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Karnataka II PUC Business Studies (KSEAB) study materials
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Karnataka II PUC Business Studies (KSEAB) practice questions

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Question 1Nature and Significance of Management

Management is described as a goal-oriented process mainly because

  1. It is carried out by a group of managers working at different levels of the organisation.
  2. It adapts the organisation to changes taking place in the external environment.
  3. It cannot be seen directly and is felt only through the results achieved.
  4. It unites individual efforts towards the achievement of predetermined objectives. Correct answer.

Explanation

Management is a goal-oriented process because every managerial function is directed at objectives that are decided in advance, and the efforts of different individuals are integrated towards those objectives. The remaining options describe management as a group activity, as a dynamic function and as an intangible force, which are separate characteristics of management.

Question 2Nature and Significance of Management

The level of management that consists of the board of directors, the chief executive officer and the managing director is known as

  1. Supervisory management
  2. Operative management
  3. Top management Correct answer.
  4. Middle management

Explanation

Top management comprises the board of directors, the chief executive officer, the managing director and other senior executives. It lays down the organisation's objectives and policies and is answerable for the welfare and survival of the entire enterprise, while the lower levels merely implement these policies within their own units.

Question 3Nature and Significance of Management

The function of management that lays down performance standards, measures actual performance and takes corrective action for deviations is

  1. Organising
  2. Controlling Correct answer.
  3. Planning
  4. Staffing

Explanation

Controlling is the function that compares actual performance with the standards already set and corrects deviations so that the targets are achieved. Planning only decides the objectives and the path to them; controlling checks whether the work is actually proceeding along that path.

Question 4Nature and Significance of Management

A departmental head receives the annual policy guidelines approved by the board, converts them into monthly targets for her division and assigns duties to the supervisors under her. She is working at the

  1. Supervisory level of management
  2. Middle level of management Correct answer.
  3. Operative level of management
  4. Top level of management

Explanation

Middle management includes departmental and divisional heads who interpret the policies framed by top management, translate them into departmental targets and assign duties to supervisors. Top management frames policies, whereas supervisory and operative levels carry out the assigned work on the shop floor.

Question 5Nature and Significance of Management

A factory produces 20,000 units using the least possible quantity of raw material and labour time, but the units fail the quality standards prescribed by buyers and are returned. Which statement describes the situation?

  1. The factory is efficient but not effective. Correct answer.
  2. The factory is effective but not efficient.
  3. The factory is both efficient and effective.
  4. The factory is neither efficient nor effective, since output was high.

Explanation

Efficiency means completing work with the minimum expenditure of resources, while effectiveness means actually achieving the intended target. Here resources were used sparingly, so the factory was efficient, but the quality goal was not met because the goods were returned, so it was not effective.

Question 6Nature and Significance of Management

Which statement about coordination in management is correct?

  1. Coordination is the essence of management and is inherent in every function at every level. Correct answer.
  2. Coordination is a distinct function of management performed by the top level only after planning is complete.
  3. Coordination becomes necessary only when two departments are in open conflict over resources.
  4. Coordination is another name for cooperation and is secured through written instructions alone.

Explanation

Coordination is not a separate function; it runs through planning, organising, staffing, directing and controlling, which is why it is called the essence of management. It is a continuous, deliberate process required at all levels and in all departments, and not merely a remedy for occasional conflicts.

Question 7Nature and Significance of Management

Which of the following shows that management is a science?

  1. A manager applies the principles of management in a personalised manner according to the situation.
  2. Management is guided mainly by a service motive towards society.
  3. It rests on a systematised body of knowledge developed through observation. Correct answer.
  4. Proficiency in management improves with continuous practice and experience.

Explanation

Management is treated as a science because it has a systematised body of knowledge and principles that have been developed through observation and experimentation, although these principles are not as exact as those of the physical sciences. Personalised application and skill gained through practice point to management as an art, while a service motive is an attribute of a profession.

Question 8Nature and Significance of Management

Faced with a sudden shift of customers towards online buying, a retail chain redesigns its supply chain, introduces home delivery and retains its market share. This best illustrates that management

  1. helps in achieving group goals
  2. helps in the development of society
  3. increases efficiency by reducing the cost of operations
  4. helps in creating a dynamic organisation Correct answer.

Explanation

One element of the significance of management is that it helps create a dynamic organisation which perceives changes in the environment and adapts its methods and products accordingly. The retail chain sensed the change in buying behaviour, reorganised its supply chain and survived, which is adaptation rather than mere cost reduction or social contribution.

Question 9Nature and Significance of Management

Management is regarded as a profession, yet not a full-fledged one. Which reason best supports this statement?

  1. Management has no organised body of knowledge, so it cannot be taught in business schools.
  2. Managers need not follow any ethical code, and business schools do not teach management.
  3. Entry into management is open to all and its code of conduct is not statutory. Correct answer.
  4. Management is an art, and every art is excluded from the professions.

Explanation

Management satisfies several tests of a profession, such as an organised body of knowledge, formal training and a service motive, but it falls short as a full-fledged profession because anyone may enter it without prescribed qualifications and the code of conduct framed by management associations has no legal backing. These two gaps are what make the claim of profession status qualified rather than complete.

Question 10Nature and Significance of Management

Which of the following correctly distinguishes coordination from cooperation?

  1. Coordination is performed only at the top level, while cooperation is performed only at the supervisory level.
  2. Coordination and cooperation are interchangeable terms in management, since both of them refer to the orderly arrangement of group effort in an organisation.
  3. Cooperation is the orderly arrangement of group effort, while coordination is only the willingness of colleagues to help one another.
  4. Coordination is a deliberate effort to integrate activities, while cooperation is voluntary willingness to help; coordination is wider. Correct answer.

Explanation

Coordination is a conscious, deliberate effort by managers to harmonise the activities of different persons and units so that common objectives are achieved. Cooperation is the voluntary willingness of people to help one another; it supports coordination but is not the same thing, and coordination is the broader managerial responsibility found at every level.

Question 11Nature and Significance of Management

A textile unit in Tamil Nadu and a software firm in Bengaluru both need managers to plan work, organise resources and guide employees, although the products, scale and technology of the two firms are completely different. Which characteristic of management does this situation illustrate?

  1. Management is a goal-oriented process
  2. Management is a group activity
  3. Management is an intangible force
  4. Management is a pervasive activity Correct answer.

Explanation

Pervasiveness means management is required in every type of organisation, at every level and in every region, whatever the nature of the work. Two firms in unrelated industries and locations still depending on planning, organising and directing shows this universality.

Question 12Nature and Significance of Management

Which of the following is an organisational objective of management?

  1. Protecting the environment by reducing industrial waste
  2. Providing job security and growth to employees
  3. Generating employment opportunities in the local area
  4. Earning adequate profit for survival and growth Correct answer.

Explanation

Organisational objectives are the economic goals of the enterprise itself, namely survival, profit and growth. Employment generation and pollution control belong to social objectives, while job security and employee development are personal objectives.

Question 13Nature and Significance of Management

Two supervisors have the same management qualification, but when a machine breakdown upsets the production schedule, the more experienced supervisor improvises a fresh sequence of jobs and persuades the operators to accept it. Which feature of management as an art does this highlight?

  1. Existence of a systematised body of knowledge
  2. Creative application of knowledge through practice Correct answer.
  3. Regulation of entry by a professional association
  4. Universal validity of management principles

Explanation

Art in management lies in the personal, creative way a manager applies the theory he or she has learnt to a concrete situation, and this skill improves with practice and experience. The supervisor's improvised solution shows knowledge being applied personally rather than merely possessed.

Question 14Nature and Significance of Management

A cement plant installs electrostatic precipitators to cut dust emission, adopts five nearby villages for health and education programmes, and reserves some unskilled jobs for local youth. These actions mainly fulfil the company's

  1. Legal obligations owed to the government
  2. Social objectives Correct answer.
  3. Organisational objectives
  4. Personal objectives of employees

Explanation

Social objectives are the obligations a business owes to the community: protecting the environment, contributing to community development and generating employment for local people. All three actions described are voluntary commitments to society rather than internal economic goals.

Question 15Nature and Significance of Management

After a newly recruited operator has been placed on a CNC machine, the foreman explains the task, clears the operator's doubts, supervises the work at intervals and encourages the operator to reach the daily output target. Which function of management is the foreman performing?

  1. Staffing
  2. Controlling
  3. Directing Correct answer.
  4. Organising

Explanation

Directing is the function that instructs, guides, supervises and motivates people while they are actually at work, so all four actions of the foreman fall under it. It begins after the right person has been placed in the right job and continues throughout the execution of work.

Question 16Nature and Significance of Management

A hotel chain shifts housekeeping staff between its properties during the peak season and buys linen in bulk centrally, so that the same number of rooms is serviced with less idle manpower and lower inventory cost. Which point of the importance of management does this illustrate?

  1. It ensures optimum use of scarce resources by avoiding wastage Correct answer.
  2. It helps in the development of the local community
  3. It helps in the growth and expansion of the enterprise
  4. It helps employees to achieve their personal objectives

Explanation

Management brings resources together and coordinates their use so that overlapping effort, idle time and wasteful spending are reduced to a minimum. Shifting staff to where demand is and buying in bulk show scarce manpower and money being used efficiently.

Question 17Nature and Significance of Management

Management is often described as a 'composite' concept. Which statement best explains this description?

  1. It is an art depending only on the intuition of managers
  2. It blends science, art and profession Correct answer.
  3. It is a pure science proved by controlled experiments
  4. It is a profession because a licence is compulsory for practice

Explanation

Composite means that management draws simultaneously on three elements: an organised body of knowledge (science), personal skill in applying it (art) and ethical standards of conduct (profession). It is therefore not any one of these alone but a combination of all three.

Question 18Nature and Significance of Management

The principles of management are not as exact as the principles of physics or chemistry. Which reason best accounts for this?

  1. Its principles are applicable only to profit-making organisations
  2. Managers are not required to follow any code of conduct
  3. Its principles were not developed through observation and experimentation
  4. It deals with human behaviour, which differs from person to person Correct answer.

Explanation

Management is a social science: it studies and directs people whose responses change with their moods, attitudes, background and situation. Because the same principle may give different results with different people, the outcomes cannot be predicted with the certainty of physical science.

Question 19Principles of Management

A textile company revised its production process and retrained its workers after the government introduced stricter environmental norms. Which characteristic of management does this response of the company illustrate?

  1. Management is a group activity.
  2. Management is a goal-oriented process.
  3. Management is an intangible force.
  4. Management is a dynamic function. Correct answer.

Explanation

Management is called dynamic because an organisation must adjust its plans, methods and processes to changes in the external environment such as new laws, technology or competition. The company altered its process and training in response to new norms, which is precisely this adaptability in action.

Question 20Principles of Management

According to Henri Fayol, the principle of unity of command requires that:

  1. Authority should be balanced by responsibility at every level of the organisation.
  2. All activities having the same objective should be placed under one head and one plan.
  3. Every subordinate should be free to report to any superior who can guide the work.
  4. A subordinate should receive orders and instructions from only one superior. Correct answer.

Explanation

Unity of command states that each subordinate must take orders from one superior only, so that responsibility for results is fixed and conflicting instructions are avoided. Fayol held that its violation undermines discipline and creates confusion in the organisation.

Question 21Principles of Management

The level of management that interprets the policies framed by top management, converts them into departmental goals and assigns duties to supervisors is the:

  1. middle level of management Correct answer.
  2. supervisory level of management
  3. functional foremanship structure
  4. top level of management

Explanation

Middle management consists of departmental heads who translate the policies laid down by the top level into departmental plans and assign work to supervisors. Top management frames policies and the supervisory level oversees their actual execution on the shop floor.

Question 22Principles of Management

Coordination is regarded as the essence of management. Which statement best justifies this description?

  1. Coordination runs through every managerial function and is exercised in each of them. Correct answer.
  2. Coordination is a distinct function of management that replaces planning and organising in large firms.
  3. Coordination is mainly concerned with integrating activities within a single department of an organisation.
  4. Coordination is performed only by top management after all other functions have been completed.

Explanation

Coordination is not a separate function; it is implicit in all the functions of management, because planning, organising, staffing, directing and controlling are all carried out in a synchronised manner. That pervasive presence is why it is called the essence of management.

Question 23Principles of Management

In a cycle manufacturing unit, a work measurement officer records the actual time taken by an average worker to complete one frame, so that a fair standard time and incentive rate can be fixed. This technique of scientific management is:

  1. motion study
  2. method study
  3. time study Correct answer.
  4. differential piece wage system

Explanation

Time study determines the standard time needed to perform a well-defined job, using a stopwatch and an average worker. The standard time so fixed becomes the basis for setting a fair day's work and incentive rates, exactly as described in the unit.

Question 24Principles of Management

The marketing head of a firm asks the sales staff to share leads and help one another instead of competing for individual incentives, so that the team's overall target is achieved. Which principle of Fayol is reflected here?

  1. equity
  2. scalar chain
  3. order
  4. esprit de corps Correct answer.

Explanation

Esprit de corps means team spirit, and Fayol advised managers to build harmony and unity among employees rather than encouraging individual rivalry. Asking the sales staff to share leads and cooperate for the team target is a direct application of this principle.

Question 25Principles of Management

Which statement correctly describes the present position of management as a profession?

  1. Entry into management is restricted by a statutory examination conducted by a single all-India body.
  2. Management has a well-defined body of knowledge, but entry into it is not restricted by law. Correct answer.
  3. Management has no code of conduct and therefore cannot be called a profession at all.
  4. Every manager must hold a licence issued by the government before practising.

Explanation

Management has a systematic body of knowledge taught in institutions and a recognised code of conduct, but there is no statutory examination or licence controlling entry into it. For this reason it is described as an emerging profession rather than a full-fledged one.

Question 26Principles of Management

Under Taylor's differential piece rate system, the standard output is 25 units a day, the lower rate is ₹2 per piece and the higher rate is ₹3 per piece. A worker produces 22 units in a day. His daily wage will be:

  1. ₹66
  2. ₹75
  3. ₹44 Correct answer.
  4. ₹50

Explanation

In the differential piece rate system, a worker who produces below the standard is paid only at the lower rate, while the higher rate applies only when the standard is reached or exceeded. As 22 units fall short of 25, the wage is 22 × ₹2 = ₹44.

Question 27Principles of Management

Which statement correctly describes functional foremanship as advocated by F. W. Taylor?

  1. Each worker receives orders from a single foreman who controls every aspect of the job.
  2. Planning and execution are entrusted to the same foreman so that confusion is avoided.
  3. The foreman is responsible only for the quality of output and not for its quantity.
  4. Eight specialists supervise a worker, each handling one specific aspect of the task. Correct answer.

Explanation

Functional foremanship divides supervision among eight specialists, four in the planning department and four in the production department, so that each worker gets expert instructions on different aspects of the job. Taylor proposed it because no single foreman can possess all the specialised knowledge required.

Question 28Principles of Management

Management is often described as an inexact or social science. Which reason best supports this description?

  1. It does not require observation or experimentation to develop knowledge.
  2. Its principles have universal application and give identical results everywhere.
  3. It has no systematic body of principles that can be taught or verified.
  4. It deals with human beings whose behaviour varies, so its principles are situational. Correct answer.

Explanation

Management is called an inexact science because its principles deal with human behaviour, which differs from person to person and from situation to situation. Cause and effect therefore cannot be established as precisely as in the physical sciences, and results depend heavily on the manager's judgement.

Question 29Principles of Management

Fayol listed division of work as a principle of management. Which statement best explains why dividing work among employees improves organisational performance?

  1. Division of work requires every employee to report to more than one superior.
  2. Division of work leads to specialisation, which improves efficiency and accuracy. Correct answer.
  3. Division of work centralises all decision-making authority in top management.
  4. Division of work fixes the remuneration payable to each worker in advance.

Explanation

Division of work splits the total task into smaller specialised parts, so each employee repeatedly performs a limited set of activities and gains speed, accuracy and confidence. Fayol treated this specialisation as a natural source of efficiency in organisations.

Question 30Principles of Management

Fayol's principle of esprit de corps is best reflected in a manager who:

  1. assigns each task to a separate employee so that responsibility is fixed
  2. encourages employees to resolve their differences and work as a united team Correct answer.
  3. pays each employee strictly according to the quantity of output produced
  4. retains all authority to issue orders without consulting subordinates

Explanation

Esprit de corps means union is strength: the manager should build team spirit, settle minor differences and make people feel that harmony in the group brings greater results than individual rivalry. It is a principle about collective morale, not about pay or structure.

Question 31Principles of Management

A production supervisor needs urgent information from a marketing supervisor of the same rank in another department. Under Fayol's scalar chain, the message would normally go up both lines to a common manager and back down, but in this emergency the two are allowed to communicate directly. This permitted shortcut is known as:

  1. centralisation
  2. the gang plank Correct answer.
  3. unity of direction
  4. the scalar chain

Explanation

The gang plank is Fayol's term for a temporary shortcut across the scalar chain, allowing two employees of the same level to communicate directly when speed is essential. Routine matters continue to follow the formal chain of authority.

Question 32Principles of Management

Taylor insisted that scientific management requires a complete change in the mental attitude of both workers and management, so that suspicion is replaced by mutual trust and both share the gains of efficiency. This principle of Taylor is stated as:

  1. Harmony, not discord Correct answer.
  2. Science, not rule of thumb
  3. Cooperation, not individualism
  4. Development of each and every person to his greatest efficiency

Explanation

Harmony, not discord calls for a mental revolution, that is, a complete change in the outlook of management and workers so that they stop viewing each other as rivals. Management must share gains and workers must give their best, producing lasting peace in the workplace.

Question 33Principles of Management

A shift supervisor applies the same leave and overtime rules to every worker, but when one worker's child fell ill he allowed a small relaxation in reporting time without imposing a penalty. Fayol would describe this blend of firmness and kindliness as an application of the principle of:

  1. discipline
  2. order
  3. equity Correct answer.
  4. initiative

Explanation

Equity means the manager should combine kindliness with justice, being firm and fair about rules while showing human understanding where an individual's circumstances justify it. This fair and humane treatment, without partiality, is exactly what the supervisor has shown.

Question 34Principles of Management

In a garment unit, output fell sharply in the last two hours of every shift and accident rates rose during the same period. The management introduced rest pauses and revised shift timings, so that output and safety improved. The technique of scientific management involved here is:

  1. fatigue study Correct answer.
  2. time study
  3. motion study
  4. standardisation of work

Explanation

Fatigue study determines the amount and frequency of rest intervals required so that workers regain energy and maintain productivity throughout the working period. Falling output and rising accidents towards the end of a shift are its typical signals, and rest pauses are its remedy.

Question 35Principles of Management

Which statement best distinguishes F. W. Taylor's contribution to management thought from that of Henri Fayol?

  1. Taylor and Fayol both concentrated exclusively on the functions performed by top management.
  2. Taylor's work grew out of the shop floor and stressed efficiency of operations, while Fayol's work grew out of the top and set out general principles of administration. Correct answer.
  3. Taylor developed general administrative theory for the whole organisation, while Fayol concentrated only on shop-floor efficiency.
  4. Fayol advocated functional foremanship, while Taylor advocated the fourteen principles of management.

Explanation

Taylor, a practising engineer, began with the worker's task and developed techniques such as time study, standardisation and functional foremanship to raise shop-floor efficiency. Fayol, a managing director, looked at the organisation as a whole and formulated fourteen general principles of administration for managers at all levels.

Question 36Principles of Management

A firm organises its activities into three divisions, soaps, shampoos and detergents, each with one head and one plan. However, every divisional head reports to both the divisional manager and the marketing director, who frequently issue conflicting instructions. Which evaluation is correct in terms of Fayol's principles?

  1. Unity of direction is satisfied, but unity of command is violated. Correct answer.
  2. Neither principle is relevant once a firm is organised into divisions.
  3. Both unity of direction and unity of command are fully satisfied.
  4. Unity of command is satisfied, but unity of direction is violated.

Explanation

One head and one plan for each product division satisfies unity of direction, because all activities in a division move towards a common goal. But each divisional head receiving orders from two superiors violates unity of command, which requires every employee to be answerable to only one boss.

Question 37Business Environment

In Business Studies, the business environment of a firm is best described as:

  1. the sum of external forces that may affect a firm's performance Correct answer.
  2. the internal organisational structure and chain of command of a firm
  3. the marketing mix framed by a firm for its target customers
  4. the set of accounting policies followed while preparing financial statements

Explanation

Business environment means the sum total of individuals, institutions and other forces that lie outside the control of a business enterprise but may affect its performance. Internal structure, accounting policies and the firm's own marketing mix are decisions taken within the firm, so they do not fit this definition.

Question 38Business Environment

A firm launches a range of millet-based snacks immediately after a government campaign promotes millets, and captures a large share of the market before rivals respond. Which importance of understanding the business environment does this best illustrate?

  1. Assisting in planning and policy formulation
  2. Tapping useful resources from the environment
  3. Coping with rapid changes in the market
  4. Giving the firm a first-mover advantage Correct answer.

Explanation

A first-mover advantage arises when a firm senses an opportunity in the environment early and acts on it before competitors do. The firm acted on the millet campaign ahead of rivals, which is exactly this advantage, not resource tapping or routine planning.

Question 39Business Environment

A company redesigns its packaging after noticing that customers increasingly prefer recyclable material and are willing to pay more for health-friendly products. This change in customer preference belongs to which dimension of the business environment?

  1. Technological environment
  2. Economic environment
  3. Social environment Correct answer.
  4. Legal environment

Explanation

The social environment covers customs, values, traditions, social trends and the tastes and preferences of society. Growing preference for recyclable and health-friendly products is a shift in social values, not a change in law, technology or economic variables.

Question 40Business Environment

Which of the following forms part of the political environment of a business?

  1. Customs, values and beliefs that guide social behaviour
  2. Inflation, interest rates and the level of disposable income
  3. New machinery, processes and improved methods of production
  4. Government's ideology and attitude towards business Correct answer.

Explanation

The political environment includes political conditions, the general political attitude, the philosophy of government and the government's attitude towards business. Inflation belongs to the economic environment, customs and values to the social environment, and improved processes to the technological environment.

Question 41Business Environment

The Competition Act, 2002, which replaced the MRTP Act, 1969, was enacted mainly to:

  1. regulate the issue of shares and debentures by listed companies
  2. grant licences for the import of capital goods into India
  3. prevent anti-competitive practices and promote competition in markets Correct answer.
  4. fix minimum support prices for agricultural commodities

Explanation

The Competition Act, 2002 was passed to prevent practices that harm competition, promote and sustain competition, protect consumer interests and ensure freedom of trade; it also set up the Competition Commission of India. Regulation of share issues is handled by SEBI, support prices are an agricultural policy matter, and import licensing is a trade policy matter.

Question 42Business Environment

The forces of the business environment are said to be inter-related. Which situation best illustrates this characteristic?

  1. A firm's suppliers and customers lie outside its direct control.
  2. A new law passed after a change of government alters the cost of borrowing for firms. Correct answer.
  3. Consumer tastes keep shifting, so a firm must adapt continuously.
  4. Two firms in the same industry face the same tax rate but earn different profits.

Explanation

Inter-relatedness means that different forces of the environment act together, so a change in one force produces changes in another. A political change producing a legal change that then alters economic conditions shows this chain clearly, while the other options describe external forces, dynamism or differences in firm performance.

Question 43Business Environment

The sale of a part of the equity holdings of a public sector undertaking by the government to private investors, without transferring management control, is known as:

  1. Globalisation
  2. Liberalisation
  3. Nationalisation
  4. Disinvestment Correct answer.

Explanation

Disinvestment means the government selling a portion of its equity in a public sector undertaking to private investors or the public. When sale of equity is accompanied by transfer of ownership and management control to the private sector, it amounts to privatisation, which is a broader step.

Question 44Business Environment

Which of the following is an example of a technological force in the business environment?

  1. A firm's exports face a new tariff imposed abroad
  2. A firm's workers go on strike over wages
  3. A firm revises its hiring policy after a labour law amendment
  4. A retailer adopts barcode scanning for inventory control Correct answer.

Explanation

The technological environment covers innovations in machinery, processes, techniques and methods of operation, such as barcode-based inventory control. Tariffs belong to the economic and legal environment, while strikes and labour law amendments relate to labour relations and the legal framework.

Question 45Business Environment

For a garment manufacturer, which of the following is a specific force in its business environment?

  1. The social trend towards casual dressing
  2. The bargaining power of its fabric suppliers Correct answer.
  3. The technological change in textile machinery
  4. The rate of economic growth in the country

Explanation

Specific forces are those that directly affect the day-to-day operations of a particular firm, such as its customers, competitors, suppliers and investors. General forces, such as economic growth, social trends and technological change, affect all firms in an economy more broadly.

Question 46Business Environment

Which of the following measures is an example of globalisation rather than of liberalisation or privatisation?

  1. Allowing Indian companies to raise capital abroad through global depository receipts Correct answer.
  2. Reducing the number of industries reserved for the public sector
  3. Selling government equity in a public sector steel plant to a private company
  4. Abolishing industrial licensing for most industries

Explanation

Globalisation means integrating the domestic economy with the world economy through foreign trade, foreign investment and movement of capital, and raising funds abroad through GDRs is such a step. Abolishing licensing and trimming the reserved list are liberalisation measures, while selling government equity is privatisation.

Question 47Business Environment

Which dimension of the business environment consists of factors such as the rate of inflation, interest rates, household disposable income and the external value of the rupee?

  1. Technological environment
  2. Social environment
  3. Economic environment Correct answer.
  4. Political environment

Explanation

Inflation, interest rates, household disposable income and the external value of the rupee are macroeconomic variables. They directly shape a firm's costs, prices and demand, so they belong to the economic environment.

Question 48Business Environment

A firm learns that the government will give a capital subsidy for solar-powered cold storage units in rural markets. It installs such units at several mandis before its competitors do and wins long-term contracts with farmers. Which importance of understanding the business environment does this action best reflect?

  1. Coping with rapid changes in the market
  2. Identifying opportunities for first-mover advantage Correct answer.
  3. Improving the firm's public image
  4. Assisting in planning and policy formulation

Explanation

A government incentive is an external opportunity, and a firm that reads the environment early can act before rivals and secure contracts. This is the importance of identifying opportunities and getting a first-mover advantage.

Question 49Business Environment

A firm that was a leading maker of photographic film lost its market when digital cameras and smartphones replaced film. Which feature of the business environment does this example best illustrate?

  1. The business environment comprises specific and general forces
  2. The business environment is uncertain
  3. The business environment is dynamic Correct answer.
  4. The business environment is a relative concept

Explanation

The environment is dynamic because forces such as technology keep changing over time. The shift from film to digital imaging changed consumer demand and made the firm's earlier strengths obsolete.

Question 50Business Environment

A company withdraws an advertisement that showed a celebrity endorsing a soft drink as a 'health drink' after a regulator issues new rules on misleading advertisements. Which dimension of the business environment does this response most directly reflect?

  1. Legal environment Correct answer.
  2. Technological environment
  3. Social environment
  4. Economic environment

Explanation

New rules on misleading advertisements are laws and regulatory decisions, which form part of the legal environment. The firm changes its marketing practice to comply with them.