Exchange is the process of giving out value in order to have something of value in return. In the olden days, barter was the main system of exchange, i.e ., goods for goods. But nowadays, one can exchange money for goods. Exchange, arises because of excess production of goods and services.
INTER-RELATIONSHIP AMONG PRODUCTION, SPECIALISATION AND EXCHANGE
Exchange is often regarded as an outcome of specialisation and production. They are related in the sense that production, which is the creation of goods and services, can be greatly enhanced when the processes are broken into stages to be performed by different people. Division of labour and specialisation lead to mass production. Since no individual is self-sufficient, i.e ., capable of producing all his requirements, then there is need for exchange. To obtain what other people produce, one’s own products must be exchanged. Specialisation therefore facilitates production and trade. It increases inter-dependence among individuals and firms, e.g. a designer of cloth will exchange his product for food.
TYPES OF GOODS
Goods and services can be classified into two major categories. These are consumer goods and producer or capital goods.
1) Consumer goods: These are goods and services that can satisfy the consumer’s immediate needs. These goods do not require further process of production for their use by the consumers. Examples of consumer goods include motor cars, milk, cake, radio, television set, the service of a soldier, police, hairdresser, barber, nurse, lawyer, etc.
Consumer goods can further be grouped into two classes. These are durable and non-durable goods.
- Durable goods: Durable goods are goods that can be used over and over again. They are used many times or for many years before they get worn out. Examples include radio, television set, shoes, tables, shirts, cooking pots, spoon, etc. They are generally referred to as consumer durable goods.
- Non-durable goods: These are goods that are used up from one use. In other words, they are used up at once. Examples include meat, egg, bread, drugs, milk, etc.
2) Producer or capital goods: These are goods used by people to produce some other commodities or services. Examples include buildings, motor cars, lorries, tailor’s tools, machines, etc. These goods are used to carry out productive activities.