CHAPTER ONE

INTRODUCTION TO COMMERCE

Overview
Upon completion of this chapter, students will develop a comprehensive understanding
of the elementary concepts related to commerce, including its definition, historical
context, and its significance in addressing human needs and wants. Furthermore,
students will gain insights into the various types of commercial transactions and
appreciate the pivotal role that commerce plays in shaping and sustaining the economy.
The knowledge acquired in this chapter will serve as a foundational understanding for
more advanced studies in the field of commerce.
 Define commerce.
- Definition and scope of commerce
- Historical evolution of commerce
 Explain commercial transaction.
- Definition of commercial transaction
- Types of commercial transaction
- Commercial transaction Versus other transaction
 Explain how need and want derive need for commerce.
- Definition of key terms
- How need and want derive need for commerce/ Relationship between
commerce and the origins of Need and Wants
- Key differences between Need and Wants
 Explain importance of commerce to the economy.

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1.1 Commerce Definitions
Commerce is a social science which is associated with trade and aids to trade. Also,
commerce can be defined as a branch of business that concerned with the exchange of
goods and services. It includes all those activities, which directly or indirectly facilitate
that exchange.

According to ‘James Stephenson’

‘Commerce includes those activities which remove the hindrance of place, persons,
time, finance, risk and knowledge in the exchange of goods.’ In other words, commerce
may be said to include all those branches which deal with the removal of obstacles that
act as barriers to the satisfaction of human wants.

1.1.1The Essence of Exchange

Human wants are unlimited. Human wants are satisfied by goods and services which
have utility or satisfying power. The individuals can not satisfy all their wants because
the resources at their disposal are limited. Human wants or need can be satisfied by
exchange of goods. Exchange is a system whereby individuals and countries depend
on each other for the supply of goods and services. Different individuals or countries
specialize in the in the production of different goods and services. They exchange these
goods of different goods and services. Example, a farmer produces maize and rice, he
can use part of this production himself as food and he exchanges his extra production of
maize and rice to get clothes, shoes, furniture etc. Exchange is of great importance to
enable the individuals and countries to get maximum satisfaction out of limited
resources.

There are two main forms of exchange namely barter system and exchange by money.
Barter system involves the exchange of goods with goods or commodities with
commodities. Example, if a person exchanges maize for cloth. Barter system was
prevailing when money was not invented. Barter system is not common these days.
Among of the demerits of barter system of trade includes, lack of measure of value, lack
of store of value, indivisibility of some items, lack of double coincidence of wants,
problem of transportation of some items used in exchange etc.

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Exchange by money involves the exchange of goods and services through a medium
of exchange called money. Money can be defined as anything which is generally
accepted as a medium of exchange and acts at the same time as a measure of value
and store of value. Money came to remove all the disadvantages of barter system of
trade. Money solutions includes store of value, measure of value, solved the problem of
double coincidence of wants, easy to carry from one place to another etc.

1.1.2 Growth of Commerce

These days, commerce plays the fundamental role in the satisfaction of human wants.
In primitive societies, the producer himself was the consumer. He was compelled to
provide himself with food, clothing and shelter. Under such circumstance, the question
of commercial transactions or exchange of goods did not arise. He was no longer willing
to satisfy all his wants with the goods produced with his labour alone. He began
exchanging commodities produced by others. But slowly his wants started to increase in
size and in number. He began exchanging commodities produced with others. This
exchange of goods for goods was known as barter system. Later, it was realized that
the resources available in different type of goods could be produced. E.g., in some
areas maize and wheat could be produced easily whereas in some areas mineral
reserves were found in abundance. This diversity of resources necessitated the
exchange of goods between different areas. Other factors for the growth of commerce
have been listed below.

Factors that contributed to the Growth of Commerce

 The diversification of natural resources encouraged the exchange of goods between
different countries or areas.
 The difference in human wants also induced the exchange the exchange of goods.
 Specialization or division of labour became another main cause of trade or exchange
of goods.
 Improvement in the 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 greater
production and exchange activities.
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 Industrial revolution and introduction of machinery.
 Introduction of money and banking.

1.1.3 Scope of Commerce

Scope of commerce means those limits under which different problems can be
discussed in commerce. The scope of commerce comprises of all commercial
occupations. The main purpose of commercial activity is to facilitate the trading or
exchange of goods. The main branches of commerce are Trade and Aids to trade. This
scope of commerce is very wide and important. The following diagram helps to explain
this scope;

Commerce Flow Chart

1.2 Commercial Transaction:

Commercial transactions involve the transfer of title of the goods or services between
two parties from one of them to the other for consideration (money or monetary worth).
In a transaction, if one or both of the parties are traders, the transaction is referred to as
a commercial transaction.
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Mostly, these transactions take place between retailer and wholesalers. A transaction
between a retailer and manufacturer is also a commercial transaction. Similarly, a
transaction between a retailer and a consumer is also a commercial transaction.
Commercial transaction can be of: -
 Cash basis.
 Credit basis.

 Cash Transactions:
This is a transaction whereby cash is paid immediately in exchange of either goods or
services. In cash transaction there is execution of two things i.e., payment and delivery
whereas the buyer pays cash when goods are delivered. Cash transactions are very
common in retail trade.

 Credit Transaction:
This is the transaction whereby goods or services are delivered to the buyer but
payment is made later. In this case cash is paid after a specific duration stipulated on
the terms of sale. Credit transactions are those transactions for which cash is not paid
on the delivery of the goods. Credit transactions take place between large traders.

1.3 Relationship between commerce and the origins of Need and Wants.
In primitive societies, the producer himself was the consumer. He was compelled to
provide himself with food, clothing and shelter. Under such circumstance, the question
of commercial transactions or exchange of goods did not arise. Later on, he was no
longer willing to satisfy all his wants with the goods produced with his labour alone. He
began exchanging commodities produced by others. But slowly his wants started to
increase in size and in number and as a result he began exchanging commodities
produced with others and through exchange commerce was created.

Also, the human wants are limited or scare i.e., it is impossible to satisfy all the human
wants at once. Human wants give rise to efforts which in turn create goods and services
which give satisfaction. In order to satisfy human wants, human beings make efforts and
as a result of these efforts, different goods are produced. These goods are then
consumed by human beings to satisfy their wants and others are exchange through the
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medium of exchange (money) as a result of differences in human wants and limited
resources it derived the need of commerce.

Needs:
By the term Needs, we mean all those requirements which are extremely necessary for
a human being to live a healthy life. They are personal, psychological, cultural, social,
etc. that are important for an organism to survive. These needs are common to all
human beings. In ancient times the three basic needs of human are food, clothing and
shelter but with the passage of time, education and healthcare also became integral, as
they improve the quality of life. They are a person’s first priority as they are the things,
which they keep us healthy and safe. Therefore, if needs are not satisfied in time, it may
result in illness, inability in functioning properly or even death.

Wants:
Wants are those goods and services which are not compulsory for living but make life
easier and better. In economics, wants are defined as something that a person would
like to possess, either immediately or at a later time. Simply put, wants are the desires
that cause business activities to produce such products and services that are
demanded by the economy. They are optional, i.e., an individual is going to survive,
even if not satisfied. Further, wants may vary from person to person and time to time.
Any human desire is known as wants or ends. All human beings have desires to get
better quality of food, more clothes, large houses, new model cars, Television set etc.
All human wants cannot be satisfied because human being’s resources are limited or
scarce.

Key differences between Needs and Wants

1. The term ‘needs’ is defined as an individual’s basic requirement that must be
fulfilled, in order to survive. Wants are described as the goods and services, which
an individual like to have, as a part of his desire.
2. An individual needs are limited while his wants are unlimited.
3. Needs are something that you must have, in order to live. On the contrary, wants are
something that you wish to have, so as to add comforts in your life.

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4. Needs represents the necessities while wants indicate desires.
5. Needs are important for the human being to survive. As against this, wants are not
as important as needs, because a person can live without wants.
6. Needs are those items, that are required for life and does not change with time. As
opposed to, wants are those items, that are desired by an individual either right now
or in future. Therefore, wants might change over time.
7. As needs are essential for life, non-fulfillment may lead to illness or even death. In
contrast wants are not essential for living and so non-fulfillment, does not have a
great impact on a person’s life, however, disappointment may be there.

1.4 Importance of Commerce

The important of the roles of commerce in an economy are mentioned in the following
points;

1. Commerce tries to satisfy increasing human wants.

Human wants are never ending. They can be classified as Basic wants and Secondary
wants. Commerce has made distribution and movement of goods possible from one
part of the world to the other. Today we can buy anything produced anywhere in the
world. This has in turn enabled man to satisfy his innumerable wants and thereby
promoting social welfare.

2. Commerce helps to increase our standard of living.

Standard of living refers to the quality of life enjoyed by the members of the society.
When man consumes more products his standard of living improves. To consume a
variety of goods he must be able to secure them first. Commerce helps us to get what
we want at right time, right place and right price and thus helps in improving our
standard of living.

3. Commerce links producers and consumers.

Commerce makes possible to link producers and consumers through retailers and
wholesalers and also through aids to trade.

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 4. Commerce generates employment opportunities.
The growth of commerce, industry and trade bring about the growth of agencies of trade
such as banking, transport, warehousing, advertisement etc. these agencies need
people to look after their functioning.

5. Commerce increase national income and wealth.

When production increases, national income also increases. In a developed country,
manufacturing industries and commerce together accounts for nearly 80% of total
national income.

6. Commerce helps in the expansion of aids to trade.

With the growth in trade and commerce there is growing need for expansion
modernization of aids to trade. Aids to trade such as banking, communication,
advertisement and publicity, transport, insurance, etc are expanded and modernized for
the smooth conducting of commerce.

7. Commerce helps in growth of industrial development.

Commerce looks after the smooth distribution of goods and services made available by
the industry. Without commerce, industry will find it difficult to keep the pace of
production. It helps to increase demand for goods on one hand and on the other hand it
helps industries by getting them the necessary raw materials and other services. Hence,
commerce helps in attaining better division of labour and industrial progress.

8. Commerce encourages international trade.

Through commerce we can secure a fair and equitable distribution of goods throughout
the world. With the help of transport and communication development, countries can
exchange their surplus commodities and earn foreign exchange, which is very useful for
importing machinery and sophisticated technology.

9. Commerce benefits underdeveloped countries.

Underdeveloped countries can import skilled labour and technical know-how from
developed countries while the advance countries can import raw materials from under-
developed countries.

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 10. Commerce helps during emergencies.
During emergencies like floods, earth quakes and wars, commerce helps in reaching
the essential requirements like foodstuff, medicine and relief measure to the affected
areas.