International Trade and Agreements (ECON 24)
Business vs Commerce vs Trade
"Business" comes from "busyness," meaning being engaged in an activity. In simple
terms, business means buying something at a low cost and selling it at a higher cost.
Commerce is the exchange of goods or services among two or more parties. It is the
subset of business that focuses on the sale of finished or unfinished products rather than
their sourcing, manufacturing, transportation, or marketing.
Trade is when a person or company sells one good for another.
- Commerce is a subset of business. Trade is a subset of commerce . Trade
focuses on only buying and selling. Commerce focuses on buying and selling
along with other activities such as insurance , transportation, warehousing ,
advertising etc.
Bartering is the oldest and one of the simplest forms of commerce. The way a barter
works is pretty straightforward. The participating parties negotiate and exchange one
valuable product for another: bilateral barter, triangular barter, and multilateral barter.
Characteristics of Barter:
- Immediate reciprocal exchange: Bartering involves immediate exchange of
goods, where the exchange is reciprocal. This means that the trade is negotiated
in a way where each party gets what it desires for in an even amount to what it
offers in exchange.
- Double coincidence of wants: It requires both the parties to want what the other
party has to offer. If any party is not interested in the other party’s offerings, the
trade doesn’t take place.
- Eliminates the use for money: Barter is direct trade. It involves immediate
swapping of goods and chattels with no medium of exchange involved.
- Limited circle of trade: People do not want goods of compromised quality.
Therefore, bartering occurs within a circle of trusted people. This acts as a
restraint to the free flow of trade across communities and geographical locations.
- No focus on economic growth: A barter economy is focused on fulfilling the
essential needs of humans, not on economic growth. As a consequence, the pace
of modernization stagnates.
Advantages and Disadvantages of Barter:
Advantages
- Simplicity: As efficient as the present monetary system is, the intricate
complexities inherent can’t be denied. On the contrary, the barter system is
stripped of all menace. It involves a direct give and take of the commodities.
- No Real Concentration Of Power: There is a limit beyond which commodities
can’t be stored and hence the extreme concentration of wealth is a bleak
possibility.
- No Overexploitation Of Natural Resources: In a barter ecosystem, people tend to
be a jack of all trades. People on their own try to produce or manufacture goods
, of utility. The quantum of production is enough, not plentiful. Thus, degradation
and greedy exploitation of natural resources remain relatively contained.
Disadvantages
- Double Coincidence of wants: Under the barter system, a double coincidence of
wants is an essential prerequisite for an exchange to occur. Double coincidence
refers to the mapping of people’s wants 1:1.
- Lack Of Common Measure Of Value: Even if people with congruent needs meet
each other, another dilemma is around the proportion in which one good should
be exchanged for another. There is a void when it comes to a common measure of
value. The problem is fixed in a manner lacking much thought to it. An exact
value cannot be assigned to the good in a barter system. The rates of exchange for
it will be as many as the number of types and qualities of goods that it can be
traded for.
- Difficulty In Deferring Payments: Deferred payments are debt obligations to be
repaid in the future. However, in a barter economy, the promise of a future
repayment can lead to conflicts of many kinds.
- Indivisibility of Goods: An inability to peg an exchange rate to goods of
indivisible nature happens to be an important limitation of barter trade. Suppose,
the agreed-upon value of one pig is two sheep. Now, if a person wants 1 sheep,
then he must give up half of a pig to be able to procure one sheep. This is
impossible. The only route out of it is if the person agrees to barter the whole of
a pig for a single sheep. This leads to losses for the party sacrificing a pig. This
problem is done away with now. The present monetary ecosystem assigns a
value to all goods in terms of a currency with so many denominations.
- No Storage Of Value: In a barter system, goods and commodities exchanged are
the precious store of wealth but are they the most efficient at it? Most certainly
not.
History of Money:
Money can be a metal coin, or a piece of paper with a historic image on it, but the value
that people place on it has nothing to do with the physical value of money. Money
derives its value by being a medium of exchange, a unit of measurement and a
storehouse for wealth. Money is valuable merely because everyone knows everyone else
will accept it as a form of payment.
- Money defined as anything that is used as a medium of exchange and is generally
accepted as a means of payment.
Functions of Money:
- Money as a MEDIUM OF EXCHANGE
- Money as a MEANS OF PAYMENT
- Money as A STORE VALUE
- UNIT OF ACCOUNT
Business vs Commerce vs Trade
"Business" comes from "busyness," meaning being engaged in an activity. In simple
terms, business means buying something at a low cost and selling it at a higher cost.
Commerce is the exchange of goods or services among two or more parties. It is the
subset of business that focuses on the sale of finished or unfinished products rather than
their sourcing, manufacturing, transportation, or marketing.
Trade is when a person or company sells one good for another.
- Commerce is a subset of business. Trade is a subset of commerce . Trade
focuses on only buying and selling. Commerce focuses on buying and selling
along with other activities such as insurance , transportation, warehousing ,
advertising etc.
Bartering is the oldest and one of the simplest forms of commerce. The way a barter
works is pretty straightforward. The participating parties negotiate and exchange one
valuable product for another: bilateral barter, triangular barter, and multilateral barter.
Characteristics of Barter:
- Immediate reciprocal exchange: Bartering involves immediate exchange of
goods, where the exchange is reciprocal. This means that the trade is negotiated
in a way where each party gets what it desires for in an even amount to what it
offers in exchange.
- Double coincidence of wants: It requires both the parties to want what the other
party has to offer. If any party is not interested in the other party’s offerings, the
trade doesn’t take place.
- Eliminates the use for money: Barter is direct trade. It involves immediate
swapping of goods and chattels with no medium of exchange involved.
- Limited circle of trade: People do not want goods of compromised quality.
Therefore, bartering occurs within a circle of trusted people. This acts as a
restraint to the free flow of trade across communities and geographical locations.
- No focus on economic growth: A barter economy is focused on fulfilling the
essential needs of humans, not on economic growth. As a consequence, the pace
of modernization stagnates.
Advantages and Disadvantages of Barter:
Advantages
- Simplicity: As efficient as the present monetary system is, the intricate
complexities inherent can’t be denied. On the contrary, the barter system is
stripped of all menace. It involves a direct give and take of the commodities.
- No Real Concentration Of Power: There is a limit beyond which commodities
can’t be stored and hence the extreme concentration of wealth is a bleak
possibility.
- No Overexploitation Of Natural Resources: In a barter ecosystem, people tend to
be a jack of all trades. People on their own try to produce or manufacture goods
, of utility. The quantum of production is enough, not plentiful. Thus, degradation
and greedy exploitation of natural resources remain relatively contained.
Disadvantages
- Double Coincidence of wants: Under the barter system, a double coincidence of
wants is an essential prerequisite for an exchange to occur. Double coincidence
refers to the mapping of people’s wants 1:1.
- Lack Of Common Measure Of Value: Even if people with congruent needs meet
each other, another dilemma is around the proportion in which one good should
be exchanged for another. There is a void when it comes to a common measure of
value. The problem is fixed in a manner lacking much thought to it. An exact
value cannot be assigned to the good in a barter system. The rates of exchange for
it will be as many as the number of types and qualities of goods that it can be
traded for.
- Difficulty In Deferring Payments: Deferred payments are debt obligations to be
repaid in the future. However, in a barter economy, the promise of a future
repayment can lead to conflicts of many kinds.
- Indivisibility of Goods: An inability to peg an exchange rate to goods of
indivisible nature happens to be an important limitation of barter trade. Suppose,
the agreed-upon value of one pig is two sheep. Now, if a person wants 1 sheep,
then he must give up half of a pig to be able to procure one sheep. This is
impossible. The only route out of it is if the person agrees to barter the whole of
a pig for a single sheep. This leads to losses for the party sacrificing a pig. This
problem is done away with now. The present monetary ecosystem assigns a
value to all goods in terms of a currency with so many denominations.
- No Storage Of Value: In a barter system, goods and commodities exchanged are
the precious store of wealth but are they the most efficient at it? Most certainly
not.
History of Money:
Money can be a metal coin, or a piece of paper with a historic image on it, but the value
that people place on it has nothing to do with the physical value of money. Money
derives its value by being a medium of exchange, a unit of measurement and a
storehouse for wealth. Money is valuable merely because everyone knows everyone else
will accept it as a form of payment.
- Money defined as anything that is used as a medium of exchange and is generally
accepted as a means of payment.
Functions of Money:
- Money as a MEDIUM OF EXCHANGE
- Money as a MEANS OF PAYMENT
- Money as A STORE VALUE
- UNIT OF ACCOUNT
