Lesson 1: Overview of Domestic Trade
Video lesson:
Competency (MLC)
Dear learner,
by the end of this lesson, you will be able to:
- Define domestic trade.
- Provide an overview of domestic trade.
- Appreciate the importance of domestic trade.
Brainstorming Questions
- How does domestic trade differ from international trade?
- What are the benefits of focusing on domestic trade for a country’s economy?
- Can you think of examples where domestic trade might be more advantageous than international trade?
Key terms
- Domestic Trade
- Retail Trade
- Wholesale Trade
- Transaction Costs
- Capitalism
Exchange of goods and services within a country’s borders.
Selling goods and services directly to consumers.
Sale of goods in large quantities to retailers or other businesses.
Expenses associated with making sales, such as tariffs and customs duties.
Economic system where private individuals own and control production and trade.
1.1 Introduction
Domestic trade refers to the exchange of goods and services within a country. It encompasses all trade activities that occur within a country’s borders and excludes international trade. Understanding domestic trade is crucial for grasping how economies function internally and how resources are distributed within a nation.
1.2 Types of Domestic Trade
Domestic trade can be categorized into two main types:
Retail Trade: This involves selling goods and services directly to consumers. Retailers purchase products from wholesalers and sell them in smaller quantities to the public. They often offer credit arrangements and aim to cater to local demand.
Wholesale Trade: This involves the sale of goods in bulk to retailers or other businesses rather than directly to consumers. Wholesalers act as intermediaries in the supply chain, enabling retailers to offer a variety of products to their customers.
1.3 Importance of Domestic Trade
Domestic trade plays a significant role in a country’s economy by improving the standard of living and enhancing employment opportunities. It facilitates efficient resource distribution and supports economic growth by encouraging investment within the country. Additionally, a robust domestic market can reduce dependence on foreign goods, mitigating the impact of international political issues and trade disputes.
Lower Transaction Costs: Domestic trade generally incurs lower costs compared to international trade due to the absence of tariffs and customs duties.
Reduced Transportation Costs: Goods travel shorter distances within the country, leading to lower transportation expenses.
Economic Independence: Developing a strong domestic trade network helps keep money within the country and supports long-term economic growth.
1.4 Limitations of Domestic Trade
The main limitation of domestic trade is the limited selection of products available for sale. Countries relying solely on domestic production may face challenges in meeting the demand for certain goods, which is why international trade remains essential for accessing a broader range of products and benefits from global specialization.