1.1 The basics of commerce Commerce and trade Definitions is used to indicate the action of exchanging products; it is a general term which refers to both the activity of purely buying and selling – called – and all those which make it possible and facilitate this exchange, such as: Commerce trade services to trade : the way to inform consumers about products; Advertising : the financial assistance given to companies and individuals; Banking : the network which makes products to consumers; Distribution available : the protection from all the risks involved during trade; Insurance : the different ways of ; Transport delivering goods : the storing of goods. Warehousing A market-led economy Commerce exists because some people request products and other people try these requests. In such a system, people become , using up what they buy and then asking for something else, and/or , putting together resources to manufacture what is asked for; this creates an cycle of production and consumption – also called a – which is what governs a , that is a system which aims to satisfy the needs of the market. to meet consumers producers endless cycle of supply and demand market-led economy The law of supply and demand While is the amount of a product consumers want to buy, refers to the amount of a product producers can offer. These two market forces prices: if demand increases, prices increase, if supply is higher than demand, prices fall. In fact, when demand is high, producers usually charge higher prices because they are sure they will sell; however, if prices become too high, sales decrease because consumers are not to spend that much. Therefore, to satisfy consumers with a price they are prepared to spend and, at the same time, maximise their own profits, producers aim to charge a . demand supply set willing market-clearing price Elastic and inelastic demand When supply demand, the market reaches an . When demand is stable, and by other economic factors such as price, fashion trends or , it is (this happens for basic goods like bread, for example), instead, it is called when it varies according to these economic factors. matches equilibrium not affected income inelastic elastic