Question

What is a barter system? What are its drawbacks?

Answer 1

Barter System refers to the exchange of goods for goods.

For example, if a person exchanges wheat for some rice, a good is being exchanged for another good and this is a barter trade.

Drawbacks of barter system are as follows:

1. Lack of double coincidence of wants : It is not necessary that goods in the possession of two different individuals are demanded by each other.

2. Lack of a common unit of value: It implies that the goods that are exchanged are not meassured in a common unit.

3. Lack of a system for future payments: Good are often not durable and convenient to hold for a long time, so it was difficult to defer payments to future dates.