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Internal Trade

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Last updated date: 24th Jul 2024
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Introduction to Internal Trade

The buying and selling of the goods and services in order to earn profit is termed as trade. The civilization exists because of this trading system, it started from a much earlier period, when the barter system was prevalent. Now, in the modern time the importance of trade has increased even more with the proportionate intensity of the consumption needed. 

On the basis of geographical distinction, trade can be of two types – Internal trade and External Trade. The trade which is transacted within the boundaries of the country is called internal trade, while trade between two or more countries is termed as external trade.


What is Internal Trade?

In our discussion we have covered the internal part of trading.

The other name for internal trade is domestic trade. This is the buying and selling of goods and services within the confined boundaries of the nation. Import and export do contribute to the nation’s GDP but the nation majorly contributed from the internal trade itself.   

The products being purchased from the neighboring local shop or from a central market or from departmental shops or from malls or even from door-to-door selling all come under internal trade. Custom duty or Import duty neither of these is levied on the internal trade of goods as they are for domestic consumption. Also, the purchase is to be done through the legal tender of the country. Internal Trade can be classified in – Wholesale Trade and Retail Trade.  

The products which are to be traded to a large population of buyers require channels of distribution here. Example: if a biscuit is produced in a factory in any segment of the country, here the retailers and the wholesalers come in rescue and make the biscuit reach to the customers. 

Purchase and sale of goods and services are done in large quantities by the wholesalers and the retailers buy in smaller portions from them, eventually the customers then purchase from the retailer in their required quantity. Both these retailers and the traders are very important in the internal trade market. They act as the intermediaries who perform the basic function of distribution. They act as the savior in reaching the goods to the ultimate consumers. Internal trade functions to equitably distribute the goods throughout the nation with good speed and reasonable cost.


Types of Internal Trade

The types of trade can be discussed in the following manner


Wholesale Trade

As talked about previously, wholesale trade is the buying of goods and services in larger quantities to further resale it to the other intermediate use. Wholesaling is conducted by those individuals who attempt to re-sale it to other merchants or other retailers. They sell to industrial, institutional or even the commercial users, but they do not sell in smaller quantities to any individual or institutions. Wholesalers act as a link in between the manufacturer and the retailer. 

  • They enable the scope of selling the goods to the larger population, thereby helping the manufacturer to great sales. 

  • The wholesalers sell the goods in their own name thereby taking the risk, they purchase in bulk and sell in smaller lots comparatively to the retailers. 

  • They sell to persons, or other institutions, and other commercial users, but they do not sell to the consumers. 

  • Their activities include grading the products, packing into smaller lots, storing them, transportation and promotion of the goods, collecting the market related information.


Retail Trade

This is a type of business enterprise that is engaged in the sale of goods and services to the ultimate customers. After buying large quantities from the wholesaler the retailer sells it to the customers in much smaller lots. The retailer represents the final stage of distribution which started from the hands of the manufacturer. 

Retailers can be described as that branch of business which distributes the products to the end users that are consumers for their personnel or non-business consumption. Retailers can sell the goods in different ways personally, via the telephone or even through vending machines. 

Example: selling ball pens can be done in stores, medicine can be sold at medicine shops, while the joke books can be sold at the stations or trains or roadway buses. The sale of cosmetic products from door-to-door at the customer’s residence. Selling vegetables by the roadside in the market. 

The products or the goods are sold to the customers and hence they fulfil the task of retailing here. Thus, irrespective of how or where the products are being sold as long it reaches the end consumers it is termed as retail trading. 

The retailer performs various functions to complete the task of retailing:

  • After producing a variety of products from the wholesaler he needs to arrange the goods.

  • He is required to store the goods in full proof conditions, and a proper storage area is to be maintained by him.

  • He bears the risk of the business. 

  • Grades the product.

  • Collects market information.

  • Facilitates credit facility to the buyers.

Thus, we see there is the mentioned variety of internal trading which helps in the development of the nation and increases the GDP.


Some Important Facts to Remember

  • IATA is the International Air Transport Association. It is a trade association of world airlines. 

  • IATA is responsible for publishing a list of codes that relates to different carriers and the codes are used for export paperwork. 

  • SCAC is Standard Carrier Alpha Code. 

  • The foreign buyer is known as FPPI which stands for Foreign Principal Party in Interest.

  • Purchasing goods from a foreign country is known as Import. 

  • Entrepot are the goods that are imported for the purpose of exporting. 

  • The principal appoints the agents. 

  • The wholesalers check the fluctuations of prices in the market and by holding the goods back during the fall of prices and releasing them during the rise of prices in the market. 

  • Brokers are the agents who are responsible for bringing the buyer and the seller together. 

  • Departmental stores are a universal supplier of a broader variety of products. 

  • General stores are small scale fixed retailing stores. 

  • Supermarkets have varieties of groceries, food items and several products under one roof. 

  • Supermarkets have large scale buying and selling so the operating costs are less. 

  • Supermarkets have sales that accept only cash hence there are no debts. 

  • Since supermarkets follow a self service culture, the customers don't get attention which is a major drawback of supermarkets. 

  • There are various types of small retailers. 

  • General stores sell a range of products to meet the day-to-day needs of customers. 

  • Specialty shops specialize in selling specific kinds of products. 

  • Street shops sell products that are inexpensive compared to general stores. Their supplies extend from local markets to wholesalers. 

  • Second hand shops sell products that are already used at much cheaper rates. 

  • Wholesalers buy products from manufacturers and sell the products in bulk to the retailers at cheaper rates. They require investment and not advertising or promotion. They are available in any city and state.

  • Retailers sell the products to the customers who are the final consumer. They don’t have the option of reselling. 

  • Retailers sell products in small quantities that causes more profit since the retailers buy the products from wholesalers at cheaper rates.


Quick Ways to Understand this Chapter

  1. Make Notes 

Note-making is a wonderful habit. Students are advised to make notes while attending the classes or later while studying by themselves which will make sure that the students understand the chapter in a better way and memorize it. 

  1. Read the Chapter 

After attending the classes, students should read the chapter by themselves to memorize the chapter. Internal trade is an easy chapter but also a vast one that might take time to remember the points so a thorough read is a must. 

  1. Solving Questions From Textbook

Students should make sure to answer the questions from the textbook in order to test their knowledge and get an idea regarding the possible questions. After answering the questions, they should refer to the answers in order to get a clearer picture of the answers that will be helpful for the exams. The solutions to the questions in the textbook are available on Vedantu’s official website and students can download them in PDF formats for checking the answers. 

  1. Solving Sample Papers

Students should solve the sample question papers to get a better understanding of the chapter and get a proper idea of the possible questions for the exams. Questions like, types of internal trade, functions of retailers are to be understood and remembered adequately so that students can answer them in a correct manner. 

  1. Understanding the Revision Notes

Students should refer to the revision notes which will consist of important points related to Internal trade that will help them to brush up their knowledge before the exams. The revision notes available on Vedantu for Internal trade are curated by the experts at Vedantu that will certainly help the students during the exam season.

  1.  Practice Mock Test

Students should appear for mock tests to check their knowledge. Mock tests are designed to test the student’s idea and check if they can answer the questions correctly and with ease. It will make sure to check if the students have any doubts and fill their gaps of knowledge. 

  1. Stay in Touch with the Chapter

In order to be fluent with the chapter of Internal Trade, a student should stay in touch with the subject matter. Students can also opt for quizzes and puzzles in order to polish their knowledge from time to time. 

FAQs on Internal Trade

1. What are the Services of the Retailer?

The services of the retailer include:

  • Keeping the goods available for the customers, updating the stock with the latest demand prevailing in the market.

  • They contribute in marketing support by engaging in selling and promotion of the goods.

  • The retailers extend credit facilities to the customers, this will allow ease of trade.

  • The retailer has specialized knowledge which they gather from the wholesalers about the market price, demand, and use of the product.

2. What is the Barter System?

A barter system is actually an old method of exchange. This system was prevalent for centuries and long before money was invented. People exchanged their own services and goods for other services and goods in return. 

It was a system of harmonious trading in between people, it was simple yet its circulation wasn’t wide hence the barter system faced many disadvantages as well. As people developed, this mere system became obsolete and the introduction of the money was more transacted.

3. What is Custom Duty and Import Duty?

Custom Duty is an indirect tax that is levied on imported as well as exported goods. While, import duty is only levied on the imported goods.

4. What is Grading?

Grading is the process of dividing the goods on the basis of characteristics, features, uses, types, weight, quality. This process is performed by the wholesalers and the shopkeepers to keep the goods always ready.