Trade

Trade

Trade is a basic economic concept involving the buying and selling of goods and services, with compensation paid by a buyer to a seller, or the exchange of goods or services between parties. Trade can take place within an economy between producers and consumers. Trade and commerce have played a vital role in making India to evolve as a major factor in the economic world in ancient times.  Archaeological evidences have shown that trade and commerce was the mainstay of the economy of ancient India carried out by water and land.

Trade is an essential part of commerce. It refers to sale, transfer or exchange of goods. It helps in making the goods produced available to the consumers or users. These days’ goods are produced on a large scale and it is difficult for producers to themselves reach out to individual buyers for selling their products. Businessmen are engaged in trading activities to make the goods available to consumers in different markets.

In the absence of trade, it would not be possible to undertake production activities on a large scale. Trade may be classified into two broad categories – internal and external. Internal, domestic or home trade is concerned with the buying and selling of goods and services within the geographical boundaries of a country. This may further be divided into wholesale and retail trade. When goods are purchased and sold in comparatively smaller quantities, for final consumption it is referred to as retail trade. External or foreign trade consists of the exchange of goods and services between persons or organisations operating in two or more countries. If goods are purchased from another country, it is called import trade. If they are sold to other countries, it is known as export trade. When goods are imported for export to other countries, it is known as entrepot trade.

Auxiliaries to Trade

Activities which are meant for assisting trade are known as auxiliaries to trade. to as services because these are in the nature of facilitating the activities relating to industry and trade. Transports, banking, insurance, warehousing, and advertising are regarded as auxiliaries to trade, i.e., activities playing a supportive role.

Auxiliaries to trade:

 (i) Transport and Communication: The obstacle of place is removed by transport through road, rail or coastal shipping. Transport facilitates movement of raw material, to the place of production and the finished products from factories to the place of consumption. Along with transport facility, there is also a need for communication facilities so that producers, traders and consumers may exchange information with one another. Thus, postal services and telephone facilities may also be regarded as

auxiliaries to business activities.

(ii) Banking and Finance: Necessary funds can be obtained by businessmen from a bank. Thus, banking helps business activities to overcome the problem of finance. Commercial banks, generally

lend money by providing overdraft and cash credit facilities, loans and advances.

(iii) Insurance: Business involves various types of risks. Factory building, machinery, furniture, etc.,

must be protected against fire, theft and other risks. Material and goods help in stock or in transit are subject to the risk of loss or damage. Employees are also required to be protected against the risks of accident and occupational hazards. Insurance provides protection in all such cases. On payment of a nominal premium, the amount of loss or damage and compensation for injury, if any, can be recovered from the insurance company.

(iv) Warehousing: Usually, goods are not sold or consumed immediately after production. They are held in stock to make them available as and when required. Special arrangement must be made for the storage of goods to prevent loss or damage. Warehousing helps business firms to overcome the problem of storage and facilitates the availability of goods when needed. Prices are, thereby, maintained at a reasonable level through continuous supply of goods.

(v) Advertising: Advertising is one of the most important methods of promoting the sale of products, particularly, consumer goods. It is practically impossible for producers and traders to contact each and every customer. Thus, for promoting sales, information about the goods and services available, their features, price, etc., must reach potential buyers. Advertising helps in providing information about available goods and services and inducing customers to buy particular items.   

Source: NCERT Business studies text book