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By Edited Nov 13, 2013 0 0

What is Commerce?

Commerce is the exchange of goods or services between producers and consumers. A manufacturer produces a product, which gets sold to a store where it is bought by a customer. This is a basic chain of commerce where something is bought and sold by members of the chain. Each member of the chain is acting to generate profit or personal gain. By doing so they create a network of trade that takes raw materials, converts it into a usable good and distributes it to customers. Commerce can also be used in the context of domestic or international exchanges of goods and in this sense can often be used interchangeably with the word trade.

Why undertake commerce?
The use of commerce is a simple one - it comes down to what is called the law of comparative advantage. Each person/company/country is good at different things. I.e. they have a particular specialization. This means that if they focus on what they can do well they can use that advantage to trade for what they are not good at. By doing this both they and the parties they trade with will be better off. This is illustrated when a company outsources part of its business. It focuses on its core aptitudes and lets specialist companies take care of other parts that they can do more easily and cheaper. Comparative advantage is also shown in international trade. It explains why a large country like the USA can still find cost advantage in importing meat from New Zealand. This might seem odd if you think about it, since surely America can produce enough meat to feed itself, whereas New Zealand is only a small country. It is because by America diverting resources from what it specializes in towards producing more meat it is worse off. By sticking to its specialities it can use the same amount of resources to trade for the meat and still have some left over.



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