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Trade and aids to trade: Class 11 Commerce
The meaning of commerce, trade and industry, home and foreign trade, wholesale and retail trade, and the aids to trade: banking, transport, insurance, warehousing, advertising and communication.
Key points
Business is any activity carried on to earn a profit. It has three main branches: industry, commerce and services. Industry produces or changes goods, such as a factory making cloth. Commerce is the whole of the activities that help goods to reach consumers from the producers. It includes trade and the aids to trade.
Trade is the buying and selling of goods and services. A trader buys goods from a producer or another trader and sells them at a profit. Trade creates place utility and time utility by bringing goods to where and when they are needed, so it links the producer to the consumer.
Types of trade:
- Home (internal) trade takes place within one country. It is divided into wholesale trade and retail trade.
- Foreign (external) trade takes place between countries. It includes imports (buying from other countries), exports (selling to other countries) and entrepot trade (importing goods in order to export them again).
- Wholesale trade is the sale of goods in large quantities to retailers. Retail trade is the sale of goods in small quantities to final consumers.
Aids to trade are services that remove the difficulties of trade:
- Banking removes the difficulty of payment. Banks keep money safe, give loans, and transfer money.
- Transport removes the difficulty of distance. It moves goods by road, rail, air and sea.
- Insurance removes the difficulty of risk. The insured pays a small premium and is compensated for a loss.
- Warehousing removes the difficulty of time. Goods are stored until they are needed.
- Advertising removes the difficulty of knowledge. It informs buyers about goods and persuades them to buy.
- Communication, such as the post, telephone and internet, links the buyers and sellers.
A retailer performs useful services. He sells in small quantities, offers goods near the consumer's home, gives credit and gives information about goods. A wholesaler buys in bulk from producers, stores the goods, and sells to retailers. In this way the wholesaler saves the producer the trouble of finding many small buyers, and saves the retailer from having to deal with many producers.
Study tip: Learn the aids to trade as pairs: banking and payment, transport and distance, insurance and risk, warehousing and time, advertising and knowledge.
Definitions and flashcards
Say the meaning first, then open the card to check.
Commerce
The activities that help goods to reach the consumers from the producers.
Trade
The buying and selling of goods and services.
Home trade
Trade within one country.
Foreign trade
Trade between countries.
Import
Buying goods from another country.
Export
Selling goods to another country.
Entrepot trade
Importing goods in order to export them again.
Wholesaler
A trader who sells goods in large quantities to retailers.
Retailer
A trader who sells goods in small quantities to consumers.
Aids to trade
Services such as banking, transport and insurance that help trade.
Short questions with model answers
These are the kind of questions asked for 2, 3 and 5 marks. Try each one before opening the answer.
Define commerce. (2 marks)
Commerce is the whole of the activities that help goods to reach the consumers from the producers. It consists of trade and the aids to trade.
Differentiate between home trade and foreign trade. (3 marks)
Home trade is the buying and selling of goods within one country. Foreign trade is trade between countries. It includes imports, exports and entrepot trade.
What is entrepot trade? Give an example. (2 marks)
Entrepot trade means importing goods from one country in order to export them to another. A country that buys tea from one country and sells it to a third country is carrying on entrepot trade.
Name the difficulty that each aid to trade removes: banking, transport and insurance. (3 marks)
Banking removes the difficulty of payment, transport removes the difficulty of distance and insurance removes the difficulty of risk.
Explain the services of a wholesaler. (5 marks)
The wholesaler buys goods in large quantities from the producers, which saves the producer the trouble of selling in small amounts. He stores the goods and so provides warehousing. He sells to retailers in suitable quantities, and may give them credit and information about the market. He also takes the risk of price changes and damage to goods. In this way he links the producer to the retailer.
Common mistakes
- Using commerce and trade as if they meant the same thing. Commerce is wider and includes the aids to trade.
- Mixing up exports and imports.
- Saying that the retailer sells in bulk. The retailer sells in small quantities to consumers.
- Naming the aid to trade but not the difficulty that it removes.