Nature and Scope of Buisness



All of us live in families and depending on the income, we have different standards of living. We require various types of goods and services to satisfy our needs and wants. Some members in your family have to work to earn and provide for the needs of the family.

Thus, people engage in different activities which are known as economic activities. In ancient times, people had limited wants to satisfy. In modern times however, we need a large variety of goods and services to satisfy our needs and to raise our standard of living.

On the one hand the supply of goods and services has led to various activities. On the other hand, activities of different types are undertaken by people to earn sufficiently to fulfill their increasing wants. Thus we find large numbers of people engaged in business, industry, and profession. Such economic and business activities satisfy various needs and demands for goods and services.


Nature of Business:


Nature of Business : A business enterprise has the following characteristics :

(i) Dealing in Goods and Services : The first basic characteristic of a business is that it deals in goods and services. Goods produced or exchanged may be consumer goods such as bread, rice, cloth, etc., or capital goods such as machines, tools, etc., The consumer goods are meant for direct consumption either immediately or after undergoing some processes, whereas the capital goods are meant for being used for the purpose of further production. Capital goods are also known as producer’s goods. Services include supply of electricity, gas, water and finance, insurance, transportation, warehousing, etc.

(ii) Production and Exchange: Every business is concerned with production and exchange of goods and services for value (prices). Thus, goods produced or purchased for personal consumption (or) for presenting to others as gifts do not constitute business because there is no sale or transfer for value involved. If, for example ‘A’ buys a T.V. Set in Tokyo to be gifted to his brother on his return to New Delhi, it will not amount to business. But if the same person realize the price of the T.V. Set, it will come under the scope of business in a limited way provided the other conditions are also satisfied which are given below.

(iii) Regularity and Continuity in Dealings : One sale transaction cannot strictly constitute a business. A sale of a product can be called a business if it is undertaken frequently. If other essential characteristics of business are present and the production of goods or rendering of services for a price is undertaken regularly and continuously, this activity will be called a business.

(iv) Uncertainty or Risk : Business activities, as we have formed some definite ideas about it by now, carry an element of uncertainty or risk. It is true that the element of risk is present in almost all economic activities in a small or great measure. But it is certainly more significantly present in business activities. Risk involves the possibility of loss or what may be called uncertainty of return on investment made in the business due to a variety of factors over which the business enterprise has practically no control.

(v) Profit Motive : Human-beings are engaged in business primarily with a view to earn profits and acquire wealth. This is not in any way reduce the importance of service motive in business. As a matter of fact, there is a positive relationship between proper and satisfactory services to the customers and to the society and the extent of profit. Normally, better services are accompanied by higher profits, but it may not always be so. Profit motive is also accepted as a desirable objective even for the Government enterprises engaged in business. It is called surplus instead of Profit in case of Government enterprises.


The nature of business is best understood on the basis of its characteristics or features which are as follows:

1. Business is an economic activity

2. It includes the activities of production or purchase and distribution.

3. It deals in goods and services.

4. It implies regularity of transactions.

5. It aims at earning profits through the satisfaction of human wants.

6. It involves risk; it is not certain that adequate profit will be earned.

7. It creates utilities.


Scope of Business:

 The scope of business is very wide. It includes a large number of activities which may be classified under two broad categories, namely, Industry and Commerce. A description of the activities which come under these two broad categories is given below.

Industry : The activities of extraction, production, conversion, processing or fabrication of products are described as industry. These products of an industry may fall under any one of the following three categories:

(a) Consumers Goods : Goods used by final consumers are called consumers goods. Example of consumer goods Edible Oils, Cloth, Jam, Television, Radio, Scooter, Motor Car, Refrigerator, Cell phone etc. come under this category.

(b) Capital Goods : Goods used in the production of other goods are described as produces’ goods. Steel produced by steel plant is used for fabrication into a variety of products such as motor cars, scooters, rail Locomotive engines, ships, surgical instruments, blades, etc. Similarly machine tools and machinery used for manufacturing other products also come under this heading. These are also called capital goods.

(c) Intermediate Goods : There are certain materials which are the finished products of one Industry and become the intermediate products of other industries. A few examples of this kind are the copper industry, the finished products of which are used in manufacturing Electrical Appliances, Electricity Wires, Toys, Baskets, Containers, and Buckets. Broadly speaking, industrial activities may be classified into primary and secondary which are explained in the following lines.

Construction Industries : They are concerned with the making of constructing of buildings, bridges, dams, roads, canals, etc. These industries use the products of manufacturing industries such as Iron and Steel, Cement, Lime, Mortar etc., and also the products of extractive industry such as stone, marble, etc. The remarkable feature of these industries is that their products are not sold in the sense of being taken to the markets. They are constructed and fabricated at fixed sites.

Commerce: The term commerce refers to the process of buying and selling-wholesale; retail, import, export, enter port trade and all those activities which facilitate or assist in such buying and selling such as storing, grading, packaging, financing, transporting, insuring, communicating, warehousing, etc. The main functions of commerce is to remove the hindrance of

(i) persons through trade;

(ii) place through transportation, insurance and packaging;

(iii) time through warehousing and storage;

(iv) knowledge through salesmanship, advertising, etc., arising in connection with the distribution of goods and services until they reach the consumers.









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