Commerce CAIE Preparation

1. Chain of Production

Production: the provision of goods and services to satisfy needs and wants
Needs: the things human beings require for survival such as food, water and shelter
Wants: things that people would like to have that make their life more pleasant such as
television or a car.

1.2: Branches of Production

Direct Production: when a person tries to provide all he needs by his own efforts - for example,
and African farmer who has a small area of land and farms it to support his family

Indirect Production: this covers most kinds of production. It is when a person concentrates on
one occupation and produces a surplus - for example, a Canadian wheat farmer who trades
wheat for goods and services produced by other people and uses money to trade.

Primary Production:
- First stage in any productive process
- Concerned with obtaining or extracting natural resources from the Earth
- Mining, quarrying, fishing, forestry, farming

Mining Coal Miner

Quarrying Stone Blaster

Drilling Oil Driller

Farming Farmer

Forestry Lumberjack

Fishing Fisherman

Exhaustive Industries: these are industries that take resources from nature that can not be
replaced. For example; mining, quarrying, and drilling
Non-exhaustive industries: these industries take resources that are renewed from time to time,
for example; farming, forestry, and fishing

Secondary Production:
- Changes raw materials into finished goods by manufacturing
- Natural resources taken from primary producer and then their form is changed using
labour, machinery, and technology
 - Manufacturing, construction, and processing are all forms of secondary production

Manufacturing:
- Usually takes place in a factory
- May involve many processes (cutting, stitching, assembling and welding)
- Processes may take place in different countries specially if the manufacturer is a
multinational company

Steel making Foundry worker

Car Mechanic

Clothing Machinist

Furniture Carpenter

Construction: involves building or assembling manufactured parts into a final product.

House building Bricklayer

Boat building Welder

Dock and harbour construction Engineer

Road making Labourer

Processing: where raw materials are changed into semi manufactured goods

Food Baker

Fish Canner

Oil refining Engineer

Tertiary Production
- Third stage of production
- Involves the provision of services
- Direct and commercial services

Commercial services:
- Concerned with distribution
- Help distribute raw materials from primary production and goods from secondary
production
- Make products available to customers/consumers

Direct services:
- Given directly to the person receiving them with no other service provider involved
- People who provide these services do not make goods
- Services given to make people happy, healthy, more secure and to amuse them
- Often help people to work more productively
- Nursing,teaching,etc

1.3: Producers and Consumers

Consumer: the final user of goods. They buy to satisfy needs and wants

Producers: provides goods and services to the consumers

1.4: Chain of Production

Chain of production: the various stages through which production passes, e.g; secondary
production

Interdependence: the way in which countries are dependent on one another. Countries are
becoming more interdependent as they often specialise in few products and import what they do
not produce

2. Specialisation and Division of Labour

Trade: buying and selling for profit

Specialisation: concentrating on one task or process. It may take place in a factory. Countries
specialise in particular industries.

2.2 Levels of Specialisation

Regional level
- Area or region covering a number of countries is able to produce large quantities of
particular products often from natural resources.
 - Gulf states - Saudi Arabia, Abu Dhabi, Qatar and Iraq are rich in oil
- Southern Africa - south africa, botswana, zimbabwe, and zambia has large deposits of
diamonds, gold, copper and coal

National level
- Specialisation by country
- Specialise in whatever they do best or most economically
- Called comparative advantage
- Workforce develops specialist expertise and so achieves greater output
- Surplus created is exported to buy goods and services the country lacks

Country Specialisation

Japan Cars and Electronics

Switzerland Watches

Brazil Coffee

New Zealand Lamb and dairy products

Singapore and Hong Kong Re-export of trade, and handling containers

Maldives and Mauritius Tourist industries

Within the country

- Particular city or town or at a regional level
- Certain parts of a country concentrate on producing certain products or services
- Particular region has certain natural resources such as mineral deposits, climate, soil,etc
- Bordeaux region of france is well known for its wine production
- Madeira produces flowers and plants because of its climate and soil

Firms and Factories

- Many companies of factories specialise in particular products
- Within an industry for example food, one company may specialise in producing
chocolates while another company may make processed foods and ready-made meals
- Car manufacturing companies

Within the workplace

- Specialisation by process
- Production process is broken down so each individual may perform a particular task
- Division of labour
- Combined effort of many workers
Division of labour: dividing a whole task into a number of smaller repetitive tasks. Each task is
undertaken by one person again and again

Occupation
- Individual people may also be known for their particular skills
- Teachers and doctors
- Enables individual workers to concentrate on jobs for which they are most suitable

2.3 Advantages and Disadvantages of Specialisation

Manufacturers using mass production methods

Advantages
- Enables the manufacturer to concentrate on one product
- Enables the manufacturer to take advantage of division of labour
- Increases output of standardised products at a lower cost
- Makes greater use of machinery, technology and robotics - which are automated
systems
- Reduces the need for labour so reduces labour cost
- Saves time and enables large quantities of the same product to be produced
- Leads to increased efficiency as new and better techniques are introduced
- Workers are easier to train and there is a reduction in training costs
- Less time is wasted by workers moving from job to job
- Tasks are often simple so it is possible to employ people who do not have qualifications
and so may be paid less
- Increases the skill of the workforce in one particular aspect of production
- Allows manufacturers to take advantage of economies of scale

Economies of scale: the reduction in the unit cost of production as the size of business
increases. Examples of economies of scale are buying economies and marketing economies.

Disadvantages
- Boredom amongst the workforce may lead to mistakes, lack of quality, etc. to overcome
this workers are often switched from job to job
- Industrial problems may arise as factories become larger and there is greater separation
of managers and workers. People doing small tasks in large factories may feel isolated
- Workers become interdependent. One mistake causes damage to whole product

Division of labour to the individual worker

Advantages
- By doing the same job repeatedly, the worker should become more skilled and may work
at a greater speed. This may be rewarded by higher wages
 - There may be reduction in manual effort as machinery will be used
- Workers may become more mobile as they can be employed in variety of workplaces
where tasks are simple and easy to learn
- Jobs take less time to learn and so people may be reluctant to train for a new job

Disadvantages
- Boredom may lead to loss of quality and lower output
- Workers may face unemployment if some skills are no longer required
- Reduction in skill labour may make it difficult to transfer to other jobs
- Workers may feel less pride in their jobs and have less job satisfaction as they are no
longer responsible for making the product as a whole
- Less variety of jobs may mean that workers no longer feel valued as they are doing only
one part of the job
- Instability of employment - electricity example

Specialisation and the Consumer

Advantages
- Production of standardised products mean reduced cost hence lower price

Disadvantages
- Choice of goods may be reduced until consumers are willing to pay high prices for
custom-built products.

Limits to Specialisation
- People's ability to exchange what they make for what they need using money
- Size of the market
- Good transport facilities for the distribution on goods

3. Commerce

3.1 What is Commerce?

Commerce: the distribution of goods and services, or trade and aids to trade
Aid to trade: commercial services that help trade to function such as advertising

3.2 Trade

Trade: buying and selling of goods and services to gain profit

Bartering: exchange of goods and services without money being involved/swapping goods and
services

Types of trade
Home Trade: internal trade of the country - buying and selling within a country. Both the buyer
and the seller are citizens of the country. Delivery of goods is usually by road or rail except in
countries like maldives. Terms of payment are also easily arranged.

Wholesale Trade: concerned with buying from producers and manufacturers usually in bulk.
Wholesale break that bulk into smaller quantities and then sell to retailers. Also takes place in
foreign trade with agents and brokers bringing buyers and sellers together.

Retail Trade: selling of goods and services to consumers who are going to make use of them for
their own purposes. Takes place in shops in villages, towns and cities but increasingly in many
countries other forms of selling such as mail order, telesales, and online shopping are becoming
important.

Foreign Trade: external trade - buying and selling of goods between countries. Involves
importers and exporters who usually deal in large quantities. Raises the standard of living. Most
countries are not self-sufficient so this trade is important to them.

Export Trade: sale of goods and services to buyers in other countries to earn foreign currency
and to dispose of surpluses (goes)

Import Trade: buying of goods and services from sellers in other countries (comes)

Increase in Trade
- Improvement in transport (containerisation and better roads) have led to goods being
delivered more quickly and in greater quantities.
- Improvements in communication (increased use of internet and email) have made it easy
for people to contact one another, both at home and overseas
- Improved standard of living and rising expectations of consumers in many parts of the
world have increased the demand for all types of goods and services.
- Mass production and increased use of technology in production have led to increased
output of standardised products at prices that people can afford
- Some countries like the maldives and singapore are dependent on imports of all kinds as
they are unable to produce everything they require
- Development of international system of banking has made it easier to obtain payment for
exported goods
- Growth of multinational companies such as Honda, Tata etc with factories and offices in
many parts of the world has made it possible for their products to be made in countries
that have encouraged them to setup within borders
- Low costs of production, particularly wage rates, in developing countries such as
Bangladesh, Philippines etc have led to much manufacturing being moved from
developed countries to these countries
- Growth of service industries in many countries for example; banking and insurance
services has meant that many of these services not only are sold at home but are
exported as well.
Aids to Trade
- Advertising
- Communication
- Transport
- Warehousing
- Insurance
- Banking and Finance

2. Retail Trade

Retailer: a person who buys from the wholesaler and sells to the consumer
Retail Trade: selling of goods and services to customers

5.2 Services provided by the Retailers to Consumers

- Providing customer with conveniently sited shops

- Providing goods/services required by consumer
- Providing a broad range of goods
- Providing the goods when customers need them
- Providing goods that are suitable for the consumer in terms of quality, quantity, and price
- Providing delivery of goods
- Providing advice on purchase
- Providing after sale services
- Providing displays of goods both in the windows and inside the shop
- Providing credit to customers
- Obtaining goods that are not in stock

After sale service: any service provided by the seller after the product or service has been sold.
This may include delivery, repairs and servicing

Multiple chain stores: shops with ten or more branches, they may be specialist, concentrating on
one main product or variety, selling a wide variety of goods.

Services provided by retailers to wholesalers and manufacturers

- Buying variety of goods
- Clearing production lines, so saving storage place for manufacturers
- Placing bulk orders with manufacturers, possibly featuring retailers own brand labels
- Supplying wholesalers and manufacturers with information about consumer tastes and
wants
- Promoting and advertising goods
- Breaking bulk into small quantities to suit the requirements of the customer
Changes in customer requirements and expectations
- Buying in larger quantities and less frequently
- Demanding more information about goods on sale
- Wanting to buy goods particularly food items all in one place
- Shopping online without visiting busy shops
- Needing speedy shopping - particularly in the case of working women with little time to
shop
- Demanding more environmentally friendly and recyclable goods and organic food
- Wanting better value for money

How retailers responded to these changes?

Self service: customers select what they want from all parts of a shop. They place the goods in
a trolley or basket and make one payment at the checkout to cover all the purchases.

Packaging: putting products into a wrapping or container for display or protection

Speciality shops: shops that sell a restricted range of goods and cater for a particular market,
e.g; jewellery, sportswear, etc.

6. Types of Retailers

6.1 Types of small scale retailers

Retailers without shops:

- Peddlers and hawkers
- Hawker stalls/kiosks/tuck shops
- Roadside service/traders
- Mobile shops
- Street market/retail market

Retail market: collection of stalls usually in the open air held on a permanent site either daily or
weekly in a central place or along a street

Characteristics of retail markets

- Dependent on the weather for their success
- Market traders usually hire stalls from local council
- Market traders usually sell one particular line - hardware, clothing, fruit etc
- Market traders may buy in what they sell or they may sell what they produce themselves
- Market traders may operate in different towns within a local area on different days of the
week
- Markets are usually colourful and often attract tourists
- The goods are often not priced, and bargaining is needed to make purchase
 - Some market traders sell seconds or unbranded goods such as the knitwear sold in the
markets in Mauritius.

Advantages to the retailer

- Low overheads
- Market enables producers to directly sell products to consumers

Disadvantages to the retailer

- Traders dependant on the weather
- Set up and take down stalls every day
- No storage except in the vehicle
- Trader may not be able to obtain a suitable site in the market

Advantages to the consumer

- Low prices and often a wide choice of products
- Make personal contact with seller

Disadvantages to the consumer

- Consumer may be buying defective or substandard goods
- Difficult to return goods because traders move every day/week
- Uncomfortable for the customer to buy/shop in bad weather
- Difficult to try on clothing or shoes

Automatic Vending Machines

- Sales of goods from machines
- Railway stations, bus stations, airports, schools and hospitals
- Sell food items, stamps, etc

Advantages to the retailer

- They offer 24 hour service, enabling sales to be made outside normal shopping hours
- Sell at a set price so retailer gets set profit margin
- Save time and labour cost
- Attract additional customers for example; children
- Often sited so that they are easy to see hence attract customers
- If additional services provided by the retailer, they man provide extra income

Disadvantages to the retailer

- There is the capital cost of the machines or the cost of hiring them
- There may be maintenance cost
- Problems with machines breaking down / vandalised
- Need to be very robust if placed outside
- Problems with machines running out of supplies
- Limited range of goods
Advantage to the consumer