Resumen
Summary Principles of Business Chapter one
- Grado
- Institución
This document summarizes chapter one in Principles of Business in the Caribbean Examination Council (CXC) examinations
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Chapter 1: The nature of Business1.1 Forms of Exchange and Economic Systems
Before the development of business activities, our ancestors produced thing that they needed
and wanted. Whether it was to grow their own food or haunt, use leaves and bamboo to make
shelter or make basic clothing from wool or other animal skins to wear.
Some communities lacked the skills and access to resources so only a few people were able to
produce. Som knew how to spears, while others knew how to fish and thus overtime, they
become more skilled in making those items and specializing in that field.
Since they can now specialize, they can produce more than needed which resulted in a
surplus that they can use to exchange or trade with other communities for goods. Now every
community can enjoy a variety of goods and so business began to develop.
Before money was invented, the earliest form of exchange was BARTER- this is the
exchange of goods and services for other goods without the use of money. If you swap your
watch for your fiend’s bag then you two have engage in barter. The actual items are not
relevant but the essential fact is that barter involves the exchange of similar items or items of
similar perceived value, as agreed by two individuals. However, the barter system had key
limitations that caused issued to our ancestors.
For example, image a farmer had produced a surplus of banana and wanted to trade for a cow.
He or she would have to travelled to a local market to find someone who supplied cows. But
how many bananas would the cow supplier want in return for one cow. The bananas would
probably have rotted or perished by the time the farmer had got to another market and
searched for a cow supplier who was in need of some bananas.
Bater therefore has a number of disadvantages that overweigh its benefits
Table 1 shows the advantages and disadvantages of barter system
Advantages of barter Disadvantages of barter
It encouraged specialization in The need for double coincidence of
production and better use of wants- finding someone to trade
available resources items can be difficult. People were
required to find buyers who do not
only wanted the items they had for
sale but also supply the item that
they want to exchange
It increased the total volume and Difficulty establishing an agreed rate
variety of goods and services of exchange-even if an individual
available for trade. was willing to engage in barter, they
both will still have to agree on an
appropriate rate of exchange
between the two items they wish to
trade.
It allowed for greater variety in diet Indivisibility of goods- some items
as early farmers could exchange are difficult to trade because it is
different food items with each other. impossible to divide them into
smaller parts.
, It provided a means to avoid losing Inability to store wealth- goods
any surplus produced exchange cannot be stored for future
use such as commodities which are
highly perishable or can easily
spoiled.
The limitations of barter prompt man to replace this system with more advance and less
problematic system of exchange, thus leading to the development of the money economy.
Money is a medium of exchange that is generally accepted within a society. It can be any
commodity that people are willing to accept in exchange for all other goods and services.
A number of different objects have been used as a medium of exchange in different countries
such as beads, feathers, shells and even small stones. This was followed by the use of gold,
silver and other precious metals which in turn lead to the development of coins and also
banks in the form of goldsmiths.
Goldsmiths had vaults in which they kept the gold and silver they used to make coins,
jewellery and other items. Other people would deposit their coins and other holdings with the
goldsmiths for safe keeping. In return, goldsmiths would issue each customer with a written
paper receipt nothing how much their individual deposits were worth. Customers could then
return at a later date to exchange their paper receipts for their deposits of precious metals.
This process was refined over trial and error by the introduction of banknotes and goldsmith
to bankers.
For a commodity to be recognised and accepted as a money, it must be able to perform
certain functions.
Figure 1 shows the functions of money
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