Trade Discount: Definition and Real-World ExampleTrade discount refers to a reduction in the list price of goods or services offered by a seller to a buyer. This discount incentivizes purchases by making the effective price lower than the standard retail price. For example, a retailer may offer a trade discount of 10% to wholesale customers, resulting in a lower cost per unit compared to individual consumers.
Importance and Historical ContextTrade discounts play a crucial role in business transactions, increasing sales volume for sellers and reducing procurement costs for buyers. Historically, trade discounts originated in the barter system, where merchants would exchange goods or services at mutually agreed-upon values. This concept evolved into a formalized system of discounts over time.