Question

State with reasons whether you agree or disagree with the following statements.
Barter System did not have any difficulty.

Answer 1

No, I do not agree with this statement.

Barter system had the following difficulties:

1. Lack of Double Coincidence of Wants:

For exchange of goods persons desiring to exchange goods must specifically want those goods what others offers in exchange. Thus, an individual who wants to have a good he must locate another person who offers to give up the good wanted by him and who is willing to accept in exchange the good offered by him. A good deal of time was spent by a person in searching for a man with whom wants coincided.

2. Lack of Standard Unit of Account:

A barter economy lacked not only a common medium of exchange but also a standard unit of account in which prices could be measured and quoted. In the absence of a common unit of account, the number of exchange ratios (that is, prices of goods expressed in terms of each other) between goods would be very large. For example, two cows for one horse, one cow for two quintals of wheat and so on.

3. Indivisibility of goods:

For instance, if a person has a cow and wants to have 5 kg of wheat, obviously, it is too costly to give one cow for 5 kg of wheat he requires. Then, to do this transaction cow has to be divided. But cow cannot be divided or cut into pieces because cow will lose much of its value if it is divided.