Class 12 business studies chapter 3 ncert solutions: Business Environment questions and answers
| Textbook | Ncert |
| Class | Class 12 |
| Subject | Business Studies |
| Chapter | Chapter 3 |
| Chapter Name | Business Environment class 12 ncert solutions |
| Category | Ncert Solutions |
| Medium | English |
Are you looking for business studies class 12 chapter 3 questions and answers? Now you can download Business Environment class 12 questions and answers pdf from here.
Very Short Answer Type:
Question 1: What is meant by business environment?
Answer 1: The term ‘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 the business enterprise are part of its environment.
Question 2: How does understanding of business environment help in improving performance of a business?
Answer 2: 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 its best every time.
Question 3: 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 3: Business organisations work in a complex environment consisting of numerous interrelated and dynamic conditions.
For example, ABC Ltd. is an automobile company. Its performance is affected by the following factors:
Economic: Global recession,
Social: Changed consumption habits of people due to the improved standard of living of customers.
Technological: Advanced technology leads to automation in manufacturing.
Legal: 28% GST levied on automobiles.
Question 4: 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 4: The following impacts can be seen with changing of the business environment for Krishna Furnishers Mart
- 1. Rise in competitors leads to more competition.
- 2. Innovation in design is needed to differentiate their products from that of their competitors.
Question 5: Name any two Specific forces of business environment affecting business.
Answer 5: Specific environment refers to those external forces that affect an organisation directly. These are specific to a particular organisation. For example, a delay in the supply of raw material from the supplier directly affects the production of the company. Another example, is a change in the customer’s taste of the good produced by the company.
Short Answer Type:
Question 1: Why it is important for business enterprises to understand their environment? Explain.
Answer 1: Understanding the business environment is crucial for business enterprises because it plays a significant role in determining their success or failure. The performance and operations of an organization are influenced by various external factors. By comprehending these factors, businesses can harness opportunities and mitigate risks effectively. Here’s why understanding the business environment is essential:
- Identifying Opportunities: A thorough understanding of the environment allows businesses to spot positive opportunities for growth. It enables them to make proactive decisions and stay ahead of the competition.
- Anticipating Threats: By studying the business environment, organizations can recognize potential threats that might hinder growth. This knowledge allows them to devise strategies to neutralize these threats, ensuring sustainability.
- Resource Optimization: The business environment helps in identifying and accessing necessary resources. Understanding the local context ensures businesses acquire the right inputs for producing goods and services efficiently.
- Adapting to Changes: The dynamic nature of the business environment, influenced by technological advancements, consumer behavior, and policy shifts, requires adaptability. Awareness of these factors helps businesses stay relevant and responsive to change.
- Strategic Planning: Analyzing the business environment aids in formulating effective plans and policies. Aligning strategies with market trends ensures relevance and improves chances of success.
- Enhanced Performance: A deep understanding of the environment enables organizations to align their operations with external conditions, leading to improved performance and competitive advantage.
Question 2: Explain the following terms:
a. Liberalisation
b. Privatization
c. Globalisation
Answer 2: a. Liberalisation: Liberalisation refers to the process of reducing government-imposed restrictions and regulations on economic activities to promote greater freedom for businesses and individuals. It aims to create a more competitive and efficient economy by eliminating barriers to trade, investment, and innovation. Key measures of liberalisation include reducing tariffs and quotas on imports, deregulating industries, and allowing private sector participation in various economic activities. This fosters a more open market, encourages foreign investment, and enhances the overall economic growth by improving productivity and competitiveness.
b. Privatisation: Privatisation involves transferring the ownership, management, or control of public sector enterprises to the private sector. This can occur through methods such as the sale of government stakes in companies, outsourcing services, or granting private firms operational rights. The primary goal of privatisation is to improve the efficiency and performance of enterprises by leveraging the profit-driven motives of private players. It reduces the financial burden on the government, encourages innovation, and often results in better services and products for consumers. However, it also requires regulatory mechanisms to prevent monopolistic practices and ensure accountability.
c. Globalisation: Globalisation is the process of increasing interconnectedness and integration among countries through the exchange of goods, services, information, and culture. It is driven by advancements in technology, communication, and transportation, as well as the liberalisation of trade policies. Globalisation enables businesses to expand their operations across borders, access new markets, and benefit from economies of scale. It fosters cultural exchange, encourages innovation, and promotes economic development. However, it also poses challenges such as income inequality, cultural homogenisation, and the vulnerability of local economies to global market fluctuations.
Question 3: 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 singlewindow search facility. It provides support to all academic levels including researchers, lifelong learners and differently abled learners free of cost. State the dimensions of business environment highlighted above.
Answer 3: The following business dimensions are highlighted here:
1. By developing a framework of a virtual repository of learning resources, it highlights the technological dimension.
2. By supporting researchers, learners and differently-abled learners free of cost, it highlights the social dimension.
Question 4: State the impact of demonetization on interest rates, private wealth and real estate.
Answer 4: Demonetisation refers to the withdrawal of the status of legal tender to the currency in circulation. It occured in India from the midnight of November 8, 2016. The government of India announced Demonetization of ₹ 500 and ₹ 1,000 currency notes and they 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.
Its impact is explained below:
- Interest rate- The deposit held in the bank increased. There was also an increase in the financial savings. The number of cash transactions reduced considerably.
- Private wealth- Private wealth declined. Some of the high demonetized notes were not returned and the prices of the real estate fell.
- Real estate- The prices of the real estate fell.
Long Answer Type:
Question 1: How would you characterize business environment? Explain with examples, the difference between general and specific environment.
Answer 1: Features of business environment:
(i) Totality of External Forces Business environment is aggregative in nature as it is the sum total of all things external to business firms.
(ii) Inter-relatedness Different elements of business environment are closely related to each other, e.g., increased awareness of health care have increased the demand for many health products.
(iii) Dynamic Nature The business environment is highly dynamic. It keeps on changing. Sometimes there is a change in technology, tastes and preference of consumer etc.
(iv) Uncertainty The environment cannot be predicted. It is highly uncertain and unpredictable.
(v) Complexity Since there are many elements of business. Environment and they are inter-related and dynamic in nature. Therefore, it becomes very difficult to understand them as a whole.
Difference between Specific and General Environment There are two types of forces operating in business environment specific and general. Specific forces affect the individual enterprises directly and immediately, e.g., customers, suppliers. General forces affect the firms and only indirectly e.g., social conditions or political conditions.
Question 2: How would you argue that the success of a business enterprise is significantly influenced by its environment?
Answer 2: An organisation cannot function in complete organ isolation. There are many external factors such as technological and social changes which affect the working of the enterprise. The external forces are extremely important for the success of the enterprise. The following points highlight the importance of the environment for the success of a business organisation:
a. It helps to identify the best opportunities and getting the first-mover advantage. It is better to analyze the market and grab the opportunity rather than losing it to the competitors. It can prove to positively contribute to the business.
b. A detailed analysis of the business environment helps in the identification of thread which may have a negative effect on the functioning of the Enterprise. They can become an early warning signal and help the Enterprise to formulate adequate steps to cope up with it.
c. The environment provides various resources that are helpful to the business for its running in the long term environment. In return, the environment is provided with output in the form of goods and services by the Enterprise. So the environment is considered to be both a source of demand and the source of resources. So the Enterprises must arrange for the best possible resources which can be done only after a detailed studying of the business environment.
d. The environment is constantly changing in terms of technology, government policies, taste and preference of the consumer, etc. The manager of the firm must analyze the business environment to cope up with the changes.
e. It also helps in formulating new plans and policies according to the current scenario. This, in turn, helps to improve the overall performance of the Enterprise
Question 3: Explain, with examples, the various dimensions of business environment.
Answer 3: The business environment comprises several dimensions that influence the functioning and performance of an organization. These dimensions interact dynamically and must be analyzed to make informed business decisions. The key dimensions are as follows:
Economic Environment: This includes factors such as economic growth, inflation, interest rates, exchange rates, and employment levels that impact business operations. For example, during an economic boom, businesses experience increased consumer spending, while a recession may lead to reduced demand.
Political and Legal Environment: The stability of the political system, government policies, and legal frameworks significantly affect businesses. Policies on taxation, trade, and labor laws are examples. For instance, favorable government incentives for renewable energy encourage businesses to invest in the sector.
Technological Environment: Advancements in technology create opportunities and challenges for businesses. The adoption of automation and artificial intelligence has revolutionized industries like manufacturing and healthcare. For example, e-commerce platforms like Amazon thrive due to innovations in digital payment and logistics technology.
Social and Cultural Environment: Social norms, cultural values, demographics, and lifestyle changes influence consumer behavior. For instance, the growing awareness of health and fitness has boosted the demand for organic products and fitness equipment.
Natural Environment: Businesses are increasingly affected by environmental factors such as climate change, resource availability, and ecological regulations. Companies in the energy sector, for example, are shifting toward renewable energy sources to meet sustainability goals.
Global Environment: This encompasses global market trends, international trade agreements, and cross-border collaborations. For example, the rise of global supply chains enables businesses like Apple to source components from multiple countries and assemble products efficiently.
Question 4: 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.
This step resulted in a substantial increase in the awareness about and use of Point of Sale machines, ewallets, 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.
b. State the features of Demonetization.
Answer 4: a. The following dimensions of the business environment are seen to be highlighted here:
1. Political: The government announced the demonetisation of the ₹ 500 and ₹ 1,000 currency notes with effect from midnight of November 8, 2016. It is a step by the government to curb the illegal use of money by some entities.
2. Legal: 500 and ₹ 1,000 currency notes stopped being the legal tender, and ₹ 500 and ₹ 2,000 became the new legal tender.
3. Technological: As demonetisation happened, there was a shortage of cash, which encouraged the use of digital forms of payment in the form of e-wallets like Paytm and other modes of cashless transactions.
b. The following are the features of demonetization:
- 1. Demonetization was done with the intention of exposing black money holders and those who evade tax.
- 2. Increase in savings of people. Earlier more people used to keep money at home rather than at the bank, and this step resulted in savings in the bank.
- 3. It helped in reducing the interest rates in banks.
- 4. To popularize the use of digital payments and reduce fraud.
Question 5: What economic changes were initiated by the Government under the Industrial Policy, 1991? What impact have these changes made on business and industry?
Answer 5: Some economic changes which were initiated by the Government under the Industrial Policy,1991 are:
(i) Under the new Industrial Policy 1991, industrial licensing was prohibited. The system of licensing was retained in six industries likewise drug and pharmaceuticals, defence equipment, dangerous chemicals, liquor, cigarette, industrial explosives.
(ii) The Government set up the Foreign Investment Promotion Board to encourage and channelise the foreign investment .
(iii) The role of industries exclusively reserved for the public sector was considerably reduced. The private sector was given preference to operation in majority of the industries with only three industries under the government namely, railways, atomic mineral and atomic energy.
(iv) For many public sector enterprises, the process of disinvestment was carried out. That is, an increase in share of the assets of the public industrial enterprises was sold to the private sector.
Features of impact of government policy changes on business and industry are as follows:
(i) Demanding customers: Government policies have allowed entry to competitively driven products and services under new economic policies. Consumers have also become well-informed and could choose from a variety of such products and services. Along with rising incomes, increasing purchasing power and changing lifestyles, Indian customers have become more demanding about value driven products and services.
(ii) Increasing competition: Government’s new policies have given an impetus to private sector and enabled easy access to foreign companies, thus enabling a competitive structure in India. Competition has led to the development of new products and services, innovation, creating easy access to domestic and foreign markets and resources, led to existence of competitive pricing, increased productivity and profitability across industries and businesses.
(iii) Technological development: Increase in competition with the entry of foreign companies has led to technological development in the country. Government policies and regulations have been directed towards following global production compliances that have led businesses with large-scale operations to adopt state-of-the art technology.
(iv) Market orientation: Market orientation means that businesses attempt to discover and match the needs and desires of the consumers by providing customised products and services by encouraging privatisation and competition. Thus, businesses have to bear huge costs on planning based on market research, and producing products or services based on the changing tastes, needs and wants of their customers. The concept of market has changed from selling to marketing.
Question 6: What are the essential features of:
a. Liberalisation,
b. Privatization and
c. Globalisation?
Answer 6: a. Liberalisation: Liberalisation refers to the process of reducing government restrictions and controls over the economy to allow for greater freedom in business activities. The essential features of liberalisation are:
- Deregulation: The removal or simplification of government-imposed restrictions in industries, allowing businesses to operate more freely.
- Reduction in Trade Barriers: Lowering tariffs, quotas, and import restrictions to promote free trade and competition.
- Encouraging Foreign Investment: Easing restrictions on foreign direct investment (FDI) and opening markets to international businesses.
- Promoting Private Sector Growth: Shifting from state-controlled to private-sector-led development by encouraging private entrepreneurship.
- Financial Sector Reforms: Allowing greater freedom to financial institutions and improving the functioning of capital markets to promote competition and efficiency.
b. Privatisation: Privatisation involves transferring ownership, control, or management of public sector enterprises to the private sector. The essential features of privatisation are:
- Transfer of Ownership: Selling government-owned businesses or assets to private entities, either through public offerings, direct sales, or public-private partnerships.
- Increased Efficiency: Private firms are driven by profit motives and competition, leading to improved efficiency, cost-cutting, and better management.
- Reduction of Government’s Role: It reduces the financial burden on the government, as it no longer has to subsidize or manage these enterprises.
- Promotion of Competition: By introducing private ownership, markets become more competitive, which can lead to improved services and products for consumers.
- Revenue Generation for Government: The government generates revenue through the sale of public sector enterprises, which can be used for other developmental activities.
c. Globalisation: Globalisation is the process of increasing interconnectedness and integration among countries through the exchange of goods, services, information, and cultural practices. The essential features of globalisation are:
- International Trade: Increased exchange of goods and services across borders, leading to a global marketplace.
- Global Investment: The movement of capital across countries through foreign direct investment (FDI) and portfolio investment.
- Technological Advancements: The spread of technology, especially communication and transportation, making it easier for businesses to operate globally.
- Cultural Exchange: The sharing of ideas, values, and cultural elements across countries, leading to cultural integration.
- Outsourcing and Offshoring: Businesses increasingly source products or services from different countries to take advantage of cost efficiency, leading to the creation of global supply chains.
- Market Integration: The merging of different national markets into a single global market where companies can operate across borders more easily.