Trade can be defined as the buying and selling of goods and services between two or more parties with the objective of earning profit.

It is the voluntary exchange of goods and services between the buyer and the seller.

Trade is the exchange of goods and services between people that produce them and people that consume them.

People generally trade with the primary objectives of satisfying their wants and making profits to improve their standard of living. 

Trade involves interchanging goods and services for money or its equivalent.


Trade is essential for satisfying human wants and improving the standards of living of consumers.

It is considered the lifeline of any nation because no individual (or country) can claim to be self-sufficient in producing all the goods and service he required to satisfy his needs.

Hence, individual must trade and countries must also trade.

Types of Trade

Trade can be divided into home and foreign trade.

1. Home trade: This involves buying and selling goods and services within the same country.

It is the buying and selling of goods and services within the geographical confines of a country.

Home trade sometimes referred to as internal trade, is further broken down into wholesale and retail trade.

A. Wholesale trade: This involves buying goods in large quantities and selling them in break-bulk to the retailer.

A wholesaler serves as an intermediary between the producer and the retailer.

B. Retail trade: This entails purchasing products in small quantities from wholesalers and selling them to even smaller quantities to consumers.

A retailer serves as an intermediary between the wholesaler and the consumer.

2. Foreign trade: This is the buying and selling of goods and services between two countries.

It is the buying and selling of goods and services outside the geographical barriers of a country.

An example of foreign trade would be a trade between a trader in Nigeria and a trader located in the USA.

Foreign trade can be subdivided into import, export and entrepot trade

A. Import trade: This occurs when a country buys goods from other countries

In economics, import is defined as local demand for foreign goods and services.

The purchase of palm oil by Nigeria from Indonesia is an example of import trade.

B. Export trade: This occurs when a country sells goods and services to other countries.

In economics, export is defined as foreign demand for local goods and services.

An example of export trade would be Nigeria selling crude oil to the UK.

C. Entrepot: This occurs when goods are imported and then re-exported to other countries after little or no processing.

Entrepot trade is sometimes known as re-export trade.

Importance of Trade

1. It results in economic growth: Trade is one of the driving forces of economic growth.

An increase in trading activities always correlates with economic growth.

The reason for this is that increased trading activity raises both the demand for and the production of goods and services.

2. Satisfy human wants: People generally engage in trading activities to satisfy their wants.

Similarly, countries trade because they have comparative advantages and disadvantages over one another in the production of certain goods and services.

While production creates utility, trade ensures that the consumer needs are truly satisfied through the exchange of goods and services.

3. Increases efficiency: In the domestic market, trade increases market competition, which in turn increases efficiency.

Trade increases competition on the global market, which helps to bring down market prices.

4. Improves the standard of living: Trade increases the standard of living of consumers.

It creates employment opportunities for individuals and provides high-quality goods and services to consumers at an affordable price, which can greatly raise the standard of living of consumers.


5. Means of generating income: Businesspeople and traders trade goods to make money, not just for fun.

Trading involves exchanging goods and services for money or its equivalent, which means that people can earn income from trading.

Furthermore, trading provide revenue for the government in the form of tax levied on trading activity.

6. Ensure steady supply: Trade ensures that the necessary supply of foods and other essential resources.

Food and other essential resources are supplied in the required quantities around the world thanks to trade.

If there are no trading between countries, it is very unlikely that any one country can produce everything it consumes.

Hence, trade ensures that there is a steady supply of goods and services.

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