Business Environment - Test Papers

 CBSE Test Paper - 01

Chapter - 3 Business Environment

  1. Which of the following is an example of a social environment?
    1. Money supply in the economy
    2. Consumer Protection Act
    3. The Constitution of the country
    4. Composition of family
  2. Liberalisation means:
    1. Integration among economies
    2. Reduced government controls and restrictions
    3. None of these
    4. The policy of planned disinvestments
  3. The study of environment makes available ________ resources.
    1. useful
    2. inferior
    3. costly
    4. cheap
  4. Using e-payment options is a milestone in the direction to a cashless economy. It is a dimension of ________ environment.
    1. political
    2. technological
    3. social
    4. legal
  5. Which of the following does not explain the impact of government policy changes on business and industry?
    1. Increasing competition
    2. More demanding customers
    3. Market orientation
    4. Change in agricultural prices
  6. State whether each of the following statement is True or False:
    1. After the Introduction of N.E.P companies become market-oriented.
    2. Budgetary support to the public sector is reducing.
    3. When two or more companies join together to share their resources and carry out an economic activity it is known as a merger.
    4. The impact of N.E.P has been positive on the Indian Economy.
  7. Fill in the blanks with suitable words:
    1. Very recently the Government of India has abolished the tax on exports of many goods and services. It is an example of ________ environment.
    2. Impact of N.E.P has been positive on Indian ________ and ________.
    3. The government of India has abolished licensing requirement in most of the industries. It is an example of ________.
    4. ________ is a process of removal or reduction of various controls and regulations governing business and industry.
  8. Match the following:
    (i) Reduction of import duty(a) Liberalisation
    (ii) No restriction on expansion or contraction of business activities(b) Privatisation
    (iii) New techniques and methods of operating business(c) Globalisation
    (iv) Setting up of a board of industrial and financial reconstruction to revive or close sick units in PSUs.(d) Technological environment
  9. State any two impacts of the change of government policy on business and industry.
  10. It is interesting to know that the menu items of the multinational food chains are customised to suit the general palates of the local people in the region. When McDonald's started its business in India in the year 1996, the company went through a complete localization strategy. McDonald's changed its product menu to accommodate the vegetable burger given the large vegetarian population. It also altered its store design and even reduced the product price by close to fifteen per cent. Also, the "McAloo Tikki burger" is not available anywhere but in the Indian outlets of McDonald's.
    Identify the relevant feature of the business environment being discussed above.
  11. An unstable government is one of the major causes of the weak industrial base. Identify the key component of the business environment highlighted in the given statement.
  12. Mrs. Sadhna Kidwai is the Divisional Manager of the Export Division of Swad Tea Limited. For some time since past, a restriction has been imposed on Export of tea. It is evident that the company's Export business depends on the Government's Policy. Recently there has been a change of Government in the centre. As soon as the new Government took over, it removed the restriction imposed on the Export of tea. With the coming of this news, the Division under Mrs. Kidwai heaved a sigh of relief.
    1. The change of Government is having an impact on the two dimensions of Business Environment. Identify them.
    2. Identify one of the characteristics of ‘Business Environment’ described.
  13. Briefly explain the following:
    1. Liberalisation
    2. Privatisation
    3. Globalisation
  14. A recent rate cut in the interest on loans announced by the banks encouraged Amit, a science student of Progressive School, to take a loan from State Bank of India to experiment and develop cars to be powered by fuel produced from the garbage. He developed such a car and exhibited it in the Science Fair organised by the Directorate of Education. He was awarded the first prize for his invention.
    Identify and explain the dimensions of the business environment discussed in the above case.
  15. The court passed an order that all schools must have water purifiers for the school children as
    1. Society, in general, is more concerned about the quality of life.
    2. Innovative techniques are being developed to manufacture water purifiers at competitive rates.
    3. The government is showing a positive attitude towards the water purifier business.
    4. Incomes are rising and children at home are also drinking purified water.

    Identify the different dimensions of the business environment by quoting from the above details.

  16. Explain any four features of demonetization.
  17. Discuss the economic reforms initiated by the Government of India since 1991.
  18. Often it is observed that some political parties of a country are in favour of giving a lot of freedom to business while some are opposed to this view. When General Elections are approaching in a country the impact of this approach of the political parties can be seen on the Share Market. For example, General Elections are about to take place in a country, and the general view of the people is that the political party having a positive approach to business will come into power. As a consequence of this news, the rates of shares in the Share Market will rise.
    In the paragraph given above of one particular feature and two Dimensions of Business Environment have been described. Identify them.

CBSE Test Paper - 01
Chapter 03 Business Environment


  1. (d) Composition of family
    Explanation: Social environment refers to the broad characteristics of the society in which a business enterprise operates. Composition of the family comes under a social environment.
  2. (b) Reduced government controls and restrictions
    Explanation: Liberalization reduces the control of the government and encourages private participation.
  3. (a) useful
    Explanation: The study of the environment makes available useful resources.
  4. (c) social
    Explanation: social
  5. (d) Change in agricultural prices
    Explanation: Change in agricultural prices does not explain the impact of govt policy changes on business & industry.
    1. True
    2. True
    3. True
    4. True
    1. Economic
    2. Economy, business
    3. Liberalisation
    4. Liberalisation
  6. (i) - (c), (ii) - (a), (iii) - (d), (iv) - (b)
    1. Increasing competition.
      Changes of rules of industrial licensing and entry of foreign firms raised competition
    2. Rapidly changing technological environment.
      It creates tough challenges before smaller firms.
  7. The environment is Dynamic: Business environment is dynamic and perpetually evolving. It changes frequently due to various external forces i.e. economic, political, social, international, technological and demographic. Such dynamism in the environment brings a continuous change in its character. Business enterprises have no alternative but to operate under such a dynamic environment. The only remedy is to adjust business as per environmental changes.
  8. Political Environment.
    Political stability builds up confidence among the business class. On the other hand, instability shakes that confidence.
      1. A new Government coming into power - Political Environment.
      2. Change in the policy of Import-Export - Economic Environment.
    1. The characteristic of Economic Environment: Inter-relatedness: The different factors of Business Environment are interrelated; for example, changes in the Import-Export policy with the coming of a new Government in power. Here, the coming of a new Government in power is a political change and the change in Import-Export policy, an economic change.
    1. Liberalisation: Liberalization means the removal of all unnecessary controls and restrictions on business and industry. It implies relaxation to Indian business and industry from all unnecessary controls and restrictions.
    2. Privatization: Privatization is the process of transferring an enterprise or industry from the public sector to the private sector. The public sector is part of the economic system that is run by government agencies. Privatization is considered to bring more efficiency and objectivity to the company.
    3. Globalization: Globalization means the integration of one economy with the world economy and the entire world is treated as one market. In other words, when the economy of a country is linked with the economies of other countries for the purpose of trade and free mobility of capital and labour etc. it is known as Globalisation.
  9. The two dimensions of the business environment being referred to in the above case are:
    Economic environment: Economic environment refers to the combination of economic systems, economic policies and economic conditions of a country.
    Technological Environment: Technological environment refers to innovations relating to various business activities.
    1. Economic Environment
    2. Technological Environment
  10. 'The court passed an order that all schools must have water purifier'.
    The quoted line is depicting legal environment Business has to function within the framework of laws and regulations of the country Legal environment exercises significant influence on business activities.
    1. 'Society, in general, is more concerned about the quality of life'.
      The quoted line is depicting the social environment as this environment consists of all the social and cultural forces within which business firms operate.
    2. 'Innovative techniques are being developed to manufacture water purifiers at competitive rates'.
      The quoted line is depicting the technological environment It includes forces relating to scientific improvements and innovations which provide new ways of producing goods and services.
    3. 'The government is also showing a positive attitude towards the water purifier business'.
      The quoted line is depicting the political environment It is concerned with the forces related to political stability and political conditions that have a strong impact on business.
    4. 'Incomes are rising and children at home are also drinking purified water'.
      The quoted line is depicting the economic environment. It consists of the factors and forces concerning means of production and distribution of wealth It includes all such forces of economic development which influence the product's market scope of business.
    1. Demonetization is not a big disaster like the global banking sector crisis of 2007; but at the same time, it will act as a liquidity shock that disturbs economic activities.
    2. Liquidity crunch (short term effect): liquidity shock means people are not able to get sufficient volume of popular denomination especially Rs 500.
    3. Welfare loss for the currency using population: Most active segments of the population who constitute the ‘base of the pyramid’ uses currency to meet their transactions.
  11. Following changes have been observed since 1991:
    1. New Industrial Policy:- The main features of this policy are as follows:
      • Government is disinvesting in public sector undertakings.
      • There are new schemes to attract Foreign Direct Investment (FDI).
      • There is a prompt clearance of foreign investment proposals.
      • Tax concessions are given to units in Special Economic Zones (SEZs).
      • There is a broadband facility in the telecom sector.
    2. New Trade Policy:- The main features of the New Trade policy are as under:
      • There is the liberalization of import policy.
      • Deemed exporters are entitled to special import licenses.
      • There are greater concessions to Export Oriented Units (EOU) and units in Export Promotion Zones (EPZ).
      • Credit is now less expensive and many imports are duty-free.
      • The procedures related to export promotion have been simplified.
      • The export quotas have been removed & there is a reduction in import duties.
    3. Fiscal Reforms: The main fiscal reforms are as follows:
      • Measures have been taken to bring down the fiscal deficit.
      • Tax reforms have been initiated to increase the revenue and tax compliance.
      • Direct and indirect taxes have been reduced.
      • Subsidies have been decreased.
    4. Monetary Reforms: The Government pursued a restrictive monetary policy for reducing inflationary pressures and also for improving the balance of payment position.
      • Monetary Reforms include Phased reduction of statutory liquidity ratio (SLR).
      • Private sector banks have been allowed to set up new branches.
      • Banks have now been allowed to access the capital market for raising capital.
      • Permission has been given for disinvestment (up to 49% of total equity).
    5. Capital Market Reforms
      • Capital Market Reforms include Ceiling on the rate of interest on debentures and bonds abolished. FIIs can access capital markets.
      • The private sector is allowed to set up mutual funds.
      • Bonus issues have been made more liberal.
      • SEBI (Security and Exchange Board) of India has been made a statutory body.
  12. A business environment includes all external factors and forces which have a certain degree of impact on the business actions, decisions, and strategies of the firm. Usually, the success of a business is dependent on its environment. Businesses are expected to identify, appraise, and respond to all threats and opportunities in their environments.
    One Feature of Business Environment is Complex. A business environment has a plethora of factors, events, conditions, and influences arising from a variety of sources. Therefore, it is very difficult to understand all the factors affecting a given environment at any time. Although we can understand it in parts, it is impossible to grasp it in totality.
    The Two Dimensions of Business Environment are:
    Technological Environment: The primary forces that are responsible for the improvement in the scientific field and new innovations being introduced in the market for improving the quality of goods and services and techniques for operating business more efficiently are known as technological factors in the business environment. Just like two sides of the same coin, technological changes are threats to some organisations and opportunities for others.
    Political Environment: This factor consists of external factors such as political stability and peace in the country. The foresight of the ruling party and its perspective towards business. Needless to say, the political environment is easily the most important dimension of the business environment.
    As it decides what is the ideology of the party which is dominant in the country. For example, after globalisation India let foreign companies enter the Indian market for giving a boost to different industries such as the food processing industry, the technological industry.
    Businesses function with the nature and the framework of the political party. The components of a political environment consist of the constitution of the country, political stability, political ideology, political outlook on business sectors, the extent of government intervention and degree of politicisation of business and economic issues.