A customer’s preference for a product declines after a certain period because of some competitor’s
policies or change in taste. In such cases, it is difficult for a businessperson to correctly anticipate
consumer preferences. As a result, he or she always faces the risk of unforeseen fluctuations in
demand. This leads to a possibility of occurrence of loss in the business.
a. Which aspect of business is cited in the example?
b. State the nature of the aspect of business mentioned above.
Answers
Answer:
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The aspect of business cited in the given case is Business Risks
Explanation:
a) Business risk can be defined as the possibility of incidence of losses or insufficient profits due to several unforeseen events which can’t be controlled by business.
b) Nature of business risk:
1. Essential part of business: Risk is an indispensable part of business and can’t be evaded. Every type of business face some kind of risk although the degree of risk may differ. A business risk may be reduced but cannot be eliminated.
2. Depends on the nature of business: The degree of risk which a business faces depends on the nature and size of the business. A large-scale business is prone more to risks than a small-scale one.
3. Reward for bearing risk: A business earns profit for undertaking risk. Higher the degree of risk, higher the volume of profit earned and the other way around.
4. Arise due to uncertainties: Change in government policies or natural calamities can be some unpredicted reasons which can cause a business risk as the result of such events are unknown.