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MBA 1st Year Short Objectives Business Environment Question Answer Model Practice Set

MBA 1st Year Short Objectives Business Environment Question Answer Model Practice Set

MBA 1st Year Objectives Business Environment Question Answer Model Practice Set

MBA 1st Year Short Objectives Business Environment Question Answer Model Practice Set
MBA 1st Year Short Objectives Business Environment Question Answer Model Practice Set

MBA 1st Year Objectives Business Environment Question Answer Model Practice Set

Introduction:: Business Meaning, Definition, Noture 6 Scope, Objectives of Business: Economic and Social, Types of business organisations Business Environment. Meaning, Characteristics, Scope and Significance, Components of business environment production of Micro-environment: Internal Environment Value system, Mission, Objectives, Organisational structure, Organisational resources, Company image, Brand equity. External Environment: Firm, Customers, Suppliers, Distributors, Competitors, Society. Introduction to Macro Components: Demographic, Natural, Political, social, Cultural, Economic, Technological, International and legal, Difference between macro and Micro-environment.

Section B


Qus.1. Explain the nature and scope of a business.

Ans. Nature of Business: The nature of business is described by the following points:

  1. Business is a social institution that utilises individual as well as group actions for achieving a

common objective.

  1. All business entities are involved in offering goods and services to the end customers.
  2. Buying and selling of goods and services and regularity in dealing are the main characteristics of business.
  3. Capital, investment and finance characterise the business activities.
  4. Success of a business is measured in terms of its ability of profit generation.
  5. Business is a continuous process of repetitive activities so as to achieve its objectives.
  6. The business will be more successful if it can forecast with more perfection.
  7. Businesses generate values and utilities for their products and services.

Scope of Business: Business has a wide scope and all its activities are grouped under the following


  1. Industry: It involves activities like extraction, processing, conversion, production, etc. The products can be categorised as:

(a) Consumer Goods: Goods that are ultimately consumed by final consumers.

(b) Capital Goods: Goods that are used as raw materials in the production of other goods.

(c) Intermediate Goods: Goods of one industry that are used as intermediaries in other industries in order to produce other products.

  1. Commerce: It is the process of buying and selling of goods assisted by few supporting activities and is carried out through export, import, retail, wholesale, etc.

This category removes the hindrances of business, i.e. of persons, place, time and knowledge.

Q.2. Explain the characteristics of business organisation.

Ans. The important characteristics of business organisation are as follows:

  1. Adequacy of Capital: The organisation should facilitate the raising of the required amount of capital at a reasonable cost.
  2. Limit of Liability: Limited liability is preferable from the point of view of risk, i.e. the liability of the owner regarding the debts of the business is limited to the amount of capital agreed to be contributed by him.
  3. Flexibility of Operations: The nature of organisation should be such as to be able to a tself to the changes without much difficulty.
  4. Ease in Formation: The organisation that can be formed with ease is an ideal form of organisa and it should involve the least expense and minimum legal formalities.
  5. Continuity and Stability: An ideal organisation should exist for a long period of time and not be closed within a short time period.
  6. Ownership Management and Control: There should be a direct relationship between owners management and control. So, those who manage must have complete control over business matters
  7. Business Secrecy: This can be maintained by the sole trader as he undertakes the business activities all by himself.
  8. Tax Considerations: An ideal form of organisation should attract minimum tax liability. Also the sole trader scores over the partnership firm and joint stock companies.

Qus.3. What are the merits and demerits of sole proprietorship?

Ans. Merits: The merits of sole proprietorship are as follows:

  1. Sole proprietorship is the simplest form of business ownership which is easy to start and


  1. The sole owner has a small scale business because of which he is able to maintain close and

personal contacts with his customers.

  1. A sole proprietor may or may not discuss his business issues with anyone and then takes

prompt decisions regarding the situations accordingly.

  1. The sole owner can make alterations in his business according to the changing market conditions.
  2. In case of a single owner, there is no chance of disclosure of secrets to anyone. Demerits: The demerits of sole proprietorship are as follows:
  3. A small business organisation has limited resources or inadequate sources of production
  4. A single person has limited skills and knowledge which he applies in his business.
  5. Sole proprietorship is a small-scale business that involves all the factors of production in low quantities, i.e. land, labour, capital, raw materials, etc.
  6. A sole owner is able to only small profits because of only having a small scale business,
  7. This form of business organisation remains sound and secure until the good health of the owner.
  8. The business owner has unlimited liability, which allows him to expand his business.

Qus.4. Explain the relationship between business and environment.

Ans. Relationship between Business and Environment: Business environment is the interrelationship of all conditions, events and influences that surround and affect the business. Today, business is vitally affected by the economic, social, legal, technological and political factors which form the business environment. So, business environment is the total of all external forces that affect the organisation and the operations of business,

Business and environment are related to each other. They are a set of political, economic, social and technological forces that are largely outside the control and influence of a busi ne control and influence of a business and that can potentially have both a positive and a negative impact on the business.

A firm does not have much influence on the environment but the collective behaviour of different y affect the environment. The analysis of business environments shows that environment remains external to the firms. The internal du to the firms. The internal dynamics of the firm are meant to adjust themselves to un external conditions, i.e. the environment.

Thus, a business firm is a product of seve iness firm is a product of several environments and to survive, the firm must acope itself to its environment as it occurs.

Qus.5. Mention the salient features of business environment and state its importance.

Or ‘Business environment plays a key role in the functioning of an organisation’. Discuss the features of business environment.

Ans. Salient Features of Business Environment: Business environment is the basic need of every business organisation. It plays an important role in the functioning of an organisation as it comprises of factors that influence the functioning and effectiveness of an organisation. The salient features are as follows:

  1. Business environment is compound in nature consisting of events, conditions and influences

arising from various sources.

  1. Business environment is dynamic as it keeps on changing with technological improvement.
  2. Business environment is made up of social, economic, legal, cultural, technological and

political factors which are interdependable.

  1. Business environment includes both specific and general forces that affect individual

enterprises or firms either directly or indirectly.

  1. It is a relative concept as it differs from one country to another or from one region to another.
  2. Business environment has both long-term and short-term impact, ie it has different effects on

different firms within the same industry.

  1. The different factors of business environment are correlated and if there is a change in one

factor, it affects the changes in other factors also.

  1. Business environment is flexible in nature, so the business may act as an opportunity or an obstacle to organisation depending on the situation.
  2. Business environment is very uncertain as it is a difficult job to predict the happenings of the future mainly when frequent changes in environment are there.
  3. It is the sum total of all the factors that are available outside the business or over which there is no control of business.

Importance of Business Environment: Refer to Sec-C,

Qus.6. What is the need to study the business environment? 

Ans. Need to Study the Business Environment: Business and environment are interrelated concepts and business has to operate within the situation created by the environmental factors. The study of business environment is needed because of the following reasons:

  1. First Mover Advantage: Early identification of opportunities helps an enterprise to be the first to exploit them instead of losing them to competitors.
  2. Framing Policies: The business enterprise has to formulate its policies according to the environment under which it operates.
  3. Ensuring Optimum Utilisation of Resources: It is necessary for the management to use resources like money, machines, etc. economically and effectively.
  4. Reputation of Company: The management of a company is interested to improve the image and reputation of the company in public mind.
  5. Corporate Planning and Business Policy Decisions: Corporate managers analyse the Strengths(S), Weaknesses (W), Opportunities (O) and Threats (T) that exist for their organisation regarding environment.
  6. Finding Threats and Exploring Opportunities of Business: The fast changing conditions require a systematic process of scanning threats and exploring opportunities for better accomplishment of objectives.
  7. Adjusting with Technological Advancements: The firm adopting latest technology will have competitive advantage over others and thus, knowledge of latest technological development helps the business
  8. Knowledge of Internal Environment: Business goals, objectives, plans, strategies, procedures, etc. are some of the internal aspects where changes should be properly monitored.

9.Improving Performance: Environment scanning provides a continuing broad based education for executives especially strategy planners.

  1. Brand Building: Environmental understanding helps the business organisation to i their image by showing their sensitivity to its environment.
  2. Other Situations: Study of business environment is needed to understand political sin and its effect on business, to understand economic policies of government and their impact on business and also to foresee the impact of socio-cultural factors

Qus.7. Explain the significance of business environment. Also explain financial environment.

Or Discuss the significance of the study of business environment in Indian context 

Ans. Business environment refers to those factors surrounding a business which either influence or determine its effectiveness.

Significance of the Study of Business Environment

Study of business environment is significant for a business enterprise to keep itself informed about its surrounding environment especially in Indian context. It has following significances:

  1. It helps in developing broad strategies and long-term policies of the firm.
  2. It gives us information about changes taking place in the environment so that it can adjust itself accordingly.
  3. It is essential for the development of action plans to deal with technological advancements.
  4. It helps in the analysis of competitors strategies and the formulation of effective counter measures.
  5. A business enterprise can go for expansion drive, when favourable changes take place in environment.
  6. Knowledge about changing environment keeps the organisation flexible and dynamic in its


  1. It enables us to visualise the impact of the socio-economic changes and accordingly make

necessary adjustments.

Glueck and Jauch stressed, ‘Environmental analysis and diagnosis give strategists, time to anticipate opportunities and plan to take optimal responses to these opportunities. It also help strategists to develop an early warning system to prevent threats or to develop strategies which can pose a threat to firm’s advantages.’ It is undoubtedly true that firms which systematically diagnose the environment are more effective than those which don’t.

Financial Environment

Financial environment refers to all the financial institutions and markets lying around the company which affect the working of that company. It deals with the monetary transactions based on money, time and risk This environment can exist anywhere so long as the major players exist in the economy.

This environment sets the basis of developmental activity of a country and the business system. There are various elements which make up this environment, some of which are:

  1. Reserve Bank of India (RBI).
  2. Health and vision of the commercial banks.
  3. Presence and focus of the developmental banks.
  4. Non-banking financial institutions.
  5. Interest rates prevailing recently.
  6. Policies governing disbursement of loans.

Thus, financial environment is the most important part of business environment and with its cooperation only, industries

can progress further. It is required for the development and financial system is now a

growth of business, industry and economy. Financial markets that pre-condition for the efficient are a part of this environment provide facility for the interaction of mobilisation of financial demand and requirements while financial institutions facilitate the resources for the business. allocation of funds in an efficient manner.

Qus.8. Differentiate between micro and macro-environment.

Or Differentiate between macro and micro-environmental factors.

Ans. Difference between Micro and Macro-Environment: These are as follows:

  1. Micro-environment is an operating environment which is close to business and affects it

capacity to work whereas macro-environment is a general environment that includes factor

which create opportunities and threats to business units.

  1. Micro-environment is an internal environment of an organisation but macro-environment i

an external environment of an organisation.

  1. In micro-environment, marketer interacts with other functional areas of the organisation whereas marketer interacts with the elements prevailing outside the

Macro organisation in macro-environment.

  1. Micro-environment is less complex to perceive but macro- determines the prospects of environment is very complex, business in a country.
  2. In micro-environment, factors may be controlled to a large extent by marketers but factors remain beyond the control of marketers in macro environment.
  3. Micro-environment remains comparatively independent in shaping marketing decisions bu

macro-environment creates a huge impact on shaping marketing decisions.

  1. Factors reveal the capabilities of an organisation so as to exploit the opportunities that ar

created by the macro-environment or to cope with the threat through its marketing activity in micro-environment but factors may create opportunity or even pose a large number threats to the marketing activities of an organisation. Thus, micro and macro-environment differ in various respects.

Qus.9. Discuss about the changes in business environment in India. 

Ans. Changes that can be seen in business environment in India are:

  1. Increase in Competition: Indian business markets have become extremely competitive, i both domestic and foreign competition has increased. Competition for Indian firms has increased as result of changes in the rules of industrial licensing and entry of foreign firms.
  2. More Demanding Customers: Customers today have become more demanding because the are well-informed. Increased competition in the market provides customers with wider choices i purchasing better quality of goods and services.
  3. Mergers and Acquisitions: These are strategies adopted by large corporate sector so as to consolidate its position and improve its competitive strength. It is the least costly method of industry restructuring
  4. Technological Development: Increased competition forces the firms to develop new ways to survive and grow in the market. New technologies help to improve machines, process, products and services
  5. Consolidation with Multinational Companies: Many lany and diagnose the environ multinational companies have entered India with some joint ment are more effective than ventures where they work together without losing their identity,

those which don’t. e.g. General motors entered India by a joint venture with Hindustan Motors, Ford company with Mahindra and Mahindra, etc.

  1. Positive Attitude of Labour: The attitude of labour and union also changes due to fear of e policy which is being implemented in practice by the employers. Their attitude have changed because they got the chance of learning new technology and updating their knowledge.
  2. Selling and Distribution: Distribution has seen new initiatives like the successful dir marketing operations. Selling expenditures on sales have risen in the last decade and are more for Indian than for foreign companies. Rural marketing has become the focused area of many Indian and multinational companies.
  3. Other Changes: These include corporate restructuring, newer organisational designs in role of woman employees, emphasis on knowledge management, etc. So, India is at the stage ofere changes which will continue to present both opportunities and challenges.

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