Basic Economic Activies — Important Questions

Working capital

Step 1: The chapter divides capital into Fixed Capital and Working Capital. Step 2: Fixed Capital includes items used in production for many years — like tractors, buildings, sewing machines. Step 3: Working Capital includes raw materials that are used up during the production process — like seeds, fertilizers, cotton yarn, clay. Step 4: Seeds and fertilizers are consumed in the process of growing crops, so they are Working Capital. Step 5: 'Natural capital' and 'Human capital' are not the categories discussed in this chapter.

Entrepreneur

Step 1: The chapter defines Entrepreneurship as the art of organizing production activity. Step 2: The person who makes key decisions about production, combines land, labour, and capital, and bears risks is called an Entrepreneur. Step 3: A Labourer provides physical or mental effort. Step 4: A Landlord owns land and earns rent. Step 5: A Consumer uses goods and services for satisfaction. Only the Entrepreneur organizes and bears risk, so 'Entrepreneur' is the correct answer.

Profit

Step 1: Each factor of production earns a specific income. Step 2: Land earns Rent, Labour earns Wages, Capital earns Interest. Step 3: The Entrepreneur organizes production, takes all the business risks, and is rewarded with Profit. Step 4: Profit is what remains after paying all other factors (rent, wages, interest). Step 5: It is the reward for risk-taking and organizing the production process. So the correct answer is 'Profit'.

Use of goods and services for direct satisfaction of human wants

Step 1: The chapter clearly defines Consumption as the use of goods and services for the direct satisfaction of individual or collective human wants or needs. Step 2: 'Producing goods for sale' describes Production activity. Step 3: 'Saving income in bank' is related to Capital Formation. Step 4: 'Adding to existing capital stock' is the definition of Capital Formation/Investment. Step 5: When a person buys food, clothing, or visits a doctor, they are engaging in Consumption.