1

PRINCIPLES OF COMMERCE- ACU 07104

Cont…
Many factors have facilitated the growth of the trade and commerce.
These factors include the following:

i. Increase in population- An increase in population all over the

world has resulted in people with different wants.

ii. Improvement in standard of living. Consumers are able to buy

most of the things they desire thus encouraging increased

production of such goods as well as exchange

iii. Development in transport and communication networks-This

enables people to travel to other places and countries to buy

goods and services. Products can also be transported easily.

iv. Growth in banking system- Payments systems local and

internationally improved, trade products and technology.

v. Improvement in technology-Increased production of goods and

services because of greater use of machinery in both developed

and developing countries. More and many goods can be produced
easily and distributed- Consider the use of internet and social
media for communication

vi. Government endeavor in promotion of trade- Directly and

indirectly different governments have promoted business through

policies, improved infrastructure and other utilities.

vii. Specialization and division of labour. People have different skills

or professions and hence produce different items. No one person

can produce all that he/she require.

Notes Windows User

2

NEEDS AND WANTS

What is the difference of wants and needs?

In economics, needs are things that are essential for human survival, while wants
are things we may desire. Wants may be helpful or make life easier, but unless we
would die without them, they are not considered needs.

What are examples of economic wants?

A want is something that someone would like to have or desire. It is not necessary
for survival. A new car, a video game, or a laptop are examples of wants.

Needs

 Are anything required for human survival. Food, water, and

shelter and basic human needs.

Needs are those items in your budget that are necessary for your health
and well-being (whether that be physical, emotional, mental, or
financial). If you stopped spending money on these items, there would
be severe negative consequences.

Your needs are the most important line items in your budget. They’re
the ones that, even at a time when you’re financially struggling, you
must find a way to fit into your budget. Here are some examples:

 Housing (rent or mortgage)

 Utilities (water, heating/cooling, electricity, phone, etc.)
 Food
 Healthcare
 Transportation
Notes Windows User
3

 Insurance
 Child care
 Clothing

Wants
 Are anything people would like to have, or desire. A bicycle or a cell phone
are examples of wants.

Wants, on the other hand, are those items that may improve your quality of life but
aren’t entirely necessary. Cutting these items out of your budget might be
uncomfortable, but in the end, you could easily survive without them. As we’ve
mentioned, wants are those items that improve your quality of life but aren’t
entirely necessary to have in your budget. Some examples of wants that many
people may have in their budgets include:

 Dining out
 Entertainment
 Streaming services and subscriptions
 Travel
 Gym memberships
 Electronics (above and beyond what’s needed for work and basic
communication)
 Home decor
 Clothing (above and beyond the absolute necessities)

 As you can see, some items on the wants list can be repeated on the needs
list. Yes, clothing is a necessary purchase. However, most of us could get
away with a relatively small wardrobe as long as it’s weather-appropriate
and meets the requirements of our workplace dress code.
Notes Windows User
4

Human wants are desires of interests of human being.

 Wants which are satisfied by consuming physical or tangible goods like

foods, clothes, drinks and housing are called material wants.

 Wants that are satisfied by consuming intangible goods and services such as

listening to the radio and watching football are called In material wants

Types of wants

Primary wants: Are also referred to as basic wants. They are the wants
people must have them in order to stay alive (food, water, shelter and
clothing). Once these need are satisfied they are not looked at as
basic/important but instead, the next level of need become important.\

Secondary wants: These are wants which are not essential to the life,
the failure to satisfy them does not necessary result in death. E.g.
Education, electricity, entertainment and vehicle).

Characteristics of human needs

 Insatiable/Recurrent. Human wants are unlimited in nature. They

cannot all be satisfied. Those that can be satisfied in short run
keep on occurring

 Complementary. In order to satisfy a want, a combination of

commodities is often necessary.

 Competitive. It is not possible for a person to satisfy all his/her

needs or wants at once. That person has to satisfy one need/want
at a time and has to choose which one to consume at a given time.

Utility is the ability of commodity to satisfy the human wants or needs

 Is the satisfaction derived from using a good or services.

Notes Windows User

5

Basic types of utility

i. Time utility- this is created by prompt delivery of goods and

services at the right place and at the right time

ii. Place Utility- This is created by having the goods and services
available at the place where they are needed.

iii. Possession utility- This refers to the satisfaction one gets when
He/she acquires an item. This is created by all parties who enable
consumers to possess the goods they want.

iv. Form Utility- This refers to the physical characteristics of the

good. It is satisfaction someone gets when he/she find desires
characteristics present in a good. Eg. Color, shapes, designs of the
products.

The three fundamental economic problems

Scarcity. This refers to the limitation in the supply of goods and services
in relation to the demand. If there are insufficient products and services
to satisfy the wants/demand of everybody this is known as Scarcity.

Choice. This means selecting something from many alternatives. Choice

represents the preferred option. Choice arises because of scarcity.
Scarcity in relation to human desires leaves many needs and wants
unsatisfied

The opportunity costs. This concept of scarcity leads to the idea of

opportunity cost. The opportunity cost of an action is what you must
give up when you make that choice. Another way to say this is: it is the
value of the next best opportunity. Opportunity cost is a direct

Notes Windows User

6

implication of scarcity.

Production Concept
Production refers to any activities aimed at bringing a change in a goods
or services to satisfy human needs and wants.

Production does not only involve the actual transformation of raw

materials into finished goods but also provision of services, such as
those provided by teachers, lawyers and accountant.

Purposes of production

i. Create/Produce wealth- Wealth is stock of resources which yield

utility

ii. Improve the economic welfare of the people. Raising peoples’

standard of living by enabling them to access goods and services
made available through production.

iii. Satisfy consumers’ wants through exchange. Production is

complete only when goods or services reach the final consumers
and actually satisfy their needs

Methods of production

1. Direct production- This is form of production where an

individual produces goods and/or services for hi/her own
consumption (Direct services refers to the services which are
provided to people directly. The user and the service provider
must be present at the time when the service is provided)

2. Indirect Production- This is the production of goods and

services by a person with the purpose of selling to other people.
The person produce goods and services to satisfy the need of
Notes Windows User
7

others.

Types of goods produced

1. Consumer goods- These are goods used by consumers in order to

directly or indirectly satisfy their needs.

2. Producer goods-These are goods used in production of other

goods

3. Free goods- these are goods which are provided abundantly by

nature and their consumption does not involve payments for them.

4. Public goods-These are goods which when provided to specific

individual become available to others at zero costs.

5. Private goods- These are owned and controlled by individuals.

The owner of the goods can restrict others from using it.

6. Economic goods-This refers to item that are scarce and yield

utility to an individual. Such goods have value and can exchange
hands, e.g vehicles.

7. Convenience goods- These are goods which are frequently

household immediately satisfy household needs, e.g soap, salt.

8. Inferior goods- These are goods whose demand reduces with an

increase in consumers’ income, e.g Beans

Factors/agents of production
 These are resources that are used in the production process to
yield returns or outputs.

Notes Windows User

8

 They are inputs which are necessary for production to take place

 The availability of factors of production is a pre-condition for the

production process to start.

There are three basic factors of production which are as

follow:

i. Land

ii. Labour

iii. Capital

iv. In addition to the above, another equally important factor is

entrepreneurship.

Land-This refers all natural resources that can be used in the production
process. Land includes everything on land surfaces, both underneath and
above the ground- When someone wants to use it, he/she pays rent.

Labour-This refers to human efforts used in the production process and

which is paid for. For human efforts to be called labour, it should
targeted to production and should be paid for.

It is important factor of production as all productive units requires

human efforts

Labour manipulates other factors of production in order to satisfy human

needs.

The reward or payment for labour used in production is called wage or

Salary.

Labour may be categorized as

Notes Windows User

9

i. Mental Labour

ii. Physical labour

Labour is further classified into:

i. Skilled labour- Trained, professional workers who produce quality

goods and services, e.g accountant, lawyers, teachers, researchers,
doctors

ii. Semi-skilled labour- These are labours who are not highly trained
as skilled labours

iii. Unskilled Labour- Does not need basic training- shamba boy

Features of labour

i. It is supplied by human beings

ii. It is the most mobile factor of production both geographically and

occupationally

iii. It can’t be stored, if worker is idle his labour is wasted

iv. It is indispensable-all factors of production require labour

v. Labour is an end for which all production is undertaken.

Factors influencing Labour supply

i. Population size and structure

ii. Remuneration

iii. Provision of essential services

iv. Labour mobility

v. Attitude of some people towards work

Notes Windows User

10

vi. Level of training

vii. Government employment policies

Notes Windows User