Question

explain any five functions and importance of commerce​

Answer 1

HEY MATE,

Answer:

The exchange of goods is a complex process beset with several types of hindrances. Com­merce removes these hindrances. According to James Stephenson, “Commerce embraces all those activities which help to break the barriers between producers and consumers.

It is the sum total of those processes which are engaged in the removal of hindrances of persons (trade), place (trans­port, packing and insurance), and time (warehousing) in the exchange (banking and finance) of commodities.”

Thus the main function of commerce is to remove the following hindrances:

1. Hindrance of person:

This hindrance refers to the lack of contact between producers and consumers. The producer is faced with the problem of finding the buyers who need the goods he has produced and who are able and willing to buy such goods.

The consumer does not know the source of supply of goods which would satisfy his needs at prices he can afford. Commerce removes this hindrance by means of trade.

Trade provides an organised market where the buyers and sellers can contact each other. It saves both producers and consumers from the time-consum­ing and expensive exercise of locating each other.

2. Hindrance of place:

A major problem faced by producers is to send their goods to distant places without loss through theft, pilferage, damage, etc. Commerce solves this problem by means of transport, packing and insurance.

Modern means of transport carry goods too far-of places quickly and safely. Packing of goods helps to preserve their quality in transit and storage. With the help of packing, businessman can preserve the quality of goods. Thus, transportation and packing are useful commercial activities.

3. Hindrance of time:

In modern industry goods are produced on a large-scale in anticipation of demand . There is usually a time gap between the production and consumption of goods. Therefore, it becomes necessary to store the goods until they are sold.

This problem is solved by warehousing or storage. Warehouses provide suitable storage facilities to protect the goods from fire, rain, pests, etc. Warehousing is, thus, an integral part of commerce.

4. Hindrance of exchange:

Buying and selling of goods between persons living in different places requires a common medium of payment. Money serves as common medium of payment. However, convenient, and safe means of payment are required to settle the transaction.

Banks help to remove this obstacle in the process of exchange by making and collecting payments on behalf of their clients.

Now businessmen can send money from one place to another in the form of bank-draft, cheque, etc., without facing any risk. Banks also provide credit in the form of over­drafts, letter of credit, cash credit, discounting of bills, etc.

5. Hindrance of Risk:

During transportation and storage, there are several possibilities of loss or damage of goods. There also exist risks of theft, burglary deterioration, fire, etc.

These risks cause anxiety among businessmen and discourage them from investing money in business. Insur­ance helps to remove the hindrance of risks by compensating businessmen for financial loss. It plays a vital role in the development of trade and commerce.

6. Hindrance of knowledge:

Often a producer or merchant finds it difficult to sell his goods and services because consumers are not aware of their benefits and uses.

Advertising and sale promotion remove this hindrance by bringing goods and services to the knowledge of consumers. Advertising also persuades people to buy the goods and services.

Thus, commerce plays an important role in the distribution of goods. It makes available to the users goods produced in different parts of a country as well as from other countries.

People are able to buy goods produced anywhere in the world. The producers are relieved of the problem of marketing the goods and can concentrate on increasing production Commercial activities break the barrier between producers and consumers.

Commerce ensures a free and smooth flow of goods from producers to consumers. Commerce provides the advantages of specialisation. It helps to better satisfy human wants by collecting and distributing goods.

Commerce provides the neces­sary link between the producers and consumers of goods. It has brought countries close to one another and the world has become one big market.

Large scale production is impossible without modern commerce. Commerce has contributed significantly towards the economic development of society and the quality of life of people.

The basic aim of commerce is to ensure the supply of right goods at the right time at the right place and to right persons. Commerce brings goods to the hands of ultimate consumer.

Answer 2

Five functions and importance of commerce are

• Commerce performs the function of removing hindrances in the smooth flow of goods from the producers and consumers and thus linking the producers and consumers.

• The functions and role of commerce are discussed as under:

(i) Linking Producers and Consumers through Traders:

• The producers and the consumers of goods are not always situated in the same locality.
• Thus, the producer is not able to have direct contact with the consumers to sell his products.

(ii) Removing the Hindrance of Place:

• Goods may be produced at a place where advantages of location other than the market are available.
• The barrier of distance between the place of production and the market where these products can be sold is removed by different means of transport.
• Besides transport, the services of insurance to cover the risk of loss during transit and storage, and packaging to protect goods against damage and pilferage, are also aimed at removing the hindrance of place.

(iii) Removing the Hindrance of Storage:

• Goods, in modern times, are produced in anticipation of demand and as such they are to be stored till the demand for the same comes up.
• The function of storage is performed by warehouses which remove the hindrance of time by balancing the time lag between production and consumption, thus creating time utility.
• During the process of storage, insurance plays its role by providing a cover against the risk of loss or damage through theft or fire.

(iv) Covering the Risks in Trade:

• There are a number of risks in any business activity.
• These can be covered with the help of insurance companies.
• Insurance companies undertake to make good the loss by receiving a small amount of premium in advance as consideration.

(v) Financing of Economic Activities:

• Both businessmen and consumers may face the problem of finance.
• This problem is solved by the banks and other financial institutions.
• Businessmen need funds for meeting their working capital requirements.
• Banks help them by granting loans, cash credit and overdraft facilities.
• Consumers also need funds to purchase luxury items such as – car, T.V., refrigerator, etc.
• Banks help the consumers by offering consumer loans.

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