1. Trade and commerce in old India
Trade was old and wide. The cities of the Indus Valley traded with Mesopotamia, and later there was both overland and sea trade.
- Indigenous banking: shroffs and seths gave credit, took deposits and transferred money. The hundi (a bill of exchange) and the chitthi were instruments.
- Routes: the Uttarapatha (northern) and Dakshinapatha (southern), links with the Silk Route and ports on both coasts.
- Merchant guilds (shrenis) of traders and artisans regulated trade and helped members.
- Intermediaries such as commission agents, brokers and distributors, together with credit and trade networks, grew as distances widened.
| Item | Meaning |
|---|---|
| Hundi | A written order to pay a sum, like a bill of exchange |
| Chitthi | A written note used to send credit or money |
| Shroff or seth | Indigenous banker who lends, takes deposits, moves money |
| Body | Role |
|---|---|
| Merchant guild (shreni) | Traders and artisans who regulated trade and helped members |
| Commission agent | Arranges sales for a fee |
| Broker | Brings buyers and sellers together |
| Distributor | Carries goods from producer to sellers |
Key terms
- Hundi
A written order to pay a stated sum, working like a bill of exchange.
- Shreni
A merchant guild of traders and artisans that regulated trade and helped its members.
- Intermediary
A person such as an agent, broker or distributor who links producers and buyers.
2. Economic and non-economic activities; business, profession, employment
Activities done to earn a living are economic; those done out of love, sympathy, religion or patriotism are non-economic. Economic activities are of three kinds.
| Kind | Aim | Example |
|---|---|---|
| Economic | Earn a living | Running a shop, practising medicine, working for a salary |
| Non-economic | Love, sympathy, religion, patriotism | Feeding stray animals, helping at a temple |
| Activity | Meaning |
|---|---|
| Business | Producing or buying and selling goods and services for profit |
| Profession | Specialised knowledge and skill, regulated by a professional body |
| Employment | Work for others for a wage or salary |
Key terms
- Business
An economic activity of producing or buying and selling goods and services regularly to earn profit.
- Profession
An occupation that needs specialised knowledge and skill and is regulated by a professional body, in return for fees.
- Employment
Work done for others in return for a wage or salary under a contract of service.
3. Characteristics of business
Business is an economic activity involving production or procurement of goods and services, their sale or exchange, dealings on a regular basis, the aim of profit, uncertainty of return and an element of risk. A single sale of a personal item is not business.
| Characteristic | Key idea |
|---|---|
| Economic activity | Done to earn a living |
| Production or procurement | Goods and services made or bought |
| Sale or exchange | Transfer to buyers for value |
| Regular dealings | A single sale is not business |
| Profit earning | Surplus over costs is the aim |
| Uncertainty of return | Profit may rise or fall |
| Element of risk | Loss is always possible |
| Imagined case | Business? | Reason |
|---|---|---|
| Leela sells her old fridge once to a neighbour | No | One sale, not regular |
| Mohan buys and sells vegetables every day | Yes | Regular, for profit |
| A student gives free tuition to a neighbour | No | No profit motive |
Key terms
- Profit
The surplus left when total revenue exceeds total costs; the reward for bearing risk.
4. Objectives of business
A business has many objectives: market standing, innovation, productivity, physical and financial resources, earning profits, manager performance and development, worker performance and attitude, and social responsibility.
Profit is necessary but not the only objective. It pays costs, rewards risk and funds growth, but a firm also needs customers, trained staff, new ideas and public goodwill to last. Aiming at profit alone can lead to unfair practices.
| Objective | Idea |
|---|---|
| Market standing | A strong position among competitors |
| Innovation | New products and methods |
| Productivity | More output from the same resources |
| Physical and financial resources | Plant, equipment and funds |
| Earning profits | Surplus over costs |
| Manager performance and development | Skilled, growing managers |
| Worker performance and attitude | Good output and morale |
| Social responsibility | Benefit to society |
| Line from an imagined case | Objective |
|---|---|
| Padma Plastics launched a dissolving bottle | Innovation |
| Delta Cycles aims to be first in its state by sales | Market standing |
| Morbipur Tiles cut rejects per batch | Productivity |
| A bakery plants trees near its unit | Social responsibility |
Key terms
- Productivity
Output obtained from given resources; raising it means producing more with the same inputs.
- Social responsibility
The duty of a business to act for the benefit of society as well as itself.
5. Industry and commerce
Industry is of three kinds. Primary: extractive (mining, fishing, forestry) and genetic (cattle breeding, nurseries). Secondary: manufacturing, which is analytical (separating, as in a refinery), synthetical (combining, as in cement), processing (as in sugar, paper) or assembling (as in bicycles, computers); and construction. Tertiary: the service industries that act as auxiliaries to trade.
Commerce = trade + auxiliaries to trade. Trade is internal (wholesale or retail) or external (import, export, entrepot).
| Kind | Meaning | Examples |
|---|---|---|
| Extractive | Takes out products provided by nature | Mining, fishing, forestry |
| Genetic | Breeds and multiplies plants and animals | Cattle breeding, nurseries |
| Kind | What happens | Example |
|---|---|---|
| Analytical | One material is separated into parts | Oil refinery |
| Synthetical | Materials are combined into one product | Cement |
| Processing | Material passes through stages | Sugar, paper |
| Assembling | Ready parts are fitted together | Bicycles, computers |
| Construction | Building structures | Roads, bridges, dams |
| Kind | Meaning |
|---|---|
| Wholesale | Buying in bulk and selling to retailers |
| Retail | Selling in small lots to final consumers |
| Import | Buying goods from another country |
| Export | Selling goods to another country |
| Entrepot | Importing goods in order to export them again |
Key terms
- Industry
Activities concerned with producing or providing goods, by extraction, breeding, manufacturing or construction.
- Commerce
Trade together with the auxiliaries to trade.
- Trade
The buying and selling of goods and services.
- Auxiliaries to trade
Services such as transport, banking, insurance, warehousing and advertising that remove hindrances in trade.
- Entrepot trade
Importing goods in order to export them again.
6. Auxiliaries to trade and business risk
Auxiliaries: transport and communication (place), warehousing (time), banking and finance (finance), insurance (risk), advertising (information).
Business risk is the possibility of inadequate profit or loss due to uncertainties or unexpected events. It arises from uncertainty, is an essential part of every business, varies with its nature and size, and profit is its reward. Causes: natural (floods, earthquakes), human (dishonest employees, strikes, inefficient management), economic (changes in demand, competition, price changes, technology), and other (political disturbances, exchange-rate changes).
| Group | Examples |
|---|---|
| Natural | Floods, earthquakes |
| Human | Dishonest employees, strikes, management inefficiency |
| Economic | Demand change, competition, price changes, technology |
| Other | Political disturbances, exchange-rate changes |
Key terms
- Business risk
The possibility of inadequate profit or of loss due to uncertainties or unexpected events.
Exam tips
Common mistakes
- Writing profit for a profession or fees for a business: the rewards are profit, fees and wages.
- Mixing up analytical (separating) and synthetical (combining) manufacturing.
- Calling insurance the remover of the hindrance of finance; it removes risk.
- Treating a loss as a cause; name the cause (natural, human, economic or other), not the loss.
How marks are usually awarded
- 1 mark: one correct option or one quoted line.
- 2 or 3 marks: one point per mark, each with a short example.
- 5 marks: five labelled points; for distinctions, one basis per mark.