Question

Why do companies provide trade discounts?

1) Only for the purpose of easily altering prices for different customers.
2) For both the purpose of avoiding frequent changes in catalogs and the purpose of easily altering prices for different customers.
3) Only for the purpose of inducing prompt payment.
4) Only for the purpose of avoiding frequent changes in catalogs.

Answer 1

Trade discounts are given to avoid frequent catalog price changes and to tailor prices for different customers. The WTO also aims to reduce trade barriers, enhancing international trade benefits for all countries involved.

Therefore, option 2) is correct.

Step-by-step explanation:

Companies provide trade discounts for a couple of reasons, and among the options given, the correct purpose of trade discounts is that they serve both to avoid frequent changes in catalogs and to allow for easy alteration of prices for different customers. Trade discounts let companies maintain stable listed prices in catalogs or online, while still offering various price levels to different customers based on volume purchased, long-term relationships, or promotional strategies. This reduces the need for constant updates to pricing documentation while also enabling personalized pricing strategies.

In terms of the broader context of trade, a system of trade discounts can contribute to smoother international trade flows alongside strategies such as negotiations in the World Trade Organization (WTO) to reduce tariffs and other trade barriers. Removing these barriers leads to significant gains in international trade, especially for smaller countries, by creating more competitive markets, leading to benefits such as lower prices and higher quality products.