Trade

Commerce encompasses both trade and aids to trade. Trade is simply the buying and selling of goods and services for the sake of making profit. Aids to Trade are all the ancillary services that help to smooth out the process of trade.

Why is trade necessary?

This is so because due to specialization the world is interdependent for the fulfillment of wants and needs. Moreover specialization leads to surpluses that can be exchanged between various nations. Likewise the production of a commodity takes place at certain centers where as the consumers are large in number and scattered. Thus this makes trade necessary. Trade is basically the transfer of goods and services from the production center to the ultimate consumers.

Types of Trade

Trade can be categorized into two categories namely Home Trade and Foreign Trade. Home Trade is limited to the boundaries of a certain nation.

The transfer of goods and services is inter regional, inter city or inter provincial. For example, trade between Karachi and Lahore. Foreign Trade as implied by the name is between nations at the international level. For example, Pakistan trading with Kuwait.

Types of Home Trade

There are basically two types of home trade namely retail and wholesale. Retail trade pertains to selling of goods in small quantities to the ultimate consumers where as whole sale trade is the selling of goods in considerably large quantities to either the retailers or the consumers {such as Restaurants in case of food supply}.

Types of Foreign Trade

There are two types of foreign trade namely export and import. Export is the selling of goods and services to another nation for the sake of making profit and earning revenue. For example Pakistan exports cotton to USA. Import is the buying of goods and services from other countries in order to overcome a shortage or fulfill need. In other words the import of one country is the export of another and vice versa.

Reasons for the increase in level of Trade

Greater use of machines has reduced the burden on workers. Machines have replaced manual work. This has reduced the amount of time required to complete tasks, as machines are quicker, accurate and result in good quality and quantity of yield. Specialization at the individual level, regional level and the national level has resulted in greater productivity as a more adept workforce has a greater potential of production. An example that would support the argument is as follows:

For example 50 workers have been employed in the production of pizzas and produce 3 pizzas each per hour. On the other hand 50 workers are producing robots at 1 robot each per hour. All the workers are specialized in their respective fields. If it was required to increase the production of pizzas form the current level of 150 to 180, mathematically only 10 workers are required to shift from the production of robots to pizzas but in real life this is not the case. The ability of the workers producing robots would never match the ability of the workers specialized in the production of pizzas and it is true the other way around as well. Thus the 10 workers shifting to pizza production would not be able to produce 30 pizzas. Thus specialization leads to a greater level of production. Thus specialization leads to surpluses and the need for dependence on others. So in order to exchange the surpluses and fulfill each other's needs and wants trade is necessary. Over the last 50 years or so specialization and mass production has increased thus ultimately the need for trade has increased.

Moreover developing countries have specialized in the production of raw materials and have become the suppliers for the developed countries. Thus trade becomes inevitable.

The other major factor that has bolstered trade is the improvement in aids to trade. Aids to trade include all the ancillary activities that help to improve the trade process. Improvement in the transport facilities both at the local level and at the national level has helped to improve trade locally and worldwide. New and quick ways of transport has quickened the transfer process. Thus trade has become easy and less time consuming. Improvement in the infrastructure {man made environment or that part of social capital that is invested on human welfare} has also helped.