Mada za sehemu hiiScope Of CommerceMada 4
- Concept of commerce
- Classification of commerce
- Differences between commerce and economics
- Historical development of commerce
The development of commerce can be looked at through the following stages
A: Production without exchange
- In primitive societies, individuals were self-reliant, producing goods to satisfy their own basic needs like food, shelter, and clothing.
- Commerce or exchange was unnecessary since each person consumed what they produced.
- Over time, as human wants increased and became more diverse, individuals could no longer satisfy all their needs independently.
- The development of the division of labour revealed that different people had unique talents.
- Specialization allowed individuals to focus on tasks they performed best, increasing efficiency.
B: Production with exchange
- As groups expanded, individuals began to produce surplus goods.
- Surplus production led to the exchange of goods, creating the foundation of commerce.
- This system of exchanging goods for goods was known as barter trade.
- Barter trade marked the beginning of organized commerce and economic interaction among groups.
Barter trade involves the exchange of goods for goods. However the barter trade could not persist for a long period of time due to the following limitations (drawbacks)
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Problem of double coincidence of wants in order for exchange to take place. It was very difficult for a trader with surplus of a certain commodity to look for a person who wants what a trader has and at the same time to possess what trader wants before transaction takes place. For example if there was a farmer who had maize and wanted a shirt, the farmer had to find a person who had a shirt and wanted maize but if he could not find such a person who wanted maize and has a goat then barter trade could not take place.
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Problem of measuring of value in barter trade it was very difficult to decide how much quantity of one commodity could be exchanged for a certain amount of another commodity. For example it is very difficult to decide how much quantity of maize must be exchanged with cow.
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Problem of store of value. Under barter system it was difficult to store perishable goods like vegetables, fruits, milk, meat, and fish and exchange them with other commodity in future.
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Problem of divisibility (indivisibility). It was not possible to divide some commodities into smaller units in order to exchange without units of other commodities. For example if a person has certain units of cloth and wanted to exchange with some units of meat of cow the exchange was very difficult because a cow could not be divided into smaller units if the value of the units of cloth was not equal to the value of the whole cow.
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Lack of standard of deferred payments under barter system the borrowing and lending was made in terms of goods. It was difficult to decide where the same value was returned later or not.
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Difficulty in transport some commodities. Due to lack of modern means of transportation and due to immobility of some items, it was difficult to transport such items from one place to another for exchange. In view of the difficulties of the barter system different commodities were used as money in different period.
The following commodities were used as money from time to time
- Hides and skins, stones, arrows agricultural products like wheat, maize rice.
- Different metals like silver, copper, gold etc.
- Paper
At present current notes and coins issued by central bank acts as main form of money. The introduction of money has solved all the problems of the barter system. The issue of money has converted a barter economy into the monetary economy of today. Money is known and used as a medium of exchange. The goods and services are sold and purchased with the help of money.
Money is a commodity chosen by common consent to be a measure of value and means of exchange between all other commodities.
Despite its drawbacks (limitations), barter system has the following advantages over the use of money.
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The risk of theft is lower in barter trade than the risk of using money. Almost all modern forms of money can easily be stolen and are more vulnerable to theft than commodities. This is because money is easier to carry than commodities.
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The value of commodities tends to be stable over a long period of time unlike the value of money which depreciates in value after a certain period of time. Due to depreciation in value, money plays little role as a future store of value.
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Barter trade is very useful in non-monetary economies where money is too scarce to be used as a medium of exchange e.g. in rural areas barter trade is widely applied due to scarcity of money.
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The use of barter system makes the economy of the place less reliable to economic problems like inflation and deficit in the balance of payment.
- The diversification of natural resources encourages the exchange of goods between different countries or areas.
- The difference in human wants also introduces the exchange of goods.
- Specialization or division of labour became another main cause of trade or exchange of goods.
- Improvement in transport and communication system was also a great help in the expansion of commercial activities.
- Development of money and banking system was another reason for great production and expansion of exchange activities.
- Population increase.
- Difference in skills and knowledge.
- Liberalization of trade in industries.
- Advertisement in risk management.
- New consumers attitude towards debt.
- In rural areas where some people sometimes exchange crops for crops during harvesting period or crops for animal products.
- In international trade dealing with exchange of goods for goods.
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Bridges the gap between producers and consumers — Commerce enables producers to inform customers about the goods and services available for sale through advertising or communication.
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Compensation for losses — Commerce enables business people to get compensation for losses caused by insured risks hence their business continue operating normally.
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Acquisition of capital — Through commerce businessmen are able to acquire capital in the form of loans from banks.
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Variety of goods is enjoyed — Through commerce the public gets a variety of goods and services from different users. People are therefore given a chance to exercise their choice.
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Creation of employment — Many people are employed in the commercial sector as importers, insurance brokers, wholesalers and retailers hence improving their standards of living.
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Making goods available — Goods and services are made available to consumers through commerce.
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Encourages production — With commerce goods are taken to the final user which makes the production of goods more profitable this encourages producers to produce more.
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