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Commerce Notes

FORM 1 COMMERCE NOTES

1.COMMERCE

What is commerce?

Commerce is concerned with the distribution and exchange of goods and services and includes all the types of activities, the support and the movement of goods from the producer to the consumer.

Trade is a branch of commerce which involves buying and selling of goods and services.

Commerce activities

  1. Asha buys sembe from the shopkeeper Mr. John
  2. The shopkeeper buys it from the wholesaler
  3. Wholesaler gets it from National Milling Corporation
  4. The NMC gets its maize from the farmer

Commercial activities are divided into 2:

  1. Trade- Deals with buying and selling of goods and services
  2. Aids to trade- Services which facilitate trade to take place. Include things like advertising, banking, transport, warehousing, and communication.

 

ELEMENTS OF COMMERCE FLOW CHART

  • Hometrade- Involves buying and selling of goods and services to one community(country). It includes:
  • Retail trade- Is the sale of goods in small quantities directly to theconsumer
  • Wholesale trade- Is concerned with the buying of goods in large quantities from the producer and selling them in small quantities to retailers and shopkeepers.
  • Foreign trade-Is the buying and selling of goods outside the country(with another country). It includes:
  • Import trade-are goods and services bought from other countries. For example when Tanzania buys motorcars from foreign countries.
  • Export trade- are goods and services sold in other countries. For example when Tanzania sells its coffee to other countries

Why should we study commerce?

  1. Its essential knowledge to administrators
  2. It bridges the gap between producer and consumer
  3. It provides necessary knowledge for other studies like economics and accounting.

 

Importance of commerce

  1. It promotes industrial activities
  2. It creates employment opportunities
  3. It enables people of different nations to interact through trade relation
  4. It enables technology to diffuse from one country to another
  5. It brings about political and diplomatic harmony among nations
  6. It bridges the gap between producer and consumer

 

Aids to trade

Sometimes known as auxiliary services. Include:

  1. Banking- Are institutions which provide financial services for commerce activities.
  2. Insurance- Are institutionsthat takes care of risks like fire, theft etc.
  3. Transport- Deals with movement of goods from area of excess to area of shortage
  4. Communication-Involves transfer of information and ideas from one person to another and maybe oral or written.
  5. Warehouse-Is a process of keeping goods in places of safety until they’re needed
  6. Advertisement-Is an art of making goods and services known to people. This stimulatesthe demand forthese goods as people become aware of its existence.

 

Basic needs

These are necessary for life and man cannot do without them. They include:

  1. Food
  2. clothing
  3. Shelter

Food- Is the first need as without food man would soon die. It’s necessary in the right quality and quantity so health is maintained.

Clothing-Is the second need. Clothing mostly depends on the climatic conditions of the area one lives in.

Shelter- Is the third need. Shelter is a place built to protect people from the elements and other harm.

 

Wants

These are things which are not necessary and we can live without them e.g. beer, cinema etc.

We cannot die as a result of missing a bottle of beer or cigarette.

 

How canwe satisfy our own needs?

  1. We can grow our own food.
  2. We can build our own houses
  3. We can make our own clothes

 

Producer and consumer

Producer-Is a person who makes goods or offers services for the people.

Consumer- Is a person who receives goods and services produced by others.

 

Producer goods- These are goods produced and are used to produce other goods e.g. machines, printer etc.

Consumer goods- Goods produced for the purpose of consumption

 

Development of commerce in Tanzania

  • Commerce under colonial period

How did money come into the hands of Tanzanians?

Money was first introduced by German colonies. They started large farms of sisal, cotton, groundnuts and people were forced to work in their farms and paid wages in terms of money.

The colonialists also introduced polytax which ensured that one needs to work so that he has money to pay polytax.

The colonialists built railway lines semi processing industries and opened some shops selling goods from abroad.

 

  • Commerce after colonial period.

Tanganyika became independent on 9th December 1961. We inherited colonial structure which we mostly made up of institutions such as Bantas and insurance companies and a few public service institutions.

In 7th July 1969, Tanzania announced Arusha declaration with its policy of socialism and self-reliance. This is what guided Tanzania’s future economic decision.

After Arusha declaration whose main aim was nationalism of all major means of production, the following were implemented:

  1. Nationalism of financial institutions like banks and insurance companies
  2. Land and all natural resources such as lakes and national parks were nationalized.

Barter trade

Is the exchange of goods for other goods.

 

Examples

  • A coat was exchanged for a spear
  • A hoe was exchanged for a coat

Barter trade existed before the introduction of money

 

Problems of barter trade

  • It was not easy to attain coincides. In order to barter with others, it was necessary that there should be coincidence of need for example if you had a bag of rice and you wanted to exchange it for a cow, you would have to find someone who had a cow who also needed a bag of rice, then you could barter it.
  • It wasn’t easy to carry some of the products over long distance. Most of the products were heavy, some were animals like cows which needed to be taken care of and look after their health.
  • It wasn’t easy to store some of the products. Some goods were perishable like tomatoes, bananas and couldn’t be kept long enough.
  • It was not easy to divide some of the products. For example how could you determine kilos of meat equivalent to a bag of rice? It was very difficult to determine, so they simply made rough estimates, there was no equality.

 

How were these problems solved?

They were solved by the introduction of money.

 

Principles of barter trade

  1. Principle of coincidence
  2. Principle of changing goods for goods

 

DEVELOPMENT OF COMMERCE IN TANZANIA

Ancient period- stone age

No commerce- People lived on fruits, digging roots and hunting animals by stones to satisfy their needs

No division- Each family was its own, they didn’t depend on many things, were self reliant

No specialization-Man went out hunting and women remained at home. Fire discovery was by 3 groups of people:

  • Farmers
  • Hunters
  • Tin smith

 

Division of labor

Is a process of dividing works among the people; each person is doing a different job from another.

Specialization is a process whereby each individual is specialized in his/her own field.

 

Aim of division of labor

The main is to increase output. The job is divided into various stages.

Several workers for each stage are employed. Each employee is given a small task which if repeated will be easy for him. Hence, he will master it and be done more quickly and accurately.

 

Advantages of specialization.

  1. Time and energy saving

If a person is specialized in a certain task, he will work faster and better and thus save time and money.

  1. Degree of choice

People have different natural attitude. Under specialization, an individual pursues occupations for which they are most suited.

  1. Developing skills

When one does something repeatedly, he becomes skillful at his job.

  1. Benefits to community

The increase of productivity both in quality and quantity leading to higher living standards.

  1. Reduction in physical toil.

It’s due to use of machines.

 

Disadvantages of specialization

  1. Boredom

When a task is done repeatedly, the worker can easily be tired or bored

  1. Unemployment

Sometimes when people specialize in a certain field of work, the field may not be able to accept all of them.

  1. Limited form of production

Specializing is only one line of production. It’s very risky when commodities get a better substitute.

 

Types of specialization

  1. Specialization by craft

Was carried out under primitive conditions e.g. carpenters-furniture

  1. Specialization by process

It’s broken down into several parts. Job is carried out by one person or group

E.g. a bread making factory

  1. Specialization by commodity

It’s when a person decided to produce the entire commodity by himself.

  1. Specialization by territory

A country specializes in producing commodity e.g. Tanzania produces sisal

 

 

 

2.PRODUCTION

It’s the creation of utilities. It can also be explained as the process of bringing about a physical change in goods so as to make it useful.

UTILITY

Usage of goods to satisfy human wants or needs. Man creates utility in the products e.g. a stone in the mountains can be used to build a house.

Levels of production

  1. Primary production

Concerned with the extraction of raw materials from their natural state e.g. farming, fishing

  1. Secondary production

Concerned with transformation of raw materials into finished goods. Secondary production is divided into two parts which are:

  1. Manufacturing industry-Receive raw material from extractive industries and changes them into formed goods
  2. Constructing industry- Make use of perfectly finished goods from manufacturing industriesand make finished goods e.g. house construction
  3. Tertiary production

Provides services for other industries. They don’t produce tangible good e.g. Public services such as civil services, police and army.

 

Types/branches of production

  1. Industries
  2. Commerce
  3. Direct services

Industries-Is the place where goods are manufactured and changed into useful form

Commerce-Is concerned with the distribution and exchange of goods and services and includes all types of activities, the support and movement of goods from one place to another.

Direct services-Are services which facilitate production to take place for example public and personal service.

 

FACTORS OF PRODUCTION

Are agents necessary for production to take place. They can be put under 2 categories:

  1. Basic factors of production

–     Land

–     Labor

–     Capital

 

  1. Other factors of production

Also necessary for most forms of production. Include:

–     Entrepreneur

–     Organization

 

Basic factors of production

–     Land as a production factor doesn’t mean only the earth’ssurface; it has a wider meaning and includes:

  1. All gifts of nature (things provided by nature and freely available)
  2. All things that play a vital role in production. E.g. fish, wood, water

 

–     Labor

Refers to man’s mental and physical capabilities directed at creation of utilities. However, there are three conditions necessary to be called labor, they are:

  1. Human effort
  2. Aimed at production
  3. Should be paid for.

 

–     Capital

Capital as a factor of production includes items that will assist in human labor such as tools, equipment, machines and means of transport used by people involved in production.

It usually refers to money invested by the owner of the business

 

OTHER FACTORS OF BUSINESS

  1. Organization

To co-ordinate the above mentioned factors of production, we need the efforts of managers and organizer with the view of making the process efficient.

  1. Entrepreneur

There should be someone to undertake the entire project and arrange and pay for all factors of production.

 

FORMS OF PRODUCTION

  1. Changing the form of a material- Form utility

Simply means changing raw materials to finished goods e.g. a tree to furniture

  1. Changing the place of something- Place utility

Involves changing of a goods place from where it is not needed or from its natural habitat to where the final consumer is e.g. removing fish from sea to market

  1. Changing the time of a good- Time utility

Means making of material available at a time when they should be available. The process is achieved through warehousing e.g. fruits are canned

  1. Provision of direct services- Service utility

Refers to the production of services needed to facilitate the creation, place and time utilities. It includes among other things the provision of financial and market services.

 

COST OF PRODUCTION

The cost of production of a certain output of a commodity is the sum of all payments to the factors of production engaged in production of that commodity.

Types of costs

  1. Fixed costs are costs which do not vary or change with the volume of output. E.g. salaries
  2. Variable costs are costs which vary or change with the volume of production e.g. raw materials

iii.  Prime costs include all variable costs and some fixed costs.

  1. Supplementary costs includes other fixed costs except administrative costs
  2. Marginal cost is an additional cost needed to produce an extra unit of output.
  3. Average cost is the average cost of producing each unit of output

 

COST OF PRODUCTION FORMULAE

–     FC-Fixed Costs

–     VC-Variable Costs

–     MC-Marginal Costs

–     TC-Total Costs

–     AC-Average costs

–     AFC-Average Fixed Costs

–     AVC-Average Variable Costs

–     IQ-Units of Output

TC=FC+VC

AC=TC/IQ

AFC=FC/IQ

AVC=VC/IQ

MC=CHANGE IN TC/CHANGE IN IQ

RETAIL TRADE

A retailer is a trader whobuys goods in large quantities and sells them in small quantities to the consumer. He may buy the goods from a producer, wholesaler or a large scale retailer. Retail trade is the act of selling goods to the final consumer hence, a producer may be involved in retail trade but is not a retailer

Functions of a retailer

  1. Buying goods- a retailer buys goods and sells them to the consumer
  2. Transport- a retailer offers transport of goods to the customers.
  3. Storage- he stores the goods till needed by the consumer
  4. Display and advice- a retailer offers advice for the products he’s selling and a large display from which a customer can select what he wants

Advantages/Importance of having retailers.

  1. They are widely distributed in a country so consumers have easy access to get the products of their choice
  2. Most consumers buy goods in small quantities hence they benefit from this service offered by retailers
  3. A retailer stores goods from different manufacturers hence offering a wide variety to choose from
  4. A retailer offers credit facilities to customers
  5. A retailer advises customers hence helping them make the right choice.

TYPES OF SMALL SCALE RETAILERS

There are 7 types:

  1. Itinerants
  2. Hawkers
  3. Road side sellers
  4. Mobile shops
  5. Tied shops
  6. Single shops
  7. Automatic vending machines
  1. Itinerants

These are retailers who carry goods selling them from one place to another. Mostly found in populated areas like towns.

Advantages

–     They bring goods to the consumer

–     They need small capital to start their business

–     They don’t have extra expenses for rent, transport

 

Disadvantages

–     They use a lot of energy while moving

–     Many times they sell defective goods

–     Their sales fluctuate regularly as they don’t have regular customers

 

  1. Hawkers/Peddlers

Move with their goods from one place to another by walking. Carry commodities like sweets, gums. Peddlers use bicycles and motorbikes to sell their goods.

 

  1. Roadside sellers

Are retailers who sit and sell their goods along the roads. They are found near bus stands, marketplaces and sell goods like maize, nuts etc.

 

  1. Mobile shops

Small scale retailers whose volume of stock is larger compared to roadside retailers. Goods are carried on vans, Lorries and trucks and they move from town to town selling their goods.

 

  1. Tied shops

Retailers who sell products of one manufacturer only who finances them e.g. Nike, Adidas

 

Advantages

-Manufacturers ensure continuous supply

–     Loss will go to the manufacturer

 

Disadvantages

–     Retailer can sell products of one manufacturer only, hence doesn’t have variety.

 

  1. Single shops
  • Most common form of retail trade.
  • Have fixed premises and are owned by 1 person.
  • Slightly more expensive due to expenses of rent.
  • Are widely distributed.

 

  1. Automatic vending machines

Goods are sold to final consumer through coin operated machines. Especially for goods like soft drinks and candy.

 

Advantages

–     Serve customers without any attendant.

–     Are operated 24 hours a day

–     Are accurate

Disadvantages

–     Sell a limited variety of products

–     Are expensive to install and maintain

–     No credit facilities offered

–     Customers cannot bargain for prices

–     Customers can use fake or old coins.

 

Large scale retailers

Main features of large scale retailers:

–     Large capital

–     Fixed premises

–     Employment

–     Profit margin relatively high

–     Variety of goods stock

–     Large business size

Classes of large scale retailers

–     Supermarkets

–     Hypermarkets

–     Multiple shops

–     Departmental stores

–     Mail order business

–     Co-operative business

 

  1. Supermarkets – are self-service shops which sell a variety of goods

Advantages

–     Saves time

–     Regular customers

–     Very spacious

–     Variety of goods

–     Self services

Disadvantages

  • No credit facilities
  • No bargaining
  • Have to pay salaries
  • Mostly in towns

 

  1. Hypermarkets

Are larger than supermarkets and provide larger number of services.

 

  1. Departmental stores

Are single shops under one roof and different management. Each of the department sells different goods.

Advantages

  • Genuine goods
  • Variety of goods
  • Warranty is given

Disadvantages

  • Large capital needed
  • May lead to impulse buying.
  • More expenses

 

  1. Multiple shops

Are shops managed by one person and sell the same goods. They’re built alike and can be easily recognized by people e.g. Nike

 

Advantages

  • Make more profit as no credit facilities, no bargaining and fixed prices.
  • Serves many people as branches are widely distributed.
  • Low advertisement expenses as layout is same.
  • 1 branch can be closed without affecting other branches.
  • Stock can be easily transferred to other branches

Disadvantages

  • No credit facilities
  • A large capital needed
  • Salaries expenses
  • Rent expenses

 

  1. Cooperatives

Are large scale retailers who sell a wide variety of goods. They’re formed by a group of people who contribute capital. Their objective is to sell goods to members and general public at reasonable prices. Some of their products include food stuff, milk etc.

Main features

  • Deals with standard quality goods
  • Sells goods on cash basis
  • Capital is provided by society members
  • Managed by an elected member.