GNP, per capita income, disposal personal income, rate of savings and investments, value of exports and imports, balances of payment and so on.
(f) Infrastructural factors, such as, financial institutions, banks – modes of transportation,communication facilities, and so on. As a part of economic reforms, the Government of India announced a new industrial policy in July 1991.
The broad features of this policy are as follows :
- Disinvestments was carried out in case of many public sector industrial enterprises.
- Policy towards foreign capital was liberalized. The share of foreign equity participation was increased and in many activities 100 percent foreign direct investment (FDI) was permitted.
- Automatic permission was now granted for technology agreements with foreign companies.
- Foreign Investment Promotion Board (FIPB) was set up to promote and channelise foreign investment in India.
Q6. What are the essential features of
a. Liberalisation
b. Privatisation
c. Globalisation
Answer: (a) Liberalisation: It means liberalising the business andindustry from all unnecessary controls and restrictions of the government in the form of licenses, permits and quotas. The essential features are:
- Abolishing licensing requirement in most of the industries except a short list
- Freedom in deciding the scale of business activities i.e., no restrictions on expansion or contraction of business activities
- Removal of restrictions on the movement of goods and services
- Freedom in fixing the prices of goods services,
(b) Privatization : Privatization aims at disinvestment of equity of public sector understandings and to subject there udertakings of competition. Privatization is the process of reducing the role of public sector in economic activities of a country. It involves induction of private ownership, private management and control in public sector enterprises. It includes de-nationalization and Transfer of control and management of public sector undertakings to private sector. It also covers dilution of government equity in public enterprises.
(c) The essential features of Globalisation
(i) Import liberalisation
(ii) Export promotion
(iii) Foreign exchange reforms
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