Meaning of Trade and Its Place in Commerce

1. Meaning of Trade and Its Place in Commerce

Commerce is the sum total of all activities that are necessary to move goods and services

from the point of production to the point of consumption, smoothly and without interruption.

It has two main branches:

1. Trade — the actual buying and selling of goods and services, i.e. the transfer of ownership of goods from a seller to a buyer in exchange for a price.
2. Auxiliaries to Trade (Aids to Trade) — the supporting services that remove the obstacles standing between a producer and a consumer: the obstacle of place (removed by transport), the obstacle of time (removed by warehousing/storage), the obstacle of risk (removed by insurance), the obstacle of finance (removed by banking), the obstacle of information (removed by advertising and communication), and the obstacle of small-scale dealing (removed by intermediaries such as wholesalers and agents).

Trade, then, is best defined as the process of buying and selling of goods and services with the object of earning profit. It is trade that actually accomplishes the transfer of

ownership; the auxiliaries merely make that transfer possible or convenient. A useful way to

remember the relationship: Commerce = Trade + Aids to Trade.

Why trade is necessary: production of goods is usually concentrated at specific places

(near raw materials, skilled labour, or capital), while the people who want to consume those

goods are spread across the whole country or the world. Trade is the mechanism that bridges

this gap between production and consumption, making goods available to whoever needs them,

wherever they are.

Functions of trade, in brief:

• Makes goods produced at one place available to consumers everywhere.
• Creates possession utility by transferring ownership from a party who has the goods but does not need them, to a party who needs them. …