CA Foundation Business & Commercial Knowledge Study Material Chapter 1 Introduction to Business – Economic and Non-Economic Activities
Every human being is busy in some activity or the other throughout the day. Every person gets up from bed in the morning, brushes his/her teeth, takes bath and eats breakfast. Then a child goes to School or College to study. An adult goes to work on the job and a housewife works at home. In the evening a person comes back home, watches television, eats dinner and goes to bed at night. All these activities in which a person engages from morning to evening are known as ‘human activities’.
ECONOMIC AND NON-ECONOMIC ACTIVITIES
All human activities may broadly be classified into two categories:
- Economic activities and
- Non-economic activities
Economic activities are undertaken with the object of earning money and acquiring wealth. These activities result in the production of economic goods and services. Business is an economic activity but it differs from other economic activities such as those of an employee, and self employed persons like doctors, lawyers, chartered accountants, etc.
Non-economic activities are inspired by sentiments and emotions such as love for the family, desire to help the poor and love for the country. These activities are not undertaken for monetary gain but for one’s satisfaction and happiness.
Economic activities refer to all those human activities which are undertaken to earn a living and thereby satisfy human wants. The main object of these activities is to earn income and create wealth. The money earned through work is used to satisfy wants. For example, a teacher teaches in a school or college, a doctor attends to patients in his clinic and a shopkeeper sells goods to his customers. Economic activities are concerned with the production, distribution and exchange of goods and services. These activities create utilities and result in the production of wealth. Economic activities are also called occupations.
The main characteristics of economic activities are as follows:
- Economic motive – Economic activities are undertaken to earn money and acquire wealth The main motive behind these activities is to make an economic gain. These activities are performed by human beings for earning livelihood.
- Productive – Economic activities involve production, distribution and exchange of goods and services for satisfying human wants. These activities are directly related to creation of wealth.
- Economic resources – Economic activities make use of economic resources such as land, labour, capital, etc.
- Rational use – Economic activities require proper allocation of scarce resources so as to obtain maximum output from them. These activities involve optimum utilisation of land, labour, capital and other factors of production. Welfare of society can be maximised when best possible use of resources is made.
- Economic growth – Economic activities determine the level of economic development of a country and the standard of living of its citizens.
- Legally valid – Human activities performed for economic gain are called economic activities only when they are lawful. Unlawful activities such as gambling, black marketing, theft, dacoity, smuggling etc., are opposed to public interest. Therefore, these activities cannot be called economic activities.
- Socially desirable – Economic activities are desirable for society. They must be in accordance with the expectations and norms of society.
Examples of economic activities
- Production of goods by a manufacturer in a factory.
- Distribution of goods by a wholesaler to retailers.
- Selling of goods by a retailer to customers.
- Transportation of goods and passengers by railways/roadways/airlines/ships.
- Storage of goods by a warehouse keeper.
- Acceptance of deposits and lending of money by a banker.
- Insurance of risks by an insurance company.
- Advertising and publicity of goods by an advertising agency.
- A clinic run by a doctor.
- Legal services provided by a lawyer in a court.
- Audit services provided by a chartered accountant in his office.
- Working of a Government officer.
- Services of a teacher in a school/college.
- Working of a farmer in his fields to self his produce.
- Working of a nurse in a hospital.
Economic Activities at a Glance Characteristics
- Economic motive
- Rational use
- Economic resources
- Economic growth
- Legally valid
- Socially desirable
- Manufacturing goods in a factory.
- Selling goods in a shop.
- A doctor treating patients in his clinic.
- A lawyer providing legal advice in his own office.
- A professor teaching in a university.
- A clerk working in a Government office.
Activities which are undertaken to satisfy social, religious, cultural and sentimental requirements are called non-economic activities. The object of these activities is not to earn monetary gain or reward. People engage in non-economic activities for reasons of love, sympathy, religion, patriotism, etc. For example, a mother looks after her children, a student donates blood, an old man goes to temple daily, a rich man donates money to Prime Minister Relief Fund, a young man helps a blind girl to cross the road, etc.
It is the object of any activity that distinguishes between economic and non-economic activities. The primary objective of economic activities is to earn livelihood and create wealth. On the other hand, the main objective of non-economic activities is to get some sort of social, cultural, religious or recreational satisfaction. The output of economic activities can be measured in terms of money e.g., the salary of a teacher, the fee of a doctor and the profits of a businessman. But the result of non-economic activities cannot be measured in terms of money.
The same activity may be economic as well as non-economic. For example, a nurse attending a patient in a hospital is an economic activity as the nurse works for a salary. But when the same nurse attends to her sick mother at home it is a non-economic activity because the object is not to earn money. Thus, the activity of the same person may be economic at one-time or place and non-economic at another time or place. The dividing line is not the activity or the person who is doing it but the objective for which it is undertaken.
Thus, non-economic activities are undertaken due to the following considerations :
- Love and affection – for example taking dinner with the family, cooking food for family.
- Personal satisfaction – for example meditating in a park.
- Physical needs – for example morning walk by a person.
- Religious obligation – for example praying in a temple.
- Social obligations – for example helping victims of an accident, flood or earthquake.
- Patriotism – donating blood for injured army men.
DISTINCTION BETWEEN ECONOMIC AND NON-ECONOMIC ACTIVITIES
|S.No.||Point of Distinction||Economic Activities||Mon-Economic Activities|
|1.||Objective||Economic objective – To earn a living and acquire wealth||Sentimental and emotional objectives – To obtain some sort of personal satisfaction.|
|2.||Expectation||Money income is expected from these activities||Money income is not expected from these activities|
|3.||Relationship||Directly related to income and wealth||Not related to income and wealth.|
|4.||Measurement of outcome||Result can be measured in terms of money||Result cannot be measured in terms of Money|
|5.||Logic||Guided by rational considerations of cost and benefit||Guided by sentiments and emotions without regard to gain or sacrifice|
|6.||Resources||Involve proper allocation and optimum use of resources||Optimum allocation and use of resources not essential|
|7.||Types or examples||Business, Profession and employment||Family-oriented, religious, social, cultural and national.|
Economic activities are also known as ‘occupations’. Economic activities or occupations may be classified into three broad categories as follows: