Trade involves the transfer of goods or services from an entity or a person to another mainly in exchange for money. However, different forms of trade like the exchange of goods for goods or exchange of services for services exist. Let’s dig in and find out more.
LEARNING OBJECTIVES
By the end of this topic, you are expected to;
Economists refer to a market as a system or network that permits trade. One of the earliest forms of trade is called barter. It involves the exchange of goods and services for other goods and services. Barter involves trading things without using money. When either bartering party began to involve precious metals, they gained symbolic and practical importance. Modern traders often negotiate via a medium of exchange, like money. As a result of using money, selling or earning can be separated from buying. Trade was greatly simplified and promoted by the invention of money. There later came credit, paper money, and non-physical money. Bilateral trade is the name given to trade between two traders. Trade that involves more than two traders is known as multilateral trade.
In a modern view, trade exists as a result of the division of labor and specialization, a predominant form of economic activity in which individuals and groups concentrate on a small production aspect, but use their output in trades for other needs and products. The reason why trade exists between regions is that different regions may possess a comparative advantage in the production of some trade-able commodity, this includes the production of natural resources that are scarce and limited.
Retail trade is made up of the sale of goods from a fixed location (like a department store or kiosk) by mail or online in small lots for direct consumption or use by the purchaser. Wholesale trade is traffic in goods that are sold as merchandise to retailers, or to institutional, industrial, commercial or other professional business users.
PERSPECTIVES
Protectionism. This refers to the policy of restraining and discouraging trade between states and contrasts with the policy of free trade. This policy mainly takes the form of restrictive quotas and tariffs.
Religion. Islamic teachings encourage trading and condemn usury of interest. Judeao-Christian teachings prohibit dishonest measures and fraud, and historically also forbade the charging of interests on loans.
Development of money. The first instances of money were objects having intrinsic value. This is referred to as commodity money and it includes any commonly available commodity with intrinsic value. Historical examples include cattle, whale’s teeth, rare seashells, and pigs. The currency was introduced as standardized money to facilitate a wider exchange of goods and services.
