MP Board Class 12th Business Studies Important Questions Chapter 3 Management and Business Environment

MP Board Class 12th Business Studies Important Questions Chapter 3 Management and Business Environment

Management and Business Environment Important Questions

Management and Business Environment Objective Type Questions

Question 1.
Choose the correct answer:

Question 1.
Out of the following which is not a part of business environment:
(a) Urbanization
(b) Employee
(c) Comparative
(d) Mandatory.
(b) Employee

Question 2.
Out of the following which is a component of business environment:
(a) Identification
(b) Improvement in performance
(c) Coping with rapid changes
(d) All the above.
(d) All the above.

Question 3.
Which is an example of social environment:
(a) Supply of money in the economy
(b) Consumer protection ACT
(c) Structure of country
(d) Formation of family.
(d) Formation of family.

Question 4.
Liberalization means:
(a) Integration among economies
(b) Reduced government control and restriction
(c) Policy of planned disinvestment
(d) None of these.
(b) Reduced government control and restriction

Question 5.
Shape and distribution of population is taken as :
(a) Part of technological environment
(b) Part of legal environment
(c) Part of political environment
(d) Part of social environment.
(d) Part of social environment.

Question 2.
Fill in the blanks :

  1. The …………….. components of business are controllable.
  2. The internal components of business …………….. affects the business.
  3. Legal regulatory is the …………….. component of business.
  4. The objectives and outlook of business is included …………….. in components or factor.
  5. India formulated the policy of new economic reforms in ……………..


  1. Internal
  2. Directly
  3. External
  4. Internal
  5. 1991.

Question 3.
Write the answer in one word/sentence :

  1. What do you mean by Globalization ?
  2. What is the policy made for providing employment to people known as ?
  3. Foreign policy is the component of which business environment ?
  4. What does EPCG stands for ?
  5. Name the business zone established to encourage exports.


  1. Integration of world trade economies
  2. Employment policy
  3. Political
  4. Export promotion goods plans
  5. Export promotion policy.

Question 4.
Write true or false :

  1. Liberalization in India is failure in affecting industry and business.
  2. Economic, Social and political situations creates business environment.
  3. Globalization has affected industries and business in India.
  4. External factors do not affect the business environment.
  5. Changes in government policies do not affect industries and business.


  1. False
  2. True
  3. True
  4. False
  5. False.

Question 5.
Match the columns :
MP Board Class 12th Business Studies Important Questions Chapter 3 Management and Business Environment image - 1

  1. (e)
  2. (a)
  3. (b)
  4. (c)
  5. (d)

MP Board Solutions

Management and Business Environment Very Short Answer Type Questions

Question 1.
Advanced techniques lay emphasis on what factors ?
Advanced techniques lay emphasis on the following :

  1. Scientific research
  2. Innovation
  3. Invention
  4. Improvement
  5. Spreading innovation.

Question 2.
Name the change in economic surrounding of India after 1991.
The changes in economic surroundings of India after 1991 :

  1. Modernization
  2. Privatization
  3. Globalization,
  4. Liberalization.

Question 3.
what are the reasons behind adoption of new economic policy in India ?
The following are the reasons behind adoption of new economic policy in India:

  1. Decrease in foreign exchange
  2. Heavy government loss
  3. Increase in cost
  4. Increase in internal loan
  5. Decrease in foreign business.

Question 4.
Under 1956 industrial policy how are the industries classified ?

  1. First category: Those industries whose development is completely based on its state.
  2. Second category: Those industries which are run by the state and new industries in future will also be stated by them.
  3. Third category: Rest all industries belong to this. Industries in this category are mainly consumer products based.

Question 5.
Write names of four economic policies :
Four economic policies :

  1. Export import policy
  2. Employment policy
  3. Agricultural policy
  4. Industrial policy
  5. Foreign investment policy
  6. Tax policy.

Question 6.
Which industries according to the new economic policy compulsorily need to take licence.
Answer :
The six industries according to the new economic policy compulsorily need to take licence are :

  1. Harmful/Dangerous chemical
  2. Drugs and pharmaceuticals
  3. Alcohol peva
  4. Defense equipment
  5. Industrial explosive.

Question 7.
After 1991, what were the changes in the Indian economic environment ?
Answer :
These were the important parts of new economic policy which has been modified so that objectives of liberalization, globalization and privatization can be achieved.

1. Declaration of new industrial policy : At the time, 1991 industrial policy was announced, 18 items were subject to industrial licensing but gradually their number has been reduced to 5 namely.

  1. Cigars and cigarettes
  2. Electronic aerospace and defence equipment
  3. Indus-trial explosives
  4. Hazardous chemicals
  5. Certified specified drugs.

2. New trade policy :

  1. Minimum restriction on trade. To increase foreign trade, import duty and tariff were slowly reduced.
  2. To bring expansion in economy foreign investment and new technology was encouraged.
  3. Liberal financial facilities to exporters were given.

3. Reform in capital market: SEBI was established.

4. Reforms in fiscal policy : Control on public expenditure and introduction of VAT in states.

Question 8.
Throw light on new monetary policy.
To encourage liberalization and to enhance foreign business government decided to amend monetary policy for which Narshimham Committee was formed. The recommendations are as follows:

  1. Bank should independently control the interest rates and RBI should not interfere in it.
  2. To redesign the banking system.
  3. To give more independence to banks.
  4. To improve the accounting system of banks.
  5. National banks should be given freedom to accumulate money from the market.
  6. Private sector should be permitted to establish bank.
  7. There should be reorientation of banks. Two or three banks should have international orientation which means that they alone should operate overseas.
  8. Necessary changes should be made in accounting systems of banks.
  9. There should be 8 to 10 national banks who should operate throughout the country.

Question 9.
What do you understand by business environment ?
business environment is made of two words ‘Business’ and ‘Environment’. Business simply mean busy with an aim of profit earning. Environment means the surrounding extend agents influences or circumstances under which someone or something exits. Business environment consists of all external and internal factors that influence the complex interaction in the market production and finance.

Question 10.
Write the various components of internal environment.
Various components of internal environment are as follows :

  1. Policies, rules and plans of business.
  2. Aims and objectives of business.
  3. Production pattern of business. .
  4. Organization of business.
  5. Sources and resources of business.
  6. Labour policy of business.

Question 11.
Explain India vision 2020.
On 23rd January, 2003, the planning commission for the evaluation of economic development of next two decades issued a document or deed called “lndia Vision 2020” Through this document, planning commission has made an effort to improve the business environment.
The main features of India Vision 2020 are as follows :

  1. To pay attention towards the multiplying of employment opportunities.
  2. Per capital income to be increased by 4 times.
  3. To lay stress on balanced environment protection.
  4. To increase economic development at the rate of 9% p.a.
  5. To increase the share of direct foreign investment in the total capital formation.
  6. To increase the gross domestic product etc.

MP Board Solutions

Management and Business Environment Short Answer Type Questions

Question 1.
What does LPG stands for in business environment ?

  • L : Liberalization
  • P : Privatization
  • G : Globalization.

Question 2.
Write full forms of FERA and FEMA under the new policy of India which rule has been eliminated to implement FEMA ?
FERA: Foreign exchange regulation Act
FEMA: Foreign exchange management Act.
In India at the time of new economic policy FEMA was implemented in place FERA.

Question 3.
What do you understand by Micro and Macro environment ?
Micro environment: It means that environment in which the included components have close relationship with business.

Question 5.
What were reasons which compelled Indian government to adopt new economic policy ?
Following are the reasons which compelled Indian government to adopt new economic policy:

  1. Fiscal threat
  2. Increased international loan
  3. Appreciation of currency index
  4. Fall in foreign exchange accumulation
  5. Depreciation in Indian rupee
  6. Imbalance and negligence of payments
  7. RBI and SBI Mortgaged Gold.

Question 6.
Give three examples of Indian legal environment which has affected the business.

  1. Restriction on advisement of toxic production.
  2. Industries were made free from licencing.
  3. Statutory warning was made compulsory on tobacco products.

Question 7.
What do you mean by liberalization ? Under liberalization what measures were taken and what was the impact of it on business and industry ?
Meaning : Liberalization refuse to removal of entry and growth restrictions on the private companies. It is an economic reform with main objective to minimize licencing requirements, remove restrictions related to scale of operations, give freedom for fixing prices and movement of goods, encourage.import and export.Measures and impact of liberalization on business and industries are as follows :

1. Ending of licensing and registration : The main objective under new economic policy is to have controlled economy. The new economic policy has benefited the private industries by providing free licensing.

2. Relief from proprietorship restrictions: The restrictions of more than 100 crores investment in proprietorship was removed.

3. Increase in investments in small scale industries : Investment limits in small scale industries have been increased to 1 crore and adopted the latest advance in technology.

4. Discount on technological imports: To promote the new economic policy emphasis was laid to promote latest technologies and discounts were given. This policy promoted industries based on computers and electronics.

Question 8.
In today’s scenario of business environment how can a businessman prove his existence ?
The ahead points lay emphasis on what a businessman can do in today’s scenario to exist:

  1. To produce goods as per customer’s need
  2. To keep the employees happy with sufficient remuneration
  3. To recruit trained and experienced employees
  4. To produce good in such a manner which lays good impression on consumers
  5. To make plans and techniques keeping in view the competitors.

Question 9.
Explain the following in short:

  1. Liberalization
  2. Privatization
  3. Globalization.

1. Liberalization: Means removing unnecessary trade restriction. Liberalization allows private sectors to run even those industries which are reserved for the public sectors, relaxing the restriction and regulations imposed on it.
Measures of liberalization adopted by India are :

  1. Exemption from licensing
  2. Concession from MRTP Act (Monopolistic and Restrictive Trade practice)
  3. Increase in production capacity
  4. Freedom of production,
  5. Buying foreign exchange from open market.

2.Privatization: Privatization refers to transfer of ownership management and control of public sector enterprise to the entrepreneurs of private sector. It is a set of economic reforms with the main objective to allow private sector to invest in sectors earlier restricted to public sector to develop healthy competition between public and private sector and dilute government ownership in public sector enterprises. Process by which the participation of state and public sector in economic activities are reduced. The main aim of privatization to allow private sector to run and manage the industries and to minimize the reservation made for public sector.

3.Globalization : Globalization refers to integration of national economy with the world economy by removing with the objective to strengthen relationships between countries and increase imports and exports.

Question 10.
Write any two objectives of globalization.
Two objectives of globalization are as follows :

1. Removal of inefficiency: Globalization is intended to remove inefficiency of firms and Industries.

2. Improvement in banking and financial sectors : As result of globalization, entry of foreign banks will be easy. It will improve the efficiency of banking and financial sector.

Question 11.
What do you mean by internal components of business ?
Business environment can be classified in two categories. Internal environment and external environment. Internal environment includes those factors of business which can be controlled by business. In internal environment changes take place speedily.
Components of Internal Environment:

  1. Policies,rules and plans of business.
  2. Aims and objectives of business.
  3. Production pattern of business.
  4. Sources and resources of business.
  5. Organization of business
  6. Labour policy of business etc.

These are the internal factors of business which affects the business directly while it is under the control of the owners of business. Hence changes can be made according to our own will but external environment is not under the control of the owner of business.

Question 12.
Explain the social environment of business.
Social environment: Social environment is shaped by social factors such as attitudes of people, cultural heritage, beliefs and customs of people, education system, consumers organizations, trade unions and other non-government organizations. In society, there are activities related with caste, religion, sex, family etc. which affects the business.

Question 13.
Throw light on legal regulatory of business.
Legal Regulatory: Legal regulatory environment of business is determined by constitutional provisions, economic laws, commercial laws, industrial and labour laws, government regulations under various laws and court decisions. These help the government in the regulation of economic activities of the business enterprises. Since Indian economy is centrally planned and controlled the business enterprises are required to operate within the framework of legal regulatory environment. The important components of the legal regulatory environment include the following:

  1. The constitutional framework: Directive principle fundamental rights and division of legislative powers between central and state government.
  2. Commercial and economic laws and government policies under the laws relating to licensing, monopolies, foreign investment etc.
  3. Government policies related to imports and exports. .
  4. Government policies related to small scale industries, sick industries, consumer protection etc.
  5. Government policies related to pricing and distribution of essential commodities.
  6. decisions for the protection of consumers, environment and ecological balance.

Question 14.
What is meant by External Environment ? What are its dimentions ?
External Environment which is an index of opportunities and anticipations Internal
environment inclueds. External environment indued micro environment and macro environment it is called up External Environment.


  1. Political environment
  2. Social environment
  3. Legal environment
  4. Demographic environment
  5. Technological environment
  6. Physical environment
  7. International environment

MP Board Solutions

Management and Business Environment Long Answer Type Questions

Question 1.
Write the main characteristics of economic environment.
The main characteristics of economic environment are as follows :

1.Related with economic activities: All those activities of human beings are included in the economic environment which is related with the purchase sale, consumption, income- expenditure etc. of man.

2. Related with environment : Economic environment is affected by other environments. Ecological environment like land, air, forest, soil, water, mineral resources etc. also affects the economic environment. Political environment also affects the economic environment.

3. Administration by government : Economic environment is administered and directed by government. The government uses economic policies to effectively influence the economic environment of the business.

4. Related with common people : Economic environment is directly related with common people. Each person is having the will to earn money therefore he is affected by the economic environment. He cannot remain distant from economic environment.

5. Availability of capital: If capital is available in sufficient quantity then the natural and human resources are utilized properly. This leads increase in national income due to this rate Of national development also increases.

Question 2.
What are the elements components of micro environment ?
Elements of micro environment:

1. Supplier : A person, firm, agency or organization which supplies raw materials, labour or other required things is known as supplier. More number of suppliers must be there to avoid problems of supply to firms.

2. Consumer market: A businessman can have many areas of consumer market. Consumer market can be National/International which uses the material for self or uses it to produce any other goods.

3. Competitor : The competitive business environment increases the level of productivity.

4. Public: Public has various categories, local public, press, media, etc. The behaviour of these categories effect the business unit.

5. Marketing middlemen: Marketing middlemen are those people who decrease and work as connectors between producers and consumers. The success of an industry also depends upon these marketing middlemen.

MP Board Solutions

Question 3.
Name the characteristics of business environment and explain them.
Main features/characteristics of business environment are as below :

  1. Sum total of external forces.
  2. Inter relatedness.
  3. Dynamic Nature.
  4. Uncertainly.
  5. Complexity.
  6. Relativity.

1. Dynamic Nature : Business environment is dynamic in nature in the sense that it keeps on changing whether in terms of technological improvement, shifts in consumer preferences of entry of new competition in the market.

2. Complexity : Environment is a complex phenomenon that is relatively easier to understand in parts but difficult to grasp in it totality.

3. Relativity: It is a relative concept since it differs from country to country and even
region to region. For e.g.,  South India may have fairly high in demand than in North India. .

4. Long-term process: business environment has a long-term effect long-term changes in affect the profitability, productivity and development.

5. Business environment influences the firms differently: It is not compulsory that all firms will be equally affected by change in business environment. Each firm is affected according to its nature.

6. Inter dependency of components of business environment: All the components of business environment are related to each other. So effect of business cannot be found out separately.

Question 4.
Explain the components of business environment.
Different components of business environment are.

1. Economic components : It includes economic activities, Economic policies, Demand, supply, Investment, Industrial tendency/behaviour and monetary pressure, Investment flow and level, Import-Export, Fiscal and Taxation policies, Monetary policies, etc.

2.Geographical and ecological components : It includes Resources, Environment, Climate locomotion. Marine, Celestical, Geologic resource, Magnetic and solar energy.

3.Political components : It includes government monetary system and government system, Political point of view, administrative arrangements, constitutional arrangements security, etc.

4.Social and cultural components : It includes cost, beliefs, assumptions, social arrangement, materialism, religion, culture, traditions, etc.

5.Science and technological components : It includes scientific research and level, competitive development, Mechanization thermal power, Satellite transmission system, Celestical research labs, etc.

6.Legal and judical components : It includes justice system, various business, Industrial and labour control forum, administrative system, etc.

7.Others components: Population, educational level, consumer behavior, security, crisis, danger, international powers, industrial power and struggle, etc.

Question 5.
Describe the importance of business environment.
What is the need of business Environment today ? Explain.
The importance of business environment is as follows : .

1. Market conditions and situations : A business must know the structure of market and changes taking place in the market. Creation of demand, monopoly, boom periods etc. should be in the knowledge of business. These information, conditions are provided by business environment.

2. Better performance : Proper understanding of the various elements of external environment is necessary to take timely action to deal with the threats and avail opportunities for the purpose of improvement in performance of the firm.

3. Technological up gradation : Development of business also depends upon the new technology and inventions, so if a business has to grow it should be aware of new techniques of production, new products, new designs, scientific development etc., No business will survive if technology is ignored.

4. Optimum utilization of resources : Natural environment divides the nature of business, localization, stability, progress etc. Human resource decide the knowledge, techniques, production, Industrial relations, managerial efficiency etc. Management of these resources play an important role in success of business.

5. Survival and growth : A detailed study of business environment is essential for the survival and growth of business enterprise. Business has limited capacity to influence the environment. Therefore adjustment of business, policies and strategies to be changed environment is essential for business survival.

6. Reputation of the company: The management of a company is interested not only in building up its business but also to build an image and reputation of the company in the public mind. Therefore study of environment will help the company to be friendly and avoid such policies which will affect the public.

Question 6.
Explain the political factors affecting business environment.
The political conditions and situations of any country affects the business environment. The main factors of political environment are as follows :

1. Ideology of government: The three forms of government are capitalism, socialism and mixed economy. These governments have different ideologies and thinking. These political ideologies and thinking affects the economic and business environment.

2. Policies of government: The policies of government are related with their ideology and thinking. Their policies directly affects the business, trade and industries.

3. Political stability : Stability of government is also an important factor whenever there is political instability in the country, business is affected adversely. The stable government and peaceful atmosphere of the society encourages economic growth.

4. Foreign policy: The foreign policy of any country affects its business environment. The foreign policies helps in maintaining peaceful atmosphere which develops the international business.

5. National security : The business of any country is also affected due to its national
security. Terrorist activities, civil wars disrupt. The business activities while in peaceful atmosphere of the country economic growth takes place.

6. Constitution : The laws and provisions made in constitution is not changeable for a long-term if political situation is stable and changes are not made in constitution then it is not getting to affect the business.

Question 7.
Explain the impact of government policy changes on business and industry.
Following are the impacts on business and Industry due to changes in government policies:

1. Increase in competition: Due to government polices of liberalization, privatization and globalization has increase the competition in day to day world. Increasing competition has adver self affected many industries.

2. Increase in demands: Due to economic reforms.speedy industrialization has taken place and various high quality products are available for customers. The customers are demanding these products for improvement in standard of living.

3. Technological environment: Due to rapid changes in technological environment competition is increasing. Only those companies will survive who are going to follow the changes in technology. For smaller firms it is becoming difficult to face the competition.

4. Need of efficient human resource : To achieve success it is necessary to have efficient human resource and it should be properly utilized. That’s why in all industries the demand for efficient human resources and their salary have also increased.

5. Decline of Public Sector : Due to government policies and economic reforms importance of public sector has declined. Financial assistance is also not provided to the public sectors property.

6. Decline of small-scale and cottage industries : Economic reforms and policies had played a major role decline of small-scale and cottage industries. It is becoming difficult for small-scale and cottage industries to face the competition with big companies with limited resources.

7. Open economy : The policies of the government has made our economy as open economy. Due to minimisation of restrictions our country is now developing into as international market.

Question 8.
Explain the managerial response of changing pattern in business environment.

1. Large-scale production : Big companies are increasing their production to reduce the cost of production and large-scale production makes it possible to get subsidies.

2. New technology: Various companies are using the new technology with the help of foreign countries to increase their share in market.

3. Direct distribution : By eliminating the middle men companies are trying to sell their products directly to the the consumers. For e.g.Amway is distributing its products directly to consumers.

4. Variety of line of goods and services : Various types of products and services are provided to the consumers at reasonable prices. For e.g., Tata’s are dealing in Iron products, Tea, cars etc.

5. Capital Formation : To expand the business to increase production, to open new branches in national and international market big companies are changing capital structure and forming huge capital.

Question 9.
Explain the economic policy of 2007.
Explain new Exim policy 2002-07.
The export-import policy for the period 2002-07 was announced on 31st March, 2002 with the objective to consolidate. The gains of the previous export-import policies and to set for itself a challenging target to achieve one per cent share in global trade by 2007 but this policy was replaced by Foreign Trade Policy by UPA Govt, for the period of2004-2009. This policy aimed to have exports of US 80-48 billion $ per year. The salient features of this policy are: ‘

1. Increase in export: The target of 11 -9% per annum average growth by increase annual exports up to 80 Billion $.

2. Abolishing Quantitative restrictions : Exim policy removed all quantitative re-strictions on all agricultural products except a few sensitive items like jute and onions.

3. Export promotion schemes: Value cap exemption granted on 429 items to continue.

4. More facilities to SEZs : A scheme for setting up special economic zones (SEZs) in the country to promote exports was announced by the Govt, in the export and import policy on 31st March, 2000. The SEZs are to provide an internationally competitive and hassle free environment for exports and exported to give a further boost to the country’s exports. 13 new SEZs were given the permission to start their work by Govt. Units set up in SEZ would be eligible for income tax concessions, exemptions from customs and excise duties.

5. Transport subsidies : Processed fruits and vegetables, poultry, dairy products, wheat and rice etc., Their cost of transportation is more than 80S per ton. This leads to increase in prices of products. To increase exports in the international market Govt, provided a transport subsidy of Rs. 100 crores in the year 2002-03.

6. Overseas banking : Permission have been given by the Govt, to start overseas banking branches in SEZs. In these branches the rules like CRR and SLR of Reserve Bank of India will not be followed.

7. Export to Russia: To increase the export of butter, wheat, groundnut, oil, cashewnuts and products of wheat to Russia, packaging and registration have been stopped.

8. Expansion of market: The countries separated from Africa and Russia and some Latin American countries are the new markets of India. Hence, the exports have been in-creased by 40%. The policy has also made provision for expansion of export market. In first phase Nigeria,.South Africa, Mauritius, Kenya, Ethiopia, Tanzania and Ghana were selected which helped in expansion of market.

By increasing the exports in international market it helped India in increasing foreign trade. This happened due to the efforts and policy of 1991. India’s current share in global merchandise trade is about 0-8 percent ($ 55 billion out of $ 7274 billion in 2003).

MP Board Class 12 Business Studies Important Questions

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