MULTITECH BUSINESS SCHOOL

SECTION: A

CHAPTER: 1

THE SCOPE OF COMMERCE

What is commerce?
Commerce is concerned with the distribution and exchange of goods and services
and thus includes all those activities that in some way or another help movement of
goods from the producer to the consumer.
THE GROWTH OF COMMERCE:
The following are the factors that have contributed to the growth of commerce

The diversification of natural resources, which has encouraged the exchange

of between differently endowed countries and;
The difference in human wants (for the diverse resources) that has induced
exchange of goods;
Specialisation or division of labour requiring exchange of respective goods
thus development of exchange;
Improvement in transport and communication systems helping in the
expansion of commercial activities especially across boarders and; the
Development of money and banking facilitating greater production and
exchange.

BRANCHES OF COMMERCE
There are two braches of commerce namely; trade and aids to trade.
A. TRADE
Trade involves the buying and selling of goods and services. A trader is a person
who buys goods with the intention of re-selling them at a profit. There are two types
of trade i.e. home trade (between traders with in the same country) and
international trade (between traders of different countries).
Home trade is carried out at two levels: retail and whole sale.
Retail trade
This involves selling of goods and services direct to the final consumers in small
quantities.
Wholesale trade
It involves selling of goods by manufactures or middlemen in large quantities.
International trade involves export and import trade
Export trade
Selling of goods and services to another country

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Import trade
Purchasing of goods and services from another country
B. AIDS TO TRADE (AUXILIARY SERVICES)

This branch helps the main branch of commerce and facilitates trade with the
following activities:
-

Transport

Communication

Banking

Insurance

Advertising

Warehousing

Commerce is therefore the study of trade and aids to trade and how best the two
can be organised so as to satisfy the needs of the consumer in the most efficient
manner.

DISTINCTION BETWEEN COMMERCE AND ECONOMICS

Commerce is a branch of a wider subject economics.
Economics refers to the study of how to use scarce available resources to produce
goods and services to satisfy alternative unlimited human wants. Scarcity means
that available resources are insufficient to satisfy all wants and needs. It thus
involves the study of choices as they are affected by limited resources.
Economics therefore studies the problems of satisfaction of needs from the point of
an individual, nation or world.
Unlike economics, commerce is a branch of economics that deals with processes of
exchange and distribution of goods conducted by business men who aim to make a

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profit out of their activities. It thus applies to activities related to trade and aids to
trade.

For instance economics covers the activities a manufacturer but commerce does not
because his/her activities are not commercial though he/she is a business man.
DISTINCTION BETWEEN COMMERCE AND BUSINESS
It is always difficult to distinguish between the two. Business is a wide term that
refers to any activity carried out with the intention of making a profit while standing
the risk of loss. A person may be in business as a trader, manufacturer, farmer,
transporter e.t.c. however commerce relates to trade and aids to trade only. All
those engaged in commerce are business men but not all those engaged in
business are necessarily commercial people e.g. a manufacturer is a businessman
but is not engaged in commerce. A retailer is both in commerce and business.

WH WE STUDY COMMERCE?
1. It helps in acquiring basic commercial knowledge for the purpose of
employment after school as effective traders, insurance brokers, transporters,
and bankers e.t.c.
2. Helps to know how businesses in the world function
3. Helps to acquire commercial language used in making business
communications
4. It provides a good introduction to the study of other business subject e.g.
economics, law, accounting e.t.c.
5. Provides awareness and knowledge of the various facilities provided by
institutions like banks, insurance companies, post offices and courier
companies, advertising agencies and accordingly make use of such facilities.

PRODUCTION AND DISTRIBUTION

Production is a process of creating wealth i.e. an activity that results in the creation
of goods and services or utilities.
The process of production is not complete until a commodity has reached the
person who wishes to make use of it (consumer). For this reason production
includes services of distribution, e.g. transport, wholesale trade, retail trade,
banking e.t.c. Production does not include different types of free services, which are
not exchanged for money.

1.4.1 Factors of Production

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There are five factors of production. These are:

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Land
Labour
Organisation
Capital
Enterprise

Land
Land means all those factors which have been provided free of cost by nature. They
include soil, sunshine, rainfall, rivers, lakes, forests, e.t.c. Land has the following
main features.
-

It is a basic factor of production;

It is limited in supply. Human beings cannot create more of it

Different items of land have got different fertility.

Human beings can increase the productivity of land by using greater units of
labour and capital. The price of land is rent or royalty.
Labour
It means any physical or mental effort of human beings meant for material benefit.
Mental labour involves a lot of brain-work and less of physical effort. Any human
effort which is not meant for a material benefit cannot be regarded as labour.
Labour must be rewarded.

Labour is an important factor of production without which land and capital cannot
produce anything. The price of labour is wages and salaries.
Labour may sub-divided as manual which is further subdivided as either skilled,
semi-skilled, or unskilled, and again subdivided as mental labour which is subdivided as managerial/professional and clerical.
Capital
Capital involves all those goods which are manmade and are helpful for further
production e.g. machinery, tools, roads, buildings e.t.c. It also includes money
which is used to purchase goods for further production and it is of fundamental
importance these days. It also determines the productivity of land and labour.
Organisation
Organisation means to combined the others factors of production. The person who
organises a business is known as the Organiser. He is rewarded with salaries. He is
responsible for organising other factors of production, monitors them, ensure they
are sold, and other factors are rewarded.
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Enterprise

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An entrepreneur is a person who introduces the capital, and is responsible for profits
or losses. He is a risk bearer. He employs managers to organise their business. In
small business however, the two roles may be played one person.

Direct and Indirect Production

The former means production of goods and services by an individual for his own use
or consumption. It is also known as subsistence production. This form of production
is of little importance to commerce.
Indirect production means production of goods and services for sale. It is also
known as production for the market.
Levels of Production

Primary Production
It is also known as extractive industries. It is the first stage of production and it
includes the following activities: fishing, farming, hunting, forestry, mining, e.t.c.
The output of this stage is used as inputs to the second stage of production for
manufactured industrial goods.
Secondary Production
It is the second stage of production. The output of primary production is used as
input to this stage. E.g. cotton to produce cloth, timber from forestry, e.t.c. It
includes Manufacturing, Food processing and Construction which use material
obtained from primary production firms, construction includes roads, buildings
bridges, piers, e.t.c
Tertiary Production
It completes the final stage of production and includes all those processes which
increase the value or the utility of commodities. It is further subdivided into two:
Commercial services which relates to all services related to distribution of goods
and services from producers to consumers by wholesalers and retailers. They
include banks insurance companies, transport, and e.t.c.

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Direct services or otherwise known as personal services to the consumer without

any one else involved which includes services like those of lawyers, accountants,
teachers, doctors, e.t.c these are usually services that satisfy immaterial wants

Tutorial question
Discuss the significance of the distinction between the different levels of production

SPECIALISATION AND DIVISION OF LABOUR:

This is where a person or region concentrates on production of something it can do
best and leave the rest to other to depend on exchange.
Division of labour:
Is where in specialisation, each process or stage of production is broken down into
departments or distinct activities.
Forms of specialisation:
a) Specialisation by commodity: this is where the person/firm concentrates on
production of a particular commodity in great quantity e.g. large scale
agricultural farmers.
b) specialisation by process: this is where production of a commodity is broken
down into small parts each part is carried out by one person or a group of
persons e.g. in texti.lle industry there are several people involved for instance
some one specialises in sowing, lint, weaving, spinning, dyeing. In a car
assembly some people specialise in fixing seats, engines, wiring e.t.c.
c) Specialisation by region also known as geographical specialisation. A given
area concentrates on the production of a given commodity.
d) Specialisation by skill where some none concentrates on the production of a
given commodity because of the talent/craft e.g. musicians. Sportsmen,
doctors, teachers, lawyers,
e) Specialisation by sex (not significant, more prevalent in traditional set-up).
Advantages of specialisation
1) Concentration on work increases: Individual workers can concentrate
on those jobs to which they are most suited. Thus the accountant can
develop his skill without needing to worry about producing food or clothes.
2) Low costs of production: increased output per worker results into low
cost per unit hence low prices for final goods and services.
3) Mass production: enhances a system which attempts to produce the
greatest quantity of goods with the smallest number of workers.
4) Provides people with high degree of choice: as each person does
what he/she best suits, then a variety of goods and services is likely to be
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produced which enhances the freedom to choose among buyers. Even

then workers are released to other industries hence widening the
commodities available.

5) Promotes efficiency in production by allowing great saving on tools and

equipment.
6) It is time saving since there is continuous production and repeatitions are
avoided.
7) Leads to improvement in skills because of repeating the same kind of
work and his leads to increase in experience of the workers.
8) It leads to improvement in quality of products produced as a results of
improvement in skills. This leads to better standards of living.
9) There is a possibility of delegating tasks according to abilities for instance
the unskilled people may be =set to do the manual kind of work.
Disadvantages of specialisation
1) Monotony of work: having to do the same tasks over and over again can
easily make a worker tired and bored. This may encourage inefficiency as
workers lose interest.
2) Unemployment may occur if there is any change in fashion or tastes in the
product one is specialised in.
3) May result in exhaustion of resources especially minerals as a result of
overproduction.
4) Specialisation leads to mass production which may not find market. This
leads to wastage of resources.
5) May lead to decline in craftsmanship
6) If there is a mechanical break down at a stage or strike of few workers, the
whole production process comes to stand still.
7) It promotes standardisation which decreases s choice of consumers i.e.
the process of producing similar goods (same colour, size, weight etc).

Question
Discuss the importance and roles played by commerce.

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